Summary
At time of publication, June 20th, 2019, Loveseat had raised, $27,957 of the $1,070,000 offering.
You might remember, about a year ago we initiated a Top Deal rating on Loveseat, the online vintage furniture store founded by the former founder of TicketLeap and #7 employee at Venmo.
Over the past year the business has continued to perform well. Not surprisingly, this experienced founding team has identified an opportunity to broaden the scope of the business by creating a more scalable buying and selling platform for furniture and home decor.
Funding Round Details
We sat down with Co-Founder & CEO Chris Stanchak to discuss how the business evolution is going to help grow the topline while making this a more attractive cash flow positive business.
As a reminder to those who read about Loveseat from us last year or for those learning about Loveseat for the first time, what does your company do?
We are a furniture and home decor online auction operating out of San Diego & Los Angeles. Our local online marketplace connects buyers and sellers in a city makes it easy to quickly liquidate large quantities of furniture and decor.
Our typical sellers have an entire home full of furniture they need to get rid of and we provide a means to liquidate it all in a week. All inventory is consigned to us and brought into our warehouse, photographed by our staff, auctioned on our website and gone in 1 week. Everything is sourced locally and sold locally.
Why is the team you have in place the right team to win?
Jenny and I are the cofounders of the business. She handles all the technology and finance. I handle all the marketing and operations. We both went to Wharton for business and have startup experience (she was an early engineer at Venmo and I founded TicketLeap.com).
Both companies were sold. Besides us, we also have a small operations team and a warehouse crew in our locations in San Diego & Los Angeles.
Can you talk about the change in the business model the team is currently going through?
Our previous iteration of the business was a more traditional retail & ecommerce operation for used furniture. The margins were great, but it was difficult to keep up with the supply side demands.
We simply couldn’t buy everything that folks had available to us. After some time we realized that the most value we could bring is on providing a really great engine for liquidation. This new model lets us sell substantially more inventory with a smaller footprint and overhead. Most importantly, we are no longer tying up capital in inventory since everything we sell now is on consignment.
Along the way, what have you learned that inform this shift in business model?
The bigger we’ve grown as a business, the more we realized that there is a huge market of folks who need to sell large quantities of inventory quickly. For them, the most important thing is the speed at which it can be sold.
This is why the auction model is a perfect fit. For example, if you are closing on the sale of your home and are moving across the country or into a smaller home, how do you sell everything? Craigslist is perfect for a few items, but when you are talking about a whole home worth, it’s a big problem and no one is solving it well. That’s what we’re after.
How does this change make the LoveSeat more scalable?
We have a repeatable blueprint to bring this into any market. All we need is a small warehouse and a few warehouse staffers. The technology and marketing channels are already established. We just need to repeat what we are doing.
Beyond this, we think there is a massive opportunity to leverage our technology for auctions being held remotely (directly out of someone’s home) outside of our warehouses. This is going to happen concurrently with our expansion.
What cities will you expand to next?
We’re planning on opening an Orange County warehouse next. Once that’s in place we’ll likely do a bit more regional expansion and then go after high density markets throughout the USA. We want to be in every metro in the country and think this can happen quickly.
Do you need to build warehouses in those cities will they ship directly from people’s houses?
We want to have warehouse in every city because it is a really great way to have a more personal connection with our customers. That said, the warehouse side of things will likely become a smaller piece of our total business as we roll out the ability to have remote auctions using our software.
What do the unit economics looks like today and how much improved are they from the old way?
The economics are much better. Previously our gross product margin was 73%, now our “take rate” of an auction sale is 63%. Sounds like it went down right?
There are some unseen costs that make this the opposite. Previously, our inventory averaged 40-60 days old. That means it would sit in our warehouse for 1.5-2 months before it sold. Now our inventory sells in 1 week.
Also, we previously had to have 7 days a week warehouse and sales staff. Now we do all sales online and have only a few hours a week where customers can load out their auction winnings. This means our real estate footprint (one of our major costs) is substantially lower.
Also, our staff costs (our other major cost) is also substantially lower. Our prior net margin was single digits. Now we expect it to be 30-40%
How do you plan to drive near term revenue growth?
We just need to keep bringing in more inventory and growing that side of the equation. The more we bring in, the more we sell in our auctions.
Besides that, we are pushing hard on the software for remote auctions. Once that’s in place, we’ll have the ability to scale dramatically with little to no increase in overhead.
How is the last mile delivery component of the business managed?
Loveseat doesn’t offer delivery on any purchases. If someone can’t pick up an item on their own and requires some help, we are leveraging 3rd party on-demand delivery companies like GoShare, Lugg & Dolly for this.
They have a really great model that uses professional contract drivers who deal with furniture deliveries every day. This contract is between the buyer and the delivery company and we simply give a recommendation along with a discount code.
Do you plan to raise VC capital in the near future?
We do plan on a VC round. I can’t tell you how excited we are to ramp this thing up nationally. It’s going to happen and to go fast, we will want an institutional round. There is a multi-billion dollar addressable market and we plan on being the dominant player in this arena.
While revenues did not grow very much last year, much of this can be attributed to the team moving to focus more on becoming a platform for buying and selling home furniture, rather than the curator and inventory manager of a vintage furniture business.
A big change indeed, and one that we think increases the potential upside of the business with real ability to scale. One thing is clear, this is a founding team that knows how to continuously improve and optimize their business to drive long term growth.
