How a company finances itself is often the biggest driver of its evolution, growth and possible failure. A bootstrapped brand, funded out-of-pocket intentionally or because of investor disinterest, is positioned for more sustainable growth in the long term—not to mention that their founders retain greater autonomy over the brand’s growth and do not have to produce returns for investors in the expected seven to ten years. Lower funding also means more attainable valuations, which help brands retain optionality for scaling purposes and makes them attractive acquisitions down the line. On the flip side, brands that have raised a large amount of capital—from Harry’s $475 million to the Honest Company’s $503 million—are forced down alternate suboptimal paths and often considered unappealing acquirees.

Featuring case studies on:

Class I Brands

Dollar Shave Club, Harry’s, Hims, Michael Kors, The Honest Company, Tuft & Needle, Vineyard Vines

Class II Brands

Goop

The structure and framework of the report has also been updated from last year. Fast or Frivolous 2017 determined three brand classifications:

  • Heritage: Brands that existed before the internet, mainly as product and marketing companies that focused on designing and manufacturing reputable products, which they would distribute wholesale or via retail.
  • Digitally-Native Phase 1: Brands that took existing products and sold them on internet.
  • Digitally-Native Phase 2: Brands founded after 2012 that started online and worked to build communities around their products and create lifestyle brands.

We have revised our brand criteria to more accurately reflect interactions and evolutions within the landscape, decoupling the origin of the brand from the purpose it serves.

Origin

  • Digitally-native: the brand started online only.
  • Traditional: the brand started either offline or both online and offline.

Purpose

  • Class I: Product companies. (Many of these brands may pitch themselves to be “lifestyle brands,” but they remain product companies.)
  • Class II: Companies that create community around their products or brand for commercial benefit.
  • Class III: Brands that create products that serve as a vehicle that propel a value system or a movement forward.

All the data in this report comes from publicly reported information, book and data sources. Fundraising information comes courtesy of Pitchbook; Earned Media Value (EMV) via Tribe Dynamics.

We calculated averages or estimated when numbers from multiple sources differed. Because some of the brands we studied are private companies, we confirmed information to the best of our abilities.

Dollar Shave Club (Digitally-Native, Class I)

Dollar Shave Club was founded in 2011 as a direct-to-consumer subscription razor brand, raising about $1.5 million in startup capital and making $4 million in revenue in the first year. In 2016, the company was acquired by Unilever, the CPG behemoth, in 2016 for $1 billion. The company made approximately $240 million in revenue in 2016, placing it in our $251-$500 million revenue bucket for 2018.

Despite its acquisition, Dollar Shave Club’s SKU- and marketing-centric growth strategy has limited reach, especially as it faces rising competition.

DSC was able to acquire 1,000 subscribers after launch. But in 2012, it exploded into the consumer space with a viral marketing video, “Our Blades are F***ing Great!” hosted by co-founder, CEO and improv aficionado Michael Dubin. Orders streaming in after the video was published crashed the ecommerce site, and DSC ultimately fulfilled 12,000 in the first 48 hours. By 2015, the company had made approximately $152 million in revenue. By 2018, it boasted 4 million subscribers.

The rapid rise of DSC shook the razor industry. In 2010, legacy player Gillette held 70% of the U.S. shaving market, which shrunk to 54% by 2016 thanks to digitally-native competitors DSC and Harry’s, whose combined share of the market had grown to 12.2%. In 2016, DSC had captured 48.6% of the online razor market. Having grown from nothing to $200 million in annual sales in the span of five short years, DSC appeared as an attractive purchase for Unilever in 2016. It also helped that DSC was not as overvalued as a brand like Harry’s—its $165 million in funding before the merger was significantly less than Harry’s approximately $285 million at that time.

Even though it was acquired, DSC still faces many of the same challenges as its competitors. The company faces rising competition in the men’s healthcare and wellness space—not only in terms of digitally-native players, but also legacy mass retailers, where many consumers still purchase their essentials. To drive revenue, the company has been forced to expand beyond its namesake into myriad product categories, including wipes in 2013, oral care in 2017, and fragrance in November 2018. It also grew to provide a more flexible offering to customers, selling both the monthly subscription plan it began with at launch in addition to a full-service option, which lets customers determine the frequency of shipments and product assortment based on their individual needs. But these new options have failed to turn around falling customer acquisition and retention rates post-acquisition, in addition to flattening sales.

