Cleanly, the on-demand laundry and dry cleaning service started in NYC, has raised $5 million in Series A funding. The startup had previously raised $2.3 million in seed funding after participating in Y Combinator in 2015.
The round was led by AddVenture, with participation from returning investors Initialized Capital and Altair Capital, and Millhouse Capital as a new investor.
Since Cleanly launched two years ago the on-demand space has cooled down considerably. There’s been an increased focus on profitability and difficulty to raise funding throughout the space, and some companies have had to shut down entirely — including on-demand laundry competitor Washio.
Even with a fresh round of funding, these difficulties aren’t lost on Cleanly. So the startup is especially focused on profitability and making sure they won’t suffer the same fate as other on-demand startups.
One major way they are hoping to achieve this is by a slow and methodical expansion process. So right now the startup is only live in three cities: New York City, Brooklyn and Washington, D.C. They’re making money in New York and are about to break even in D.C, which is the most recent addition.
And while much of the new funding will go to geographic expansion, with San Francisco next, there’s not necessarily any rush for Cleanly to expand before they can maintain sustainable margins in each new city.
For example, one of the reasons they expanded to Washington, D.C early on is because there’s a disproportional amount of suits being dry cleaned (versus fluff and fold laundry) compared to other cities. This means higher average orders, which help offset expensive delivery costs and ultimately improve the overall margins for the city.
The startup also is starting to work with rental buildings in New York and other cities. Trying to service many users in one building dramatically cuts down on delivery costs, and is a no-brainer in a city like New York.
In an effort to save on delivery costs Cleanly has also slightly altered the on-demand model — the startup only picks up and delivers laundry for a few hours in the morning and at night. Logistically this makes sense — most of us aren’t home during the day, and there’s no reason to pay drivers to sit around just in case one or two orders come in during the afternoon. Because, unlike food delivery, there’s no urgent rush for dry cleaning — having it picked up at 7pm instead of 2pm isn’t going to significantly delay the turnaround time, and could provide the cost savings that Cleanly needs to stay profitable.
Cleanly is also shying away from paid user acquisition for the time being, again preferring to focus on hammering down margins. Burning cash by subsidizing user’s on-demand purchases has killed startups before, and is something Cleanly wants to navigate cautiously.