Tracy DiNunzio likes to joke that when she showed up for her first day at the startup incubator Launchpad LA in 2012, she didn’t even know what an incubator was.
“I was like, ‘Hey, I’m here for my $50K,” DiNunzio said in an interview last week.
She’s come a long way in two years. On Tuesday, DiNunzio’s company Tradesy is announcing a $13 million Series B investment led by Kleiner Perkins Caufield & Byers, with general partner John Doerr and former executive in residence Stephanie Tilenius joining Tradesy’s board. Billionaire entrepreneur Richard Branson is also investing, as are investment firms Rincon Venture Partners, Riverwood Capital partner Michael Marks and Northgate Capital.
When DiNunzio joined Launchpad, she was running Recycled Bride, a profitable online marketplace that more than a million women visited each month to buy and sell used wedding dresses. But after the incubator experience, she decided to expand the consignment shop idea of selling used clothing to the wider luxury fashion industry. In the fall of 2012, Tradesy was born.
Today, it has plenty of competition. Over the past few years, other startups such as Poshmark, ThredUp, ThreadFlip and The RealReal have raised venture capital selling lightly used high-end apparel and accessories online. Earlier this month, The RealReal took in a $20 million investment to push its total funding above $40 million.
For Tradesy, part of its pitch is that it makes it easy for the women who buy items on the site to also sell their unused clothing through Tradesy to finance wardrobe upgrades. The message seems to be resonating. In its 18-month life, 1.3 million people have created accounts with Tradesy — an action that’s only required to buy or sell, but not to browse. DiNunzio likes referring to this virtuous cycle as “cyclical commerce,” and Kleiner’s Doerr is convinced it’s more than simply a popular trend at this point.
“It’s a phenomenon,” he said. “And I think an important one.”
So how does Tradesy differentiate in an increasingly competitive industry? For one, the cut of sales it takes from sellers is nine percent — one of the lowest, if not the lowest in the industry.
“One thing I learned [from Recycled Bride] is that the moment the sales commission is raised above nine percent, sellers behave in two ways: they inflate pricing, which destroys natural integrity of fair-market value” and they look to convince buyers to purchase the product outside of the marketplace to avoid giving up a cut of sales, DiNunzio said.
Tradesy also handles product returns for sellers and has one of the most lenient return policies in the industry. Buyers can essentially return items for any reason — they’ll receive store credit if they simply didn’t like a product or will get their money back if it’s not what was advertised or turns out to be a fake.
When you run a marketplace on which individuals are selling used items that carry brand names like Louis Vuitton, Chanel and Christian Louboutin, fakes have the potential to be a big problem.
Rather than dedicate the resources to inspect each item for authenticity, Tradesy thinks it has found an indirect and more cost-effective way to cut down on the likely of knockoff goods getting sold. First, it sends its own delivery bags to all sellers, which they have to use to ship their goods to the buyer. That means it has a working address for each seller, which it believes decreases the likelihood that they will knowingly attempt to sell a fake.
It also analyzes how quickly sellers respond to inquiries and mines other information that DiNunzio declined to elaborate on. Lastly, the company’s lenient return policy means peddlers of phony goods have another hurdle to avoid when selling on Tradesy.
With the new funding, Tradesy will add to its staff of 30 and invest in technology improvements to make both the buying and selling process easier. It will also look to eventually branch out and allow other types of goods in other commerce categories to be sold through its platform.
“We’re focused on women’s fashion as the initial priority,” Doerr said. “But it’s very clear that it’s a bigger idea than that.”
While the company has been cash flow positive at times during its young life, it will prioritize growth a bit more now — but only to a point.
“It’s just not in our DNA to focus willy-nilly on growth and ignore our profit line,” DiNunzio said. “The wedding site was profitable and was paying the bills and those values have stuck with us even though we’ve moved into the world of venture backed companies.”
Update: The post has been updated to clarify that Riverwood Capital partner Michael Marks invested in the round, not Riverwood Capital as Tradesy first indicated.
This article originally appeared on Recode.net.