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February 04, 2011

Acquisitions/Mergers

Stella & Dot Receives $37 Million Investment from Sequoia Capital

by J.M. Emmert

Stella & Dot’s product line includes boutique-style designer necklaces, bracelets and rings.
Stella & Dot’s product line includes boutique-style designer necklaces, bracelets and rings.

Founder and CEO Jessica Herrin has Stella & Dot poised to make direct selling history. 

When the news broke on Jan. 10 that Sequoia Capital, one of the most influential venture-capital firms in Silicon Valley, had invested $37 million in Stella & Dot, more than a few eyebrows were raised. Many wondered why a firm that, by some estimates, is responsible for nearly 14 percent of the value on NASDAQ—funding such technology and Internet giants as Apple, Google, YouTube and Zappos—would be interested in a direct seller of boutique-style designer jewelry.

According to Alfred Lin, former COO of Zappos.com and now partner at Sequoia Capital, the decision to pursue Stella & Dot was fueled by the belief that the direct selling industry is on the cusp of a new age, with e-commerce and social networking transforming the landscape of the traditional direct-sales approach. Sequoia believes Stella & Dot is poised to be a “billion dollar opportunity” due to the innovative “social selling” approach of Founder and CEO Jessica Herrin.

 “Sequoia rarely sees a business built so strong, with such little capital,” says Lin. “We pursued Stella & Dot based on the performance of the company, the strength and track record of the team, and the tremendous potential for this brand.”

Stella & Dot did not need nor was it seeking capital. However, Lin and Sequoia partner Mike Moritz were able to convince Herrin that they truly wanted to be involved in creating a game-changing company for generations to come.

“It’s exciting to be part of a brain trust that has guided the growth of so many successful companies,” says Herrin. “Alfred’s passion for customer service and company building acumen meshes perfectly with our team. I believe you build a truly special company by bringing together the right group of passionate people to lend their DNA to your cause.”  

Strong Performance

That cause is helping woman successfully balance career and family. When Herrin first founded the company out of her living room in 2004 as Luxe Jewels, she envisioned a new approach to traditional direct-sales ideas. She focused entirely on learning the sales channel by doing trunk shows. She wanted to combine the best of direct selling with the ease of e-commerce and social networking to create a flexible and lucrative home-based business that would appeal to the modern woman and offer professional-level earnings per hour.

“With Stella & Dot, I‘ve paced the growth of the company around becoming a mom and raising two kids,” says Herrin. “Though we passed a million in annual sales, I wasn’t ready to kick it into high gear until after my youngest was born in 2006. Then I began to build a team and really grow our field. In March 2008, our Chief Creative Officer, Blythe Harris, and I rebranded the company as Stella & Dot, after our two grandmothers.”

Herrin adds that she wanted to create a mission-driven company that was truly transformative and special. “I have bootstrapped this company and built it very differently,” she says. “The people around the table are here for the long haul, building the company the right way, for the right reasons. We have an incredibly high bar for hiring—we’re looking for missionaries, not mercenaries.”

While Herrin’s business strategy incorporates new technology to drive sales, the most important business component for Stella & Dot remains the focus of the company’s sellers, known as “Stylists,” on cultivating personal relationships with customers at in-home shows and one on one.

The combination of old and new practices has paid off. Stella & Dot has seen impressive revenue growth. The company had sales of $33 million in 2009 and $104 million in 2010—impressive numbers when sales figures in the direct selling industry as a whole have remained flat, or as some suggest, even declined, over the past four years.

“None of this would have been possible if we didn’t design irresistible products people love and deliver with incredible customer service,” says Herrin. “The credit goes to the amazing team of talented individuals who’ve joined our home office team. They work tirelessly to continually surprise and delight our Stylists and customers.”

Strong Leadership

Herrin is no stranger to success. A serial entrepreneur, she’s been recognized for her business savvy in The Wall Street Journal, New York Times, Forbes and O, The Oprah Magazine.

After earning a degree in economics from Stanford, Herrin worked for two tech startups before enrolling in the Stanford Graduate School of Business. At age 24, she launched her first company, the WeddingChannel.com, which is now part of the world’s leading wedding site, The Knot.

Now, with Stella & Dot, Herrin employs the same proven leadership skills that made WeddingChannel.com a success, although, as she admits, the two experiences are very different now that she is a mother of two.
“I co-founded WeddingChannel.com in the go-go-go days of the dotcom boom,” she says. “It was a 24/7 activity, with much of the world focused on an IPO instead of sustainability and profits. It bred a ‘flip it’ mentality in so many investors and employees.”

With Sequoia Capital as a supportive partner for the long haul, Herrin looks to growing Stella & Dot. “When people ask me my exit strategy, I tell them I plan to exit very old, on a stretcher with an air tank. This is my last gig,” she says.

Strong Potential

Stella & Dot may be the first gig for many women entering the direct selling industry. The company is becoming a viable opportunity for women of all walks of life, including a higher demographic with higher expectations around earnings. The company has a diverse group of independent business owners finding success with the company, including doctors, lawyers, stay-at-home moms and college students.

“Our business has proven to work just as well for the single girl in Manhattan as it does for a work-at-home mom in Texas, a newlywed in Boulder or a retiree in Miami,” Herrin says. “Our business model really works for our Stylists. Their success and happiness is attracting others who want to do it and are looking at it as an alternative or supplement to a corporate job. They love the income, flexibility, professional development, fun and community Stella & Dot offers.”
Stella & Dot stylists average over $1,000 per show in sales generated by selling necklaces, bracelets, rings and other jewelry and accessories. What’s interesting to note is that the earnings are not due to higher prices for the products. The average price point of Stella & Dot products is comparable to others in the industry—about $50.

“Stella & Dot is just filling a unique style need,” says Herrin. “In terms of price points, our line is accessible luxury, with half of our styles under $50. It’s not that we’re more expensive; it’s that our customers like our products so much that they are buying more of it.”

While the strong potential for earnings has attracted many, Herrin also believes that one of the secrets to the company’s success is the sustainable focus and balance between family and career.

“Our ‘work’ is so incredibly inspiring, creative and rewarding, it hardly feels like work at all,” she says. “As much as we are about enabling flexible jobs for women in our sales field, we are also incredibly ‘love your life’ friendly at the home office. We want people to thrive at Stella & Dot. Our goal is to be a place people love to come to work, where they feel challenged, balanced and like they are growing.”

With the success of its first three years and the support from Sequoia Capital, Stella & Dot is positioned well for the future. But can it make direct selling history by becoming the first direct seller to reach $1 billion in five years?
Herrin replies with a confident “Yes.”