In April, e-commerce site Jet.com plans to open its digital doors to the public in one of the most anticipated startup launches in recent memory. The “members-only shopping club” has raised an unprecedented $220 million in venture funding, which values it, including the funds raised, at $590 million. (One caveat: much of it is convertible debt, and the valuation hinges on Jet’s ability to raise another round of funding at a higher valuation.)
Beyond raising a giant pile of cash, Jet has used a novel buzz-building strategy: The site launched a referral contest which offers equity in Jet to the customer who refers the most sign-ups. Runners-up earned free memberships to Jet (valued at $50 for a year). But the top 10 referrers were awarded startup equity.
Today, Jet announces it will issue 100,000 shares to Eric Martin, a specialist at a funeral insurance company in York, Pennsylvania. Martin became the top referrer through promoting Jet on coupon sites and message boards. To put that in context: Martin received as many shares as some of Jet’s earliest employees. According to Jet CEO Marc Lore, it’s more than some of Jet’s director-level employees got. The rest of the top ten referrers got 10,000 shares each.
Shares in a young startup are akin to a lottery ticket. It reminds me of the story about the artist who created artwork for Facebook’s first office in exchange for equity. His stock was reportedly worth $500 million in Facebook’s IPO. It’s also reminiscent of the many agencies which did design and development work for startups in exchange for equity in the dotcom era — most didn’t survive the bubble crash.
While Jet looks like risky given the amount of capital it raised before launch, it’s important to remember that this isn’t the first time around for Marc Lore. He sold his first company, Quidsi, to Amazon (AMZN) for $545 million in 2010. (Yes, his pre-launch company is now worth more than the one he built and sold.)
Lore isn’t just motivated by the “once you’re lucky, twice you’re good” curse. He’s motivated by a revenge narrative — he didn’t want to sell Quidsi to Amazon, but relented after Amazon bested the company in a bitter price war. This time, he is taking on Amazon with a different strategy. Jet charges a membership fee and incentivizes customers to buy more in order to save on shipping costs. With 352,000 sign-ups as a result of the promotion, Jet already has more customers on its mailing list than Quidsi had when it sold to Amazon.
According to a Delaware Certificate of Incorporation filing, last summer Jet authorized 60 million preferred shares priced at $1 each. (The company has authorized the sale of 157 million shares including common stock, but has not necessarily issued that many.) If Jet is even a moderate success — say it goes public at $10 a share — using back-of-the-envelope math, Martin could become a millionaire. Not a bad way to reward early supporters.
Update: This story has been updated to note that Jet’s top referrer got more shares than Jet’s director-level employees, not members of its Board of Directors.