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9-812-077REV:DECEMBER17,2012________________________________________________________________________________________________________________ProfessorThomasR.EisenmannandSeniorResearcherLauraWinig,GlobalResearchGroup,preparedthiscase.HBScasesaredevelopedsolelyasthebasisforclassdiscussion.Casesarenotintendedtoserveasendorsements,sourcesofprimarydata,orillustrationsofeffectiveorineffectivemanagement.Copyright©2011,2012PresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessSchoolPublishing,Boston,MA02163,orgoto—JennHyman,co-founderandCEO,RenttheRunwayWe’retryingtogetwomentostepoutoftheircomfortzones.Thisbusinessisabouttheanti-little-black-dress.Youhaveablackdressinyourcloset.Tryahotpinkone-shouldersequineddress—astunneryounormallywouldn’tbuybecauseyou’donlywearitonce.—JennyFleiss,co-founderandpresident,RenttheRunwayInJanuary2010,Jennifer(Jenn)HymanandJennifer(Jenny)Fleiss,co-foundersofManhattan-basedRenttheRunway(RTR),weredebatingtheirnextmoves.RTRwasawebsitethatrenteddesignerdresses,charging10%to15%ofadress’sretailpurchasepriceandencouragingitsmembersto“Trynewbrands,newtrendsandfeelbeautifuleverynight.”Justtwomonthsafteritslaunch,RTRhaddemonstratedstrongdemandforthisvaluepropositionbyattractingmorethan150,000members.WiththeirNovemberlaunchandtheholidaycrunchbehindthem,theco-foundersfacedabigdecision:ShouldRTRraiseanotherfundinground,wellaheadofschedule?Theyhadoriginallyassumedthattheir$1.75millionseedroundofventurecapitalwouldlastthroughthespringof2011.FleissandHymanhadplannedtogrowRTRatameasuredpaceduring2010whilepursuingoperationalimprovementsthatwouldmovethecompanytowardcashflowbreakeven.Afterdemonstratingproofofconcept,RTRwouldthenbewellpositionedtoraiseadditionalfundsinearly2011.RTRwouldhaveamplefundsavailabletocoverbudgetedinventoryandhead-countgrowththrough2010ifitfollowedthatplan.Basedonfeedbackfromearlycustomers,however,theco-foundersrealizedthatRTRwasdeliveringmorethanjustgreatvalueandconveniencethroughdressrentals.Thecompanywasfulfillingwomen’sdreamsbymakingthemfeelconfidentandbeautiful.Consistentwiththisnewvision,HymanandFleisssawopportunitiestoserveabroaderrangeofagegroupsandsocialoccasionsbyincreasinginventorymorerapidlyandbyextendingtheirproductrange,forexample,FortheexclusiveuseofH.Wu,2015.ThisdocumentisauthorizedforuseonlybyHsin-huaWuinFall15-ECommercetaughtbyBehdadShahossini,BostonUniversityfromSeptember2015toDecember2015.812-077RenttheRunway2addingaccessoriesandmaternitywear.Also,withwebsiteupgrades,customerscouldinteractinwaysthatmadetheservicemoresticky,sharingstoriesandadviceonwhattoweartoupcomingoccasions.ButpursuingtheseopportunitieswouldputheavydemandsonRTR’ssmallmanagementteam,whichwasstillscramblingtogetoperationsundercontrol.Italsowouldrequireraisingmorecapital,anddoingsosoonerthanoriginallyplanned.WastheupsiderevenuepotentialintheirnewvisionforRTRgreatenoughtooffsettheadditionaldilutiontheco-founderswouldsufferiftheyraisedadditionalequitynow?Hadtheyshownenoughprogresstosignificantlyincreasetheirvaluationinanewround?Orshouldtheystickwiththeiroriginalplan,whichwoulddeliverpositivecashflowsooner—andabiggerequitystakeofwhatmightbeasmallercompany?BackgroundHymanandFleissmetintheHarvardBusinessSchool(HBS)MBAProgram.PriortoattendingHBS,FleisswasaninternalstrategyconsultantatLehmanBrothersandMorganStanley,andalsofoundedanessayeditingserviceforcollegeapplicants.HymanhadworkedinsalesandmarketingatStarwoodHotelsandlaterbecameanin-houseentrepreneurthere,launchingStarwood’sweddingbusiness.ShethenledWeddingChannel.com’sadsalesteamandwasdirectorofnewmediaforthesportstalentagency,IMG.(SeeExhibit1forbiographies.)TheinspirationforRTRcametoHymaninNovember2008,duringhersecondyearatbusinessschool.Sherecalled:MyyoungersisterBeckydesperatelywantedtobuya$1,500Marchesadresstoweartoawedding.Shefeltcompelledtobuyanewdress—despitealreadyhavingaclosetfullofdesignerdresses—becausesheknewphotoswouldsoonappearonFacebookandshedidn’twanttobeseentwiceinthesameoutfit.Shewasearning$55,000ayearasanaccessoriesbuyeratBloomingdale’s,soIthoughtitwascrazyforhertospendthatmuch.Atthesametime,IrealizedthatdesignerbrandsshouldstrivetoacquireBeckyasacustomer.Shelovesfashionandshe’llspendheavilyonapparelfortherestofherlife.Thesystemwasflawed:youngwomencouldn’taffordthebrandstheytrulydesiredanddesignerscouldn’taccessyoungwomentobuildbrandloyalty.HymansharedherideaforadressrentalbusinesswithherfriendFleiss.Hymancommented,“IknewIneededapartnerwhoseskillswouldcompl