DURHAM – Tiny Earth Toys has raised nearly $1.5 million to expand the e-commerce company’s product inventory of high-quality wooden children’s toys for kids up to five years of age, and hire the staff to fuel the company’s growth.

“Everybody has heard that there is a massive global supply chain crisis happening now that will impact the toy industry by driving up prices and reducing access to inventory,” said Rachael Classi, founder and CEO of Tiny Earth Toys, in an interview with WRAL TechWire.  “But we’re in a fantastic position to ensure families have quality, sustainable products in plenty of time for the holidays.”

The company recently expanded its inventory—it works through suppliers that share the company’s environmental approach—and the capital will further expand the company’s ability to hire workers for its warehouse and secure additional inventory to fulfill customer demand.

But beyond the capital and the products, noted Classi, the company is positioned well because of its differentiated business model.

Rather than asking its customers to purchase products—though customers can make a purchase decision—the company rents out toy kits to families.

Each of the kits, which include between four and eight curated wooden toys and corresponding educational content to families who pay a monthly subscription starting at $29 per month, allows families to select developmentally-appropriate and interesting toys through the company’s e-commerce website.

Families then exchange their kits every three months, and the company provides free shipping in both directions.

The company cycles toy kits every three months so that children can rotate through engaging, high-quality wooden toys that are developmentally appropriate and captivate a child’s individual attention and fascination, said Classi.

There are other companies that deliver toys on this three-month cycle, noted Classi, and those companies are competitors of Tiny Earth Toys.  But Tiny Earth’s business model is unique, said Class, because the kit of toys is returned.

“Our competitors today are traditional subscription toy kits where families receive a new kit of toys every 1-3 months,” said Classi.  “While this might solve the problem of accessing age-appropriate toys and crafts as your child is developing, it creates a massive problem for our environment when it accelerates consumption and increases clutter in their homes.”

That differentiation—that the kits are returned—is “critical to the environmental impact and mission of Tiny Earth Toys,” said Classi.

“And we believe it is helping families connect in meaningful ways to their values and their children’s learning,” she added.  “Our biggest hope is that one day the children who have Tiny Earth Toys subscriptions see rentals, reuse and the circular economy as the norm.”

Rachael Classi, founder and CEO of Tiny Earth Toys. Image provided by Classi and Tiny Earth Toys.

How Tiny Earth Toys began

Classi launched the company in 2020 with a domain name, a simple website, and a LinkedIn post, and by the end of one weekend, had a waiting list of more than 300 families, she said.  But well before that weekend, Classi made an important decision.

The global COVID-19 pandemic had recently arrived to the United States.

And, following the onset of the pandemic, Classi chose to step away from her career, in order to care for her two young daughters, who were one and three years old at the time.

After departing her role as the vice president of strategy and marketing at Teamworks, said Classi, with the “time and space to be more present, I observed a lot of troubling habits we’d developed at home.”

“In the quest to access educational, quality toys since we were spending so much time at home, we accumulated a closet full of toys that they had outgrown and no longer served a purpose,” Classi said.  “It felt deeply troubling to me that my daughters were already learning to be overconsumers.”

She looked into the research and went searching for information about how consumers might have an alternative to the playroom clutter.

What she found was startling.  It wasn’t just her house, and her closets, that were accumulating toy clutter.

90% of the most popular children’s toys are made entirely from plastic, a 2017 study found.  And those toys are, on average, used for less than six months, with about 80% ending up in landfills, incinerators, or the ocean.

“Parents want quality educational toys, they want less clutter in their homes, and they want to make environmentally conscious buying decisions,” said Classi.  Surely there was a better way, though Classi.  So she took action.

Three former UNC-CH grads behind the season’s hottest toy

One post, 300+ family waiting list

First, Classi and her family began a book exchange in their neighborhood.  Then, the family coordinated a toy swap with friends who had kids of similar ages.

She developed the concept that would become the company’s differentiator: maybe families didn’t need to purchase, and thus own, all of its toys.  What if high-quality educational toys could be rotated for different ones when children outgrew them or lost interest in them?

The moment was catalyzing for Classi, she said.  “I felt like we could build a company to provide exactly that,” she said.

Tiny Earth Toys began with a simple website, a clearly communicated idea, and one LinkedIn post.

By the end of the weekend after Classi’s LinkedIn post, more than 300 families had joined the company’s waiting list.

Classi took $7,500 from a personal savings account and invested it into the company, selecting developmentally appropriate wooden toy products that could be used and enjoyed by children from birth to three years old.

In the fall of 2020, Classi opened a paid pilot program to 15 families.

It sold out immediately.

Through the pilot, Classi learned more about families, and what they wanted.  That included flexibility in the types of toys the family could access, and an option to purchase toys that became favorites, and flexible options on pricing to accommodate the household budget.

