Increasingly, companies both large and small have been investing in social media strategies -- either by tapping influencer networks, or adopting video editing technology to streamline marketing efforts across such platforms as Twitter, Facebook and Instagram.

One particular startup, however, has created its very own social sharing website to boost sales. Poshmark, an e-commerce retailer and social media site, announced on Wednesday that it had raised $25 million in VC funding--bringing its total to $70 million in capital funding (the valuation was not disclosed). GGV Capital led the most recent round, and its managing partner Hans Tung will be joining Poshmark's board of investors. His successful investments in the past have included electronics giant Xiaomi, Slack, and Airbnb.

In 2011, Poshmark launched as a fashion marketplace where women can buy and sell new or lightly used clothes via an iPhone app (it has since rolled out an Android app and website). As items available for purchase are shared and re-shared across the platform, buyers and sellers can also accrue their own followers. This allows users to curate personal feeds according to their own styles.

Social engagement is Poshmark's secret tool

More than three million items are now shared on the site every day, says Poshmark founder and CEO Manish Chandra. The company wouldn't disclose revenues, but according to Chandra, it's processing orders worth "hundreds of millions of dollars" annually. Last year, sales grew by a factor of three.

Charlene Li, founder and CEO of the Altimeter Group, a business management consulting firm, says that the pressure is now on for Poshmark to reach profitability.

"This round isn't as big as the previous round--it's a topper off," said Li. "The expectation is that they won't be able to raise anymore." Because the biggest challenge is to become profitable, the company's operations and business model is likely face major challenges in the future.

Still, Li remains optimistic because of how the company managed to successfully marry social media and e-commerce (in ways that most competitors have attempted and failed to do). "I'm impressed with how they're mixing things up," she said.

Creating opportunities for small business owners and entrepreneurs

In recent months, the company rolled out a new tool for small business owners to retail to followers through a virtual "boutique" (or storefront), where some users are making more than $100,000 each year. 

Poshmark is also partnering with independent retailers. Half United, a jewelry label that donates 7 meals to children in need for every item purchase, for instance, sells its products through through Poshmark (in addition to its own website).

The company also designates what it calls "power sellers," which make up about 10 percent of total users. These selected folks are allowed to purchase items from brands wholesale. Typically, they would already be processing north of 10-20 transactions per day.

Early obstacles

Half a trillion dollars worth of inventory gets put into closets without being used again, according to Chandra, which he noted is roughly the size of the U.S. federal trade deficit.

That's something Poshmark is hoping to solve by tapping into the purchasing power of online communities. "From day one, we built the platform as both social and commerce," Chandra explains. He originally got the idea to start the company from his wife--or rather, from her overstocked closet.

"Our commerce engine is very different from eBay, Etsy, and Amazon," he adds. "We've taken more of an Uber approach, where the core set of services are all standard."

To wit, Poshmark charges a fixed shipping cost of $5.95 from the buyer, through a partnership program with the U.S. Postal Service called PoshPost. It also relies on its proprietary payments method, a highly customized version of Braintree.

To bring in sales, Poshmark takes a not insignificant 20 percent cut of every transaction made on the site. 

Making the social commerce platform operate "like Uber" has been challenging on a number of fronts, according to Chandra. For one, "subsidizing shipping has been very expensive for many years," he said. 

Poshmark did very little marketing in the early stages, and focused on building out a real-world community of shoppers before launching. 

"The first thousand or so users were built organically through word of mouth," Chandra recalls. "It took almost six months to build out the nucleus of the community before we did the marketing to try to scale."

In the coming year, the company plans to launch internationally, and to start retailing children's and men's wear. It plans to expand from 50 to 500 brand partners.

Published on: Apr 13, 2016