While its wide range of SKUs might make DSC a one-stop-shop for some customers, but it’s the same strategy Harry’s and Hims are using, as the latter two also create products for women. Though DSC is the only one with a fragrance line, product overlap will inevitably grow. DSC also lacks a wholesale presence—an area that Harry’s has found relief in, putting its products in touch with the wide-reaching audiences of Target and Walmart. However, DSC has plans to debut vending machines with sample sizes of its products in high-traffic areas like sports arenas, malls and airports that may bring it in touch with new faces. In addition, Unilever will likely power global expansion for the brand, which seems to have saturated its presence in the U.S.

For its latest product, a fragrance called Blueprint, DSC gathered insights from its subscribers, but the company’s current approach—adding SKU after SKU in order to either acquire new customers or broaden the offering to drive repeat purchases—will eventually lead to diminishing returns. Like the marketing videos that initially spread word about the brand and amassed a wave of subscriptions, the SKU-centric strategy is temporary, providing a boost to sales, that soon trickles off. Despite the cushion DSC has thanks to Unilever’s acquisition, the brands lack of community engagement and word-of-mouth growth makes it no better off than the other digitally-native brands with soaring valuations.

Harry’s (Digitally-Native, Class I)

Harry’s unchecked funding pushed the brand to transform into a holding company.

To date, Harry’s has raised a total of $475 million—more than any other digitally-native brand. According to the company, these rounds come with specific intentions—in 2014, for instance, the company secured a $123 million raise in order to purchase it own factory in Germany to manufacture razor blades.

But the steep valuation that Harry’s has incurred has also propelled the company down inadvertent paths. Specifically, this investment has forced Harry’s to expand operations and enter new markets at a faster pace than would otherwise be necessary, even if these moves are opportunities themselves.

The most prominent transformation has been the creation of Harry’s Holdings after its latest $112 million round in February 2018. While forming a holding company builds upon Harry’s capabilities, both because it owns a factory and has built a successful digitally-native razor brand, it was spurred by the company’s inability to make enough to pay back its investors. The company’s long-term plan outlines a massive category expansion via brand investments, acquisitions and incubations, taking Harry’s from the realm of men’s shaving to laundry care, skincare, household products, vitamins and supplements and cosmetics, as well as pet and baby products.

Still, Harry’s Holdings will have to generate and acquire many successful brands in order to produce the required returns for investors. And, while it may have been enough in 2011 to launch a direct-to-consumer brand and raise hundreds of millions of dollars of funding, that’s no longer the case in the current industry climate—investors expect more. Whether Harry’s—or anyone else—can deliver that remains to be seen.

Hims (Digitally-Native, Class I)

Hims’ unbridled fundraising is forcing it to sprint as fast as it can, limiting the brand’s optionality only one year after launch.

The digital-only men’s wellness brand Hims launched in November 2017, providing a convenient, embarrassment-free way for men to purchase things like treatment for erectile dysfunction and hair loss. In its first four months of operation, the brand made $10 million in revenue, and according to the company, in 2018 it will earn between $20 and $40 million in annualized revenue, which likely depends on how much money it pumps into marketing. This places Hims in our $51-100 million revenue bucket for 2018.

Hims has fundraised at a rapid pace, landing $7 million in a Series A round for its launch, followed by a $40 million investment four months later, which rocketed the company’s valuation up to $200 million (five times 2018 revenue). Most recently, Hims raised an additional $50 million in June 2018, bringing its total funding to $97 million, pushing its valuation to $500 million (12.5 times 2018 revenue). Less than two months later, the company announced it was pursuing a $800 million valuation (which would be 20 times 2018 revenue) and talking with investors about raising more than $100 million, though it has since decided to postpone the round.

As per founder Andrew Dudum’s words, these rounds are meant to grow Hims into a $10 billion health and wellness brand. With the help of the June 2018 fundraise, Hims developed Hers—its female counterpart—officially launching in November. Like Hims, Hers is online and direct-to-consumer only, meant to provide a hassle- and embarrassