From Renting Bedrooms on Airbnb to $1.5 Million in Venture Capital: Lessons in Resourceful Startup Funding
To understand what it means to bootstrap, consider Tracy DiNunzio. She didn’t have the money to launch a business, but she didn’t let that stop her.
The fashion entrepreneur behind online marketplace Tradesy went from putting her bedroom on short-stay service Airbnb to scavenge startup cash to securing a $1.5 million round of venture capital in a few short years.
In 2009, working from her kitchen table, DiNunzio launched a peer-to-peer ecommerce site where brides buy and sell their used wedding dresses. At the time, she was working data-entry jobs to raise money for the business, called RecycledBride. To come up with more cash, she also sold some of her paintings, clothes and car. “I was the only one living in L.A. without a car. I would take the bus to meetings, in second-hand Chanel jacket. I was very much in fake-it-until-you-make-it mode,” she says.
After watching the traffic to RecycledBride site top 500,000 clicks per month in two years, without paying to drive traffic to the site, DiNunzio knew she was on to something. But she needed money to be able to pay for updates to the site beyond what she could wrangle with her self-taught coding skills.
Desperate for cash, DiNunzio turned to Airbnb. The first person she rented to was a man who contacted her from the airport in Reykjavík from his mobile phone. The man who arrived on her doorstep 17 hours later ended up becoming her husband. They went on to rent out the second bedroom and couch to more than 100 people on Airbnb for $30,000 in startup cash.
“I was doing the hustle, scraping together the money, giving it to the developers as much as possible,” says DiNunzio, who before starting her business had been painting in Mexico. “Revenue was coming in and I would pay it right over to the developers. They would let me pay late. I still owe them a big debt of thanks for that.” Slowly, DiNunzio was able to add features to the site and it became profitable.
DiNunzio expanded the model to include women’s fashion outside of the wedding dress industry in 2011. For a nine percent commission on the selling price, Santa Monica-based Tradesy sends a seller a shipping package, processes the transaction and handles returns.
“I am either a real entrepreneur or I am crazy. I was finally making enough money to live and be OK, but I felt like it wasn’t enough,” says DiNunzio. “I wanted more. I saw how well the model was working in bridal and I knew we could take over the world with the fashion category. I got very serious about making it a company.”
But growth was limited by when and how much money DiNunzio could get her hands on. Her first investor was DailyCandy founder, Dany Levy, a stamp of approval that DiNunzio says was invaluable for her business. The next money to come into Tradesy was a $50,000 investment from the incubator program she participated in, Launchpad LA. With that money, she hired her first full-time employee in January 2012.
Most recently, Tradesy received her first round of venture capital. The $1.5 million investment came from top-tier venture capital firms including Rincon Venture Partners, Dave McClure’s 500 Startups and Double M Partners, among others. In exchange, investors received between 20 and 30 percent of the company's equity, DiNunzio says, declining to be more specific.
The business has since taken off. It has 22 employees and more than 250,000 items are for sale on Tradesy. In June, DiNunzio expects to launch a mobile application which will allow buyers and sellers to message each other directly on their smartphones.
Bootstrapping requires resourcefulness. Later-stage fundraising is often about making the most out of the opportunities presented to you. Here is DiNunzio’s advice for entrepreneurs looking to raise money later in the game.
1. Get a heavy-hitter mentor on board early. In 2011, when DiNunzio started hunting for money, her wedding dress ecommerce model was already turning a profit. Through a friend of a friend, DiNunzio landed a meeting with Levy. “For me, she was like Madonna. Getting to sit down and meet with her, I wouldn’t be excited to meet Madonna, I was so excited to meet Dany Levy,” says DiNunzio.
Levy says that it was DiNunzio’s intuitive understanding of technology, marketing and business management which impressed her immediately. Also, DiNunzio has an infectious entrepreneurial spirit, Levy says. “She has boundless energy, a remarkable (and rare) roll-your-sleeves-up work ethic, a truly refreshing common sense and a no-BS approach to everything she does,” Levy writes in an email. “Tracy is not just another ‘fashion entrepreneur.’”
When DiNunzio met with Levy, Tradesy already had a profitable business with impressive web traffic and a proven business model. The $25,000 seed investment Levy made in Tradesy wasn’t as valuable as the vote of confidence, says DiNunzio. “That opened so many doors afterwards.” Levy has become, in addition to her first investor, a mentor.
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2. Consider “startup bootcamp.” Especially if you don’t come from the startup world, consider joining an accelerator or incubator program. DiNunzio exchanged six percent of her company for funds and mentorship at Launchpad LA. “Having gone through it, even if they didn’t give me the $50,000, but they gave me the mentorship, the connections, the office space, and the other things that came with the program, I still would have done it all over again,” she says. “It was the best thing I could have done for the business.”
In three months at Launchpad, DiNunzio says she met at least 100 investors. Connections DiNunzio made in the incubator lead to her the investors who participated in her first round of venture capital in July 2012.
3. Have numbers to prove your success. In early rounds of fundraising, entrepreneurs who are outside the Silicon Valley typical startup entrepreneur mold may struggle, DiNunzio says. “There is a lot of natural, biological instinct for people to trust someone who looks like them,” she says. “And then there is pattern matching where we look around and we see that the biggest CEOS, so far in tech, are men.” But if you get to the point of having a proven business model with metrics, then you are no longer working against investor anxiety. “At those stages, I do believe it is a meritocracy,” she says. But in the seed stages, you may have to work harder, bootstrap longer and prove the doubters wrong.
What was the most outrageous and unconventional method you used to get access to startup funding? Leave a note below and let us know.
Catherine Clifford is senior entrepreneurship writer at CNBC. She was formerly a senior writer at Entrepreneur.com, the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Clifford attended Columbia University where she earned a bachelor's degree. She lives in Brooklyn, N.Y. You can follow her on Twitter at @CatClifford.