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Rent the Runway has raised a $60 million investment led by Fidelity

The company was profitable in 2016 on revenue north of $100 million.

Inside Rent the Runway’s flagship store in New York City
Rent the Runway
Jason Del Rey has been a business journalist for 15 years and has covered Amazon, Walmart, and the e-commerce industry for the last decade. He was a senior correspondent at Vox.

In March, Rent the Runway CEO Jennifer Hyman told Recode, “I think you need to assume it’s impossible to raise equity financing for the next two years.”

Just nine months later, Rent the Runway has closed a new $60 million equity investment led by the mutual fund company Fidelity with additional money from existing investors like Bain Capital Ventures and TCV.

What changed in that time? The startup best known for its dress rental business put together a profitable year on an Ebitda basis while growing its revenue to well over $100 million.

Rent the Runway also launched a new product — a $139-a-month rental subscription for everyday workwear — that accounted for more than one-fifth of total company revenue in its first year.

“[G]iven a tougher market over the past year or so, I wanted to put the company into a sustainable financial situation where we were not beholden to external swings in the economy,” Hyman wrote in an email. “We achieved that and saw that the market rewarded the strong financial foundation we had built.”

Hyman said the new money will help Rent the Runway grow its 1,000-person business quicker than it otherwise could. But the CEO said she doesn’t expect marketing spending to grow to much more than the 4 percent of revenue that it currently does.

The deal underscores a renewed focus on profitability for investors and fast-growing startups alike. Just this week, news broke that the subscription meal-kit company Blue Apron — another Fidelity portfolio company — was pausing its IPO plans to focus on widening its profit margins.

The investment is another bet by Fidelity, which has also backed both Uber and Airbnb, on the so-called sharing economy. In this instance, the belief is that more women will view clothing rentals beyond dresses as the norm in the future.

The valuation of this Series E investment was a “significant step up” from the $520 million valuation Rent the Runway earned when it raised a $60 million round in 2014. Hyman declined to provide more specifics on the new valuation other than that it was based on the types of metrics and multiples on which public companies are valued.

“I didn’t really see a purpose to having an outsized valuation right now that was way ahead of our growth and potentially make it harder for us to have optionality over the next few years,” Hyman said in a phone interview.

Rent the Runway was co-founded by Hyman and Jennifer Fleiss in 2009 to give women a rental alternative for designer dresses they might normally purchase for one-off events like weddings and galas. Since then, the business has built a strong following among 20- and 30-something women, and has made moves to broaden its reach in the last year.

In March, Rent the Runway launched Unlimited, a $139-a-month subscription that was the culmination of 20 months of tinkering with other monthly subscriptions that didn’t work. Unlimited lets women rent out three articles of clothing or accessories at any given time — think a jacket, a blouse and a purse — with free deliveries and returns and unlimited swap-outs.

This month, the startup unveiled a $65 monthly subscription called StylePass that is good for the rental of one article of clothing per month. The startup also operates about a half-dozen brick-and-mortar showrooms, including one inside a Neiman Marcus department store, with more planned.

“We think as long as women are viewing renting clothes as a normalized behavior, they will flip between different ways of renting throughout their life,” Hyman said.

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