How Poshmark found the one VC not terrified by fashion ecommerce
You remember yesterday, I was writing about dumb international money? Hans Tung is the opposite of that.
Tung was an early investor in Xiaomi-- which spent much of 2015 swapping bragging rights of “highest valued private company in history” with Uber-- and splits his time between China and Silicon Valley looking for companies that can gain leverage by exploiting something one or the other market has.
He also might be the only investor left on the planet who is bullish about ecommerce. Lucky for Manish Chandra, there is one.
Chandra’s company Poshmark-- one of the lone survivors of the sell-the-shit-in-my-closet-over-your-phone mini-bubble-- is announcing its latest funding round, some $25 million, lead by Tung, who will join the board and promises that Poshmark will look like a “qualitatively different company in a year.”
One way or another, this isn’t just a round for Poshmark, closed in a difficult time. It’s an inflection point. The moment, the cash, the new board member and the expanded strategy that will make Poshmark a venture-style ecommerce win… or, potentially, destroy what millions of women love about it now. But to justify the types of returns VCs want to see, Poshmark needs to move well beyond the second hand market-- and well beyond the US.
Tung spent four months sizing up the business to see if it could. “One out of every fifty women in the US has sold something on Poshmark,” he says. “It is focused on empowering young female entrepreneurs. And now they are laying wholesale retail of small to medium brands on top of that. It’s very Taobao-like. It’s much more social and more about sharing and not just buying. It’s about a sense of style. This kind of follower inspiration stuff is where Pinterest was a few years ago, but Ben (Silverman) never wanted to do ecommerce.”
Being mentioned in the same breath as Pinterest and Taobao isn’t bad. But that wasn’t much help six months ago or so when Poshmark was trying to raise money in the exact quarter fundraising started to decline. And being a fashion and commerce company was even worse.
Chandra doesn’t sugarcoat how hard it was. “The macro fashion climate bit us,” he says.
This was a company that had out-survived a dozen or so rivals with some cash left over from the last round. The company was tripling in growth, after a major change to stop spending so much on marketing to force growth and they had their lowest burn rate since 2012. They were damn near being cash flow positive. Still, the big question he kept getting asked: How big is the market? How big is the market? How big is the market?
Tung isn’t surprised. “It’s a dead category in the US,” he says of fashion driven ecommerce. “Every VC on Sand Hill Road funded something their wives or daughters loved and was frustrated that somehow they didn’t scale. I think that’s precisely the reason. If you build something for the top 1% it’s hard to scale that.”
The big reason Tung is more bullish is he sees how to apply some of these out of favor ecommerce businesses to markets in Asia where offline shopping is woeful and smartphone penetration is surging. He uses the mobile commerce platform Wish as an example, a company he led the Series B in back in 2014.
“Everyone on Sand Hill Road had seen it and passed,” Tung says. “They just didn’t see it. But I’d see how Taobao had grown in China and was serving mass market users. If you execute, the total addressable market is bigger than what people can imagine in the US. But you have to have a team willing to do globalization. If your question is ‘How big can this be if it’s just millennial users in the US?’ Of course the TAM is going to be small. Both Wish and Red grew 100x in terms of daily volume since I invested. You have to be willing to be in multiple markets.”
That’s going to be a new reality for Poshmark which until six months ago was only in second-hand commerce mode. It needs to make sure its new wholesale business-- where medium-sized and indie fashion brands offer items wholesale to popular sellers-- keeps scaling. It also needs to launch another category like “accessories” in the US, before it’s ready to go global.
That may prove too much change for a company and CEO that has always emphasized organic growth and “embracing your own weirdness.” Companies like NastyGal, Fab, and Gilt have stalled when they’ve tried to extend beyond what people loved about them early on. Chandra emphasizes that even its “retail” strategy is really about selling non-second hand goods through its network of sellers it’s spent years developing on its platform, as opposed to those brands and stores themselves opening their own stores.
When Poshmark first launched this with eight brands towards the end of last year, those items were snapped up by Poshmark sellers within four hours. More items were added and those sold out. For three days, the new wholesale inventory sold out, snapped up by Poshmark stores, and in turn bought by end shoppers. 100 days later, fifty brands are on the platform disseminating their stuff to 1,000 sellers with their own social followings on the platform. While a move from second hand goods is as big of a shift as when eBay went from auctions to “buy it now”, the key, Chandra says, is that it was still done on the foundation of individual sellers. “It’s a unique channel that didn’t exist before that took us four years to build,” he says. “That’s our weirdness and everything will go through that.”
What gives Chandra more comfort in taking some dramatic steps in the next year are “the knobs.” He knows the knobs to pull in order to grow by 200% or 250% and when he pulls them, the company does what he expects. “For the first time in five years, I feel like we are a business not just an entity,” he says. “That’s not really a milestone I can announce. It’s more of a soulful milestone.”