In a world where retailers big and small struggle to compete with Amazon, a startup that is working to help local players stay in the game just raised $100 million.
San Francisco-based Faire, which operates an online wholesale marketplace for local retailers, raised the money across two funding rounds led by Lightspeed Venture Partners and Y Combinator’s Continuity Fund. New investors included Peter Thiel’s Founders Fund and partners of Hong Kong-based DST Global. Existing investors Forerunner Ventures, Sequoia Capital, and Khosla Ventures also participated in the rounds.
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The Series B and C financings ($40 million and $60 million, respectively) set a post-money valuation of $535 million for Faire (formerly called Indigo Fair) and brings its total raised to $116 million. Not bad for a company that launched its marketplace just 21 months ago to try and help local retailers and makers “break free from the inefficiencies of an antiquated wholesale model.”
In doing so, Faire borrowed something from online retailers’ playbook when building out its model: the concept of free returns.
“While you and your friends have been sending back shoes, mattresses and anything else that didn’t meet your expectations the past decade, retailers have never been given this luxury,” wrote Faire co-founder Max Rhodes in a March 2017 blog.
Giving local shops a way to try new products in their stores with the option of returning them within 60 days if shoppers don’t bite has proven quite successful so far, according to the company.
In a December 13 blog, Rhodes wrote that 15,000 stores are actively buying on the Faire platform and that 2,000 makers are fulfilling orders. The startup has also reached $100 million in run rate sales.
But the road to get to this point wasn’t without his bumps. In his blog, Rhodes relates how in January 2018, “a shocking percentage of the products we’d sold got returned, and an even more shocking number of retailers never even paid us.”
“We were losing serious money on every order we received, and the growth wasn’t slowing down,” he wrote.
So, Faire then did what any startup that is focused on growth does. It pivoted. The company tweaked some of the rules of the marketplace, imposed credit limits on retailers, re-ranked makers and products, and made it easier for retailers to pay their invoices.
Within six months, return rates were down by 75 percent and defaults decreased by almost 90 percent, according to Rhodes.
It should be noted that Faire also has bootstrapped a prediction algorithm that it says will get smarter as its feed its own sell-through data into it. The former Square executives (Rhodes, for example, was the first product manager for several key initiatives at Square, including Square Capital and Square Cash, per his Crunchbase bio) said they learned from their time there “the power of combining technology with well-trained human intuition.”
While the future of retail is constantly evolving, it’s clear that not all consumers are focused solely on convenience. So it makes sense that retailers offering unique products with more personal customer service still have their competitive advantages, which companies like Faire only want to help increase.