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How a Used-Clothing Site Raised $8.4 Million in Venture Capital

Kids' stuff: (From left) Chris Homer, Oliver Lubin and James Reinhart.
Kids' stuff: (From left) Chris Homer, Oliver Lubin and James Reinhart.
Photo© Eva Kolenko

James Reinhart, Chris Homer and Oliver Lubin had a problem in common: They all had too many clothes. The three entrepreneurs (Reinhart and Lubin were roommates at Boston College; Reinhart and Homer were friends at Harvard Business School) estimated that they only wore about 25 percent of the clothing they owned. The rest just took up valuable space in their cramped apartments.

"We thought, ‘What if we took everything out of everybody's closet and created this virtual pile in the middle of the floor, then redistributed that pile based on what people said they liked and their sizes?'" Lubin says.

That question led to the creation of San Francisco-based thredUp. Conceived in the spring of 2009, the idea was simple: create an online community where people could inexpensively buy and sell gently used clothing.

After the site launched in September 2009, "hacked together" with little more than a $70,000 infusion of family-and-friend money and their own sweat equity, it attracted 10,000 community members within three months. Not bad, but not quite fast enough for the young entrepreneurs, who started looking around for other markets.

Soon they realized that one segment had a voracious appetite for new clothing on a shoestring: moms. While Reinhart's wife was pregnant at the time, none of the three had any firsthand experience with children's clothing. But the stats looked good: Their research revealed that children grow out of their clothes approximately every three to six months, and parents retire about 1,400 articles of clothing as a child grows.

So in April 2010, the site launched a children's clothing service. For $5, members could purchase a box of used kids' clothing. They could also upload and offload their own boxes. The new service proved so successful that a few months later, the original service was discontinued.

In February 2010, Reinhart helped land a $250,000 round of angel investment, which took thredUp through the development of the children's product. And more investment dollars followed.

When Patricia Nakache, general partner with Trinity Ventures, was asked to consider a bigger round of investment for thredUp, she says the founders' lack of experience with children gave her pause. But that quickly passed.

"Reinhart and his team have such a knack for listening to the community and fostering community really well," she says, noting that members return to the site--equal parts marketplace and social media gathering spot--frequently and interact with each other.

Nakache and Trinity led a $1.4 million round of venture funding that closed in July 2010, and a subsequent Series B round of $7 million that closed in May 2011. With that money, the team plans to improve on its existing service, rather than branch out into different markets, Reinhart says.

"As an entrepreneur, you're always thinking about the adjacent things to do, but we have the opportunity to build a really big, important business in the market," he says. "That's what we're going to do."

Gwen Moran is a freelance writer and co-author of The Complete Idiot's Guide to Business Plans (Alpha, 2010).

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This article was originally published in the September 2011 print edition of Entrepreneur with the headline: Wardrobe Change.

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