Classi took those lessons, implemented them in her business, and planned to expand beyond the pilot program, all while the company’s wait list continued to grow.

Image: Tiny Earth Toys

An alternative for families

As it turned out, one of the advantages of Tiny Earth Toys, said Classi, became the process it takes to source its products.  A byproduct of that process is that the company does not rely, as much, on global supply chains that have disrupted many toy manufacturers and toy stores across the nation.

“Many of our brands are small to mid-size, family operated, and manufactured in North America and Europe reducing the impact of the supply chain crisis on our access to inventory,” she noted.

Right now, the company works with 16 manufacturers that Classi called “some of the best toy makers in the world.”  That includes Georgia-based Heir & Loom Kids, Germany-based brands Grapat and Nic, Edmonton-based Cubos, wooden magnetic block manufacturer Tegu, and Plan Toys which makes their toys from reclaimed rubber wood in Thailand.

“We seek out manufacturers with similar beliefs as our own who take an active role reducing their environmental impact and footprint and who are transparent about their manufacturing processes.”

That’s what families, want, too.  But the primary driver for families who subscribe to the model is that they’re seeking developmentally-appropriate, fun toys for their children to use, at an affordable price point.

“For families considering an alternative to the plastic toy aisle at every big box store, we have the added benefit of being accessible at a fraction of the retail price,” said Classi.  For example, Tiny Earth’s product kit that retails at $29 per month contains a set of toys that are ready for use that would retail at an average of $250 to buy, said Classi.

Plus, those toys can be rotated for different products, said Classi, “when their child is inevitably ready for something new.”

Tiny Earth Toys launched at a time when the e-commerce industry was experiencing a dramatic shift, said Classi.  “Customers are looking beyond just a great digital buying experience and free 2-day shipping and are seeking out companies with a strong mission and set of values,” she said.  “We think the conscious consumer is spending more time researching brands and companies to understand their footprint and their business model. And we believe in the power of the consumer to shift business priorities in a very positive way for the world.”

Meanwhile, the customer waiting list continued to grow.

Image: Tiny Earth Toys.

Raising capital

“We knew the next step to scale the business would be to raise capital,” said Classi.  “High quality, wooden toy inventory is really expensive,” she noted, a factor that demonstrated to Classi why families were so interested in the company’s business model.

Because the company would need more inventory in order to test and validate product-market fit beyond the initial pilot project, Classi began to speak to investors about the business and the business model.

“Raising that round was a really positive experience for me,” Classi said.  The company closed on an initial round of $275,000 in equity financing in February 2021.  “It gave me a lot of belief in the Triangle investor community and that increasingly investors are focused on sustainable business models and triple bottom line businesses.”

Six investors participated in the first round, according to the SEC filing.

“The angels that supported me were really bought into our mission and in me and it empowered me to take a lot of risks testing the market,” said Classi.  “We used that capital to hire an incredibly talented woman and to bring on educational advisors to help us select the best products for our families. But the primary use of funds was inventory.”

Classi continued to learn, and to make modifications in the business, she said, including that the company’s value proposition was resonating with its customers.

“We learned that their primary value driver for renting is the confidence that the toys selected for their child have high educational value without contributing to household clutter, consumption and chaos,” she said.  “And we learned that flexibility and ease of logistics were crucial to our success.”

The company’s customer growth began to outpace its ability to supply its product kits, said Classi.  That’s when she began conversations about raising additional capital, she noted, as the company would need to bolster its inventory.

“To meet the demand of the increasingly climate-conscious millennial parent buyers, we need access to inventory and the ability to better serve our customers through support and educational content,” said Classi, noting that she also plans to offer more customized and individualized kit options for families to align the products in the kits with what a family observes may be most needed, or wanted, by a child.

Now, Classi has closed a funding round of nearly $1.5 million from 10 investors.

Expanding the company also requires an investment in people, Classi noted.  “We will be investing in people, products and technology to create a customized experience for families of all types of children,” she said.

Bull City Venture Partners led the fundraising round, Classi said, and the round was joined by Stephen Fraser and Gart Davis, the co-founders of Spoonflower, which was backed by Bull City Venture Partners and recently was acquired by Shutterfly in a $225 million deal.

“Tiny Earth Toys is one of those companies that comes along with a powerful, clear idea that, as soon as you hear it, you think to yourself, “why hasn’t anyone done this before?” I wish it had been around when my kids were younger,” said Fraser, in a statement.

The company currently employs five people and is headquartered in downtown Durham.  Classi said that the company plans to expand into a larger facility in 2022.  The company is currently offering new subscribers the ability to elect to delay their next payment until January 1st, said Classi, adding that “families can avoid shortages and holiday chaos and secure their holiday gifts without having to pay while the toys are wrapped and hidden in the closet for the holidays.”