Sequoia Bets $37 Million on Stella & Dot, a Next-Gen Mary Kay

Stella & Dot’s founder and CEO Jessica Herrin is no stranger to big ideas and name-brand investors.

After attending Stanford Graduate School of Business, the then 24-year-old co-founded WeddingChannel.com, which attracted an investment from Kleiner Perkins and eventually went on to be sold to The Knot.

Now, Sequoia Capital is backing her new venture.

San Francisco-based Stella & Dot is a direct-sales jewelry business, which allows women all over the country to sell bracelets, necklaces, rings and other accessories to friends and acquaintances, similarly to how Tupperware or beauty supplies were peddled in the past–except this has a technology twist.

Sequoia has invested $37 million in return for a 10 percent stake in the business, setting the six-year-old company’s valuation at a diamond-studded $370 million. The shares were purchased from existing shareholders, so the company will be paying for future plans directly from its profits.

Previously, the company raised about $5 million from Radar Partners, whose founder, Doug McKenzie, was WeddingChannel.com’s first investor back when he was at venture firm Kleiner Perkins.

Herrin started the company in 2004, which coincided with the birth of her two daughters. It wasn’t until 2006 that she was able to kick it into high gear.

Now she’s overseeing a third very healthy baby.

Revenues in 2009 totaled $33 million, more than tripling in 2010 to $104 million. She’s expecting the same growth in 2011, and has plans to expand to Europe later this year. Stella & Dot has paid out $50 million in commissions to sellers, whom it has cutely renamed “stylists.”

Sequoia Capital Partner Alfred Lin, who was most recently chairman, COO and CFO of Zappos.com before selling the company to Amazon.com, led the investment and will join the Stella & Dot board.

According to the Direct Selling Association, $28 billion is spent annually on products sold directly in the U.S., and there are 16.1 million sales people, of which 82.4 percent are women.

Lin said that technology has changed the way we shop, from the Amazon and Zappos experience to the way membership clubs like Gilt Groupe are run. But direct-selling business “is an interesting area that has not been touched by technology as much as other industries have. The business that [Herrin] is building is not your grandmother’s. It’s the new age.”

Some of that has to do with additional help coming from the Internet and social tools, such as Facebook and Twitter.

Stella & Dot’s stylists get started by paying $199 for catalogs, order forms and other training materials, and receive $350 worth of jewelry to show off at “trunk shows.” Herrin: “For a couple hours, a gathering of friends can try on on jewelry, which isn’t locked up in a glass case. The stylist offers fashion advice–it’s a no-pressure casual event.”

Each stylist has a personalized, fully enabled e-commerce site with a custom URL, which clients can visit later to order more items. The site can be promoted with the help of Facebook and Twitter, and the head office pitches in with PR, too. Stylists aren’t obligated to purchase inventory, and the jewelry is designed and produced by Stella & Dot’s team in New York, so they don’t have to worry about competition from other sites. There are also no quotas, but there is a chance to work your way up the food chain by recruiting stylists to sell underneath you.

Herrin is calling this approach “social selling,” a more modern term for “direct-sales business,” which is likely to invoke a picture of a Mary Kay saleswoman driving a pink Cadillac. It’s a category that she hopes will add up to a lot: $1 billion in five years, to be precise.

Lin: “It’s a nice business with very little paid-in capital. It’s gotten to $100 million and is a very profitable business in a short period of time. I look forward to making it a standalone company for many years. I’m very excited to work with her and the team.”


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