Dive Brief:
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Beauty subscription retailer Birchbox has raised $15 million from current backers, Recode reports.
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The funding is coming in the form of a convertible note, a loan that morphs into an equity stake. The company also has access to a several-million dollar credit line, according to Recode.
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Birchbox has laid off 80 employees, scaled back its expansion plans, and halted its Canadian operations this year in an effort to turn profitable amid changing venture capital expectations.
Dive Insight:
Birchbox hired a range of retail veterans last year to help it realize its brick-and-mortar ambitions, including former executives from Sephora and Apple. But talk of an IPO has died down at Birchbox, and CEO Katia Beauchamp said that the company is now focused on profitability. After raising $71.9 million in venture capital funding, Birchbox has struggled to raise more funds in two years.
Birchbox's story is an increasingly common one among startups that have depended on VC funding, which looks to be drying up somewhat as funders take a step back to see how their investments are doing and which areas continue to show promise—and profit. VC investment fell significantly in Q4 2015, dropping 30% to $27.2 billion, according to venture capital research firm CB Insights.
Birchbox’s struggles also show what can happen when an upstart company is based on a novel, but easily replicable idea. Birchbox was among the first startups exploring subscription-based sales, but has been trying to expand to sell more full-sized beauty products. That has been tough, especially as the market gets crowded as more established retailers like Sephora seized on the subscription model, muting Birchbox’s market share while adding to its own sales.
Re/Code also reports that the company is also feeling some growing pains, and that a failure to bring on experienced executives to support the first-time founders is adding to its woes.
The layoffs and other struggles have dinged the company’s reputation among employees, too, Recode says. And not just investors but also employees are increasingly interested in getting some assurances that a startup is able to become profitable.
Still, like flash sales, the subscription model may be a useful channel for a retailer, but not necessarily a firm foundation to build a business on. Birchbox’s current investors are clearly wiling to hang on, at least to see what the retailer can accomplish this year at the holidays.
Beauchamp told Recode that the latest cash infusion will help smooth out many of its troubles.
“September is our six-year anniversary and then it’s the holidays and that’s a really big time of year for us,” she said. “That’s where the focus is.”