FORTUNE — Two years ago, “stuff in a box” was all the rage among startups. The young and funded were hawking subscription memberships for coffee, razors, jewelry, sex toys, shoes, and booze. All of it seemed very faddish, and indeed, many of these startups have petered out. Those that have thrived have done so with a unique value proposition that can’t be matched by brick-and-mortar retailers, and more importantly, by Amazon.
One such company is Birchbox. The New York-based startup sells curated monthly boxes of beauty samples for $10 each, while offering full-sized versions of the products on its e-commerce site. In just 3.5 years, Birchbox has grown to 800,000 subscribers, which equates to $96 million in annual sales. Add to that the fact that 30% of the company’s revenue comes from sales of full-sized products, and Birchbox is making at least $125 million per year. (The company also makes money selling men’s boxes, but it hasn’t released subscriber numbers.) Birchbox has swelled to 250 employees and worked with 800 brands. All of that, with just $12 million in venture funding.
“We know what it means to grow quickly and not have to raise a lot of money, which isn’t always celebrated in our culture, but we have celebrated it here,” says Katia Beauchamp, co-CEO and co-founder of Birchbox.
That changes this week: Today the company announces it closed a $60 million round of Series B funding led by Viking Global Investors, with participation from First Round Capital, Accel Partners, Aspect Partners, Consigliere Brand Capital, Glynn Capital, Comcast Ventures, Sam Lessin, Slow Ventures, Red Swan Ventures and TriplePoint Venture Growth BDC Corp. According to sources familiar with the situation, the round gives Birchbox a $485 million pre-money valuation. (Birchbox would not comment on its valuation.) Fortune first reported on the company’s fundraising activity in February.
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Why raise a huge round of funding now, when the company is self-sustaining and spitting off cash? To amp up growth. Birchbox, Beauchamp says, “started as an idea that some people considered to be a small idea, but not necessarily a core part of the industry.” The last 3.5 years have shown her that Birchbox is actually a really big idea. Rather than compete with brick-and-mortar beauty stores, Birchbox has been converting women who were passive beauty shoppers into active, passionate beauty shoppers. “We’re growing the market, and we realize we have a big idea,” she says. Big ideas call for big capital.
The company has plans to increase its marketing, with potential TV and magazine ads. (“We haven’t talked about what Birchbox is at a high level yet,” Beauchamp says.) It is also considering international expansion, potentially into Canada and countries adjacent to its current operations in France, Spain and the UK. (The challenge there is that international beauty shipments are regulated almost like pharmaceuticals.)
Beyond that, Birchbox is considering developing its own products, given it already uses its trove of data on trends and demographics to help brands develop and launch their products. (“We do have the opportunity to have similar economics,” she says.)
And earlier this month, the company revealed it will open a brick-and-mortar retail store in Lower Manhattan, which will operate as a sort of lab for learning about the way its customers shop.
Retail stores, with their high overhead and dependence on foot traffic, will be a new frontier for the company. But Beauchamp and her co-founder Hayley Barna are used to that — when they got started, the Internet was still a new frontier for the beauty industry.
Until recently, e-commerce has left the beauty industry in the dust. Women need precise color matches for their makeup, and they like to smell, touch, and try products before buying them. High-end beauty stores like Sephora, MAC, and Shiseido have flourished in the last two decades, but e-commerce only accounts for a tiny percent of the $8 billion beauty product market.
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Birchbox’s sampling program brings the in-store experience into women’s homes. That’s the real (ahem) beauty of the company: By distributing samples, Birchbox creates awareness and demand for new beauty brands, the same way women’s magazines have for decades. Essentially, Birchbox subscribers are paying to be marketed to.
Birchbox isn’t alone in this market. As I wrote in February: Glossybox, Birchbox’s European competitor (created by famous clone artists the Samwer Brothers), has raised $72.5 million from the Samwers’ Rocket Internet and Holtzbrinck Ventures Investment AB Kinnevik. The company has shipped 2 million boxes. Likewise, Ipsy, a California-based competitor, has gained steam with “glam bags” that include full-sized products for the same price.
But Beauchamp sees the real competition as “non-consumption,” she says. “We’re taking people who weren’t even considering going into these stores as a part of a leisurely day, and making them into people who could become browsers and shoppers.”
She adds: “And she absolutely spends more on beauty as a result of Birchbox.”
