It’s always been hard for Katrina Lake’s company to raise money.
Stitch Fix accomplished more in six years than most companies do in a lifetime.
But in the narrow world of IPO pricing, its public debut last week did not go as planned. The online retail and personal styling company was convinced it could sell its shares at $ 18 to $ 20, but ended up having to settle for $ 15.
A few hours after the company opened trading on Friday, I visited Nasdaq for a candid discussion with founder and CEO Katrina Lake. Here are some of the highlights:
You didn’t end up with the IPO price you wanted. What do you think happened on the investor road show and what did you learn from it?
Katrina Lake: I’m still processing a little of what I learned. This business is not stores, it’s not regular e-commerce where you are dependent on [search engine marketing] and you put a bunch of things on a website. It’s a totally different model and it requires education and understanding of how the data science is important in the model and how it actually impacts the model. There’s just more time that needs to be spent to understand the specialness of that.
On pricing, we didn’t end up where we had hoped to be. But, at the same time, we’ve been underestimated before. I feel like we thrive being in this position; we’ve never been an overhyped, overvalued company. And so we are very happy to prove ourselves in the public markets and show some good results.
You had originally planned to personally sell a million shares in the IPO, but you’re not. Why?
I’m just not interested in selling at that price. I have conviction that this company is going to be worth a lot more money, and it didn’t make sense to sell at that price.
A lot of people have focused on how little capital you raised (less than $ 50 million) to build this business. Why was that?
To be clear, I didn’t have the luxury to raise a lot, burn a lot. I did not have the luxury in the early days of having tens of millions thrown at me at crazy valuations. We treated every single dollar that we got very preciously because it was very hard to raise every single one of those dollars.
And so, in some weird way, we just missed the trend of this because it was really hard for us to raise money. And then we’re like ‘All right, great, let’s just get a healthy business and be insulated as much as we can from this dynamic that is hard.’
Even your last round of funding in 2014 was hard?
That was an inside round. We had a good valuation that our insiders were giving us. But they were supportive and told me you should make sure you feel comfortable with the valuation. You can shop it and go talk to people.
And we talked to exactly one other [investor] who dragged us along in this whole long process knowing that we had a term sheet at a $ 300 million valuation. They came back and basically gave me a totally insulting term sheet. Like a totally insulting term sheet.
I was like, ‘How can even a good round be hard?’ It wasn’t as hard as being eight weeks away from missing payroll, but there’s still a little bit of feeling like raising money has never been an easy thing at Stitch Fix.
Are you going to name names?
I’d love to, but I’m not. The whole point is, I’m very proud that we’ve had a very disciplined approach, but that was — in the beginning — certainly more of a survival mechanism than a brilliant strategy.
Some people are worried about your decelerating revenue growth. Was it planned?
We’ve now grown 25 percent, year over year, for the last three quarters in a row, and we have close to a $ 1 billion revenue base now. We have a disciplined approach to growth.
I started Stitch Fix as a company that I want to work at forever. And so the lens of long-term that I have is forever. And I think this sustainability and discipline is important. That’s not maybe the default today. It’s a choice that you can agree or disagree with, but it has been our choice.
Our marketing spend is very modest compared to other e-commerce companies. Last year it was at 7 percent [of revenue]. E-commerce is at 13, 15, 17 percent. So we’re obviously not maxing out marketing in the interest of maximizing growth.
A lot of women have told me that your IPO is a milestone for them. Do you agree?
It’s true, I’ve gotten a lot of text messages and emails. It’s great that it’s a milestone event, but I just wish there were more. While I feel very privileged to get to see this milestone, I wish that more women did. It’s a challenge in tech and it’s also a challenge in retail.
You look at retail and it’s pathetic. There are so few women CEOs and so few women on management teams.
Boards, too, in retail. So I hope we can be an example that this is a team that is a diverse team. It’s a company where we have tons of women. It’s a place where that diversity is reflected in our success.
I hope it’s a place that shows a different kind of success. And I hope from a pattern recognition perspective, at the very least, that the capitalist in all of these venture capitalists are at least feeling like even if they couldn’t wrap their head around this idea, that they feel like they missed out from a capitalist perspective.
So I’m proud it’s a milestone but I also hope there are a lot more milestones that we get to celebrate.