Farfetch, the 'unicorn' that may be worth $1 billion

Looking to shop at the hottest new boutique in Tokyo but stuck in New York City? Now there's an app for that—and the company behind it is the latest startup to snag a $1 billion valuation.

Last week, online marketplace Farfetch announced it had drummed up $86 million in its latest round of funding from investors, including Russian venture capitalist Yuri Milner. That puts the company in the exclusive club of so-called "unicorns"—private firms worth $1 billion or more.

Farfetch lets users shop on their desktops and smartphones for clothing and accessories at more than 300 boutique stores in 25 countries around the world. The idea is to connect well-heeled consumers with luxury retailers they might not have the opportunity to patronize.

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Following a trend established by Net-a-Porter and Moda Operandi, Farfetch melds an e-commerce platform with editorial content on luxury fashion, travel, and lifestyle topics.

Unlike those competitors, however, Farfetch doesn't hold inventory. Instead, it focuses on creating a smooth international shopping experience for consumers by taking care of logistics, including duties and customs.

The company is now moving from the digital realm to the physical world, targeting new customers with billboards and print and taxi ads in the United States and UK.

"We're hoping that will raise the brand awareness, but we do have a very loyal customer base around the world," José Neves told CNBC's "Squawk Alley."

Farfetch founder José Neves

Farfetch founder and CEO Jose Neves is shown at the Walpole British Luxury Awards 2014 in London, Nov. 3, 2014.
Getty Images
Farfetch founder and CEO Jose Neves is shown at the Walpole British Luxury Awards 2014 in London, Nov. 3, 2014.

Since Neves founded Farfetch in 2008, the company has raised $195 million in financial backing. The latest $86 million funding round marks the largest ever valuation in a single transaction in the online luxury retail space.

The valuation is underwritten by real revenue and profit margins and "fantastic growth," Neves said. Published reports suggest Farfetch pulls in $1 million per day, but a company spokesperson could only confirm the average order value is $700.

Neves added that Milner's DST Global and other investors took into account valuations for other transactional marketplaces and online retailers that have gone public.

"Of course, for the team that has built this business from nothing seven years ago, it's a huge milestone. But more than the valuation is the ability to accelerate growth and fulfill our mission," he said.

Farfetch plans to use the $86 million to expand into new markets by launching local-language websites, opening new offices in key markets, and introducing or expanding value-added services like same-day delivery and its customer loyalty program.

In addition to Yuri Milner's DST Global, Farfetch's backers include Conde Nast, Advent Ventures Partners, Index Ventures, Novel TMT and e.Ventures.

A 'huge vision' that hopefully pays off

There are now 73 private companies that have been valued at $1 billion. Though the number is growing, venture capitalists are not necessarily banking on companies hitting that billion-dollar mark, said Jeremy Liew, partner at Lightspeed Venture Partners.

Lightspeed invests in early stage companies—including online menswear retailer Bonobos and the photo-sharing app Snapchat. It tends to come in at the $5 million to $20 million range, he told CNBC's "Squawk Alley," adding that it can only hope that its investments will grow into massive valuations in the future.

"When we invest, a lot of what we invest in is the entrepreneur and the team behind them because they have this huge vision and the exciting thing about investing in that early stage, is you can buy into that ... view of the future," he said.

The key is whether the team has the capacity to turn that vision into reality, he said.

Investor sentiment also plays a part, he said, noting that the initial public offering market has strengthened in recent years. He pointed to online crafts marketplace Etsy as an example.

The Brooklyn-based company said on Wednesday it had filed to sell shares on the Nasdaq.

CNBC's Ben Thompson contributed reporting to this story.