Investment Fund Becomes Krause’s Top Shareholder

Krause’s Furniture Inc. said Wednesday that it has received $19 million from a group headed by an Internet investment fund, which becomes the Brea company’s largest shareholder.

The investors are headed by TH Lee.Putnam Internet Partners LP, which has about a 25% stake in the company. TH Lee, which already has one director on Krause’s board, will add another member as the company increases the board to nine directors to accommodate the change.

Krause’s said the funds will be used largely for e-commerce activities. The money will also be used to reduce debt and fund capital expenditures, such as remodeling new stores.

TH Lee.Putnam is an Internet investment fund set up last year by investment firm Thomas H. Lee Co. and mutual fund concern Putnam Investments, both of Boston. The investment group is receiving 380,000 shares of Series A preferred stock, which are each convertible to 45.45 shares of common stock at a price of $1.10 a share.

TH Lee purchased $13 million worth of the preferred stock, making it Krause’s largest investor with 11.8 million shares, or about 25% of the stock.

General Electric Co.’s GE Equity, another investor in the group, is Krause’s second largest investor, with 5 million shares of common stock and 20,000 shares of convertible preferred stock, the company said.

Krause’s loss in the third quarter ended Oct. 31 widened to $2.52 million from $935,000 in the same period the year before, while sales rose 12% to $35.8 million.

On Wednesday, the company’s shares fell 25 cents to $2.75 in American Stock Exchange trading.