Over its first six-plus years in existence, Rent the Runway grew to do one thing very well: Rent out designer dresses to women for special occasions.
Then, in 2016, it grew more ambitious, unveiling a clothing rental subscription with the belief that many working women would gravitate to the choice and flexibility that would come with an expansive, rotating wardrobe. Today, its two tiers of subscriptions account for more than 50 percent of total revenue, the company says, and now it’s doubling down.
The New York City-based company recently secured $200 million in debt — a term loan that provides the flexibility to pull portions of the funds when desired — from Temasek, the investment arm of the Singaporean government.
With the new funds, Rent the Runway plans to expand the selection of clothing available to subscribers and invest in its logistics operations, which could improve the speed of sending out new orders and dealing with returns, according to the company’s Chief Financial Officer Scarlett O’Sullivan.
One of the complaints from those who have tried the top tier of the subscription program is that it can take too long to receive new items when swapping out — especially for a service billed as “unlimited.”
Some of the new funds are also being used to refinance a previous debt agreement that Rent the Runway had secured years ago when its business was not strong enough to negotiate terms as favorable as it could now.
The company chose a debt option over typical equity financing, of which it has already raised north of $200 million, because the loan lets the company “access funds when it makes sense for the business,” O’Sullivan said, rather than committing to one giant lump sum up front.
The deal also avoids diluting the stake of current Rent the Runway investors and shareholders in the near term; Temasek was issued some warrants as part of the deal, which gives the investor the right to buy shares in the company in the future at a predetermined price.
“To be blunt, equity was not a consideration,” she said.
In the last year, heavy debt loads have taken the blame for troubles at some other consumer industry startups like Birchbox. At the same time, many successful tech startups — from Facebook to Square — have raised new funds via debt in the run-up to an IPO.
O’Sullivan was not ready to commit to any one path.
“The debt facility does give us a lot of runway,” she said, “so there are a lot of strategic paths ahead of us.”
This article originally appeared on Recode.net.