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1. IPOs are still in fashion
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Rent the Runway was founded 13 years ago. It has raised more than $690 million in venture capital. Its valuation has been declining, slipping from $1 billion in 2019 to $870 million earlier this year. Despite all those years to mature and all that private funding, the company is still losing gobs of money: It had a net loss of $171 million last year on just $158 million in revenue.
To be fair, the pandemic hammered Rent the Runway's business of renting out designer fashions, driving away tens of thousands of subscribers. Looking good, after all, became less of a priority in the Year of Zoom. But 2019 was only marginally better, with a loss of $154 million against $257 million in revenue. And the deleterious effects of the pandemic are lingering. While many of those absent customers have resumed their subscriptions, the company still lost $84.7 million on $80 million in revenue during the first six months of its fiscal 2021.
There are so many numbers in an IPO filing that you can twist them to tell any story you like. I'm sure the one Rent the Runway told investors in the run-up to its public debut was very different from the above tale. And for a while today, it seemed like public investors were picking up what the company was putting down: Rent the Runway raised $357 million by pricing its IPO at $21 per share, the top end of its expected range, and those shares shot up 10% once they began trading, taking the company's market cap to $1.4 billion—up 61% from its last round of private funding in April.
But as the afternoon progressed, the tide began to turn. After topping $24 at one point, Rent the Runway stock slipped to about $20, marking a 4% dip from its IPO price. As I'm writing this, though, it's begun to tick up again, topping $20.50. We'll see what happens the rest of the day.
Ultimately, the company's debut was a mixed bag. Considering those recent losses, though, I'd hazard a guess that executives were more concerned with maximizing the IPO proceeds than any initial volatility.
Seen from that angle, it's the latest success story from the IPO market in 2021, the friendliest year for public debuts we've seen since the dot-com boom. Coming into the year, the biggest IPO year of the past decade was 2014, when 275 listings combined to raise $85.3 billion, according to data from Renaissance Capital. This year, we've already seen 344 IPOs and $160.4 billion in combined proceeds—increases of 25% and 88%, respectively. And despite some recent signs of market chilliness, the hits are going to keep on coming. There have been so many significant IPO developments lately that today's Big Things section is devoted entirely to news about debuts. Yep, this is a themed edition—buckle up.
As is pretty much always the case these days, most of this year's buzziest IPOs have come from tech companies. And while Rent the Runway may describe itself as a "closet in the cloud," it is not a tech company, at least not in the sense that most people would use the phrase "tech company."
Instead, it falls in the apparel space—which is on something of a run high-profile debuts. Eyewear retailer Warby Parker conducted a direct listing late last month, with its shares soaring more than 30% above their reference point during the first day of trading. Its stock has remained at that lofty level in the weeks since, giving the company a $5.6 billion market cap, compared to $3 billion with its final round of private funding. And Allbirds, a maker and retailer of eco-conscious sneakers, revealed the initial range for its coming IPO this week, indicating ambitions of reaching a $2.2 valuation.
Founded in 2008 by former Harvard Business School classmates Jennifer Hyman and Jennifer Fleiss, Rent the Runway emerged during the 2010s as a prominent e-commerce brand, a prolific raiser of venture capital, and an all-too-infrequent example of a well-known, well-funded startup led by women. Hyman, the CEO, holds a 5.1% stake in Rent the Runway that's now worth $48.9 million, as my colleague Eliza Haverstock writes. Fleiss left the company in 2017, but she maintains a $12 million stake.
Rent the Runway was already showing signs of strain before anyone had ever heard of COVID-19, and the pandemic only increased the pain. Hyman is hoping that a move to the public markets will help right the ship. Today was a bit of an uncertain start.
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