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Rent the Runway scores $1B valuation with $125M fundraise

The designer clothing rental service gained unicorn status with its largest fundraise to date, co-led by Franklin Templeton Investments and Bain Capital Ventures.

It’s been a great week for female-founded, VC-backed startups.

Rent the Runway has received a $125 million funding injection led by existing investors Franklin Templeton Investments and Bain Capital Ventures, granting the New York-based company unicorn status with a $1 billion valuation. T. Rowe Price Group and Hamilton Lane Advisors also participated as new investors. Rent the Runway’s billion-dollar milestone follows closely on the heels of beauty brand Glossier, which reached a $1.2 billion valuation with its $100 million Series D, announced Tuesday.

Started in 2009 by Jennifer Fleiss and Jennifer Hyman, Rent the Runway provides an online platform for users to rent designer clothes and accessories. The company experienced rapid growth in its early years, going from an almost $50 million valuation in 2010 to $520 million four years later, per PitchBook data, though it has grown more modestly in the past few years. Rent the Runway was valued at $750 million in early 2016 and at $770 million last March. With the newest fundraise—the company’s largest round to date—it has raised about $337 million in equity funding.

The company expanded its offerings in 2016, transitioning away from providing per-item rentals to also including a monthly subscription service. The new business model advanced the idea of entire outfits versus individual pieces, and with the addition of personalized recommendations and a Member Concierge offering style assistance, Rent the Runway enhanced its ability to deliver novelty and curation—a key factor when it comes to analyzing subscription-based success.

Rent the Runway's outfit selections
Courtesy of Rent the Runway

Moving forward, an IPO appears to be a clear possibility, as Hyman, who serves as CEO, told Bloomberg that Franklin Templeton and T. Rowe Price are especially valuable backers should the company choose to go public. Rent the Runway was rumored to be considering an IPO as far back as spring 2017, per Forbes, but Hyman would not comment Thursday on a timeline for either a public offering or a sale.

A public offering would follow in the footsteps of Stitch Fix, which debuted on the NASDAQ in 2017. While both companies offer personalized, high-end clothing selections by mail, Stitch Fix customers choose whether to purchase the items they receive, whereas Rent the Runway’s rental focus reduces purchase-invoked friction in the customer conversion process.

Stitch Fix, on the other hand, is a leaner business, having raised just shy of $48 million in equity financing before its IPO, which pulled in $120 million with a final private valuation of $1.43 billion. This could be attributed to its focus on customer purchases, which inherently pull in higher margins and reduce ongoing maintenance expenses, compared to managing an inventory of rental clothing constantly being cycled out.

Unlike Stitch Fix, however, one of Rent the Runway’s current growth avenues includes providing a full array of access to various style items beyond clothing and associated accessories. This includes a recent partnership with West Elm to provide items such as quilts and pillow shams as part of Rent the Runway’s core rental service. By adding home decor, the company may be positioning itself to provide a full ecosystem of style that unifies clothing and a customer’s personal environment.

While a possible IPO may be currently just a thought for Hyman, the company’s billion-dollar valuation comes at a symbolic time, amid Women’s History Month in the US and less than two weeks after International Women’s Day. Fleiss and Hyman’s clothing rental unicorn is the latest company to help further the success of women in the venture capital space, which last year saw only 2.3% of total funding go to companies with solely female founders, per PitchBook’s Female Founders Dashboard.

Featured image courtesy of Rent the Runway

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    Written by Ian Agar

    Ian Agar was a financial writer at PitchBook covering venture capital.

    A native of Southern California, he joined the US Coast Guard and received his BA in Psychology from American Military University. After leaving the military, he was a writer for SeekingAlpha for over six years covering blue-chip stocks and fast-growing small-cap companies. Although studying charts and financial reports excite him, his wife is his real passion in life—especially when they both spend time studying charts and financial reports together.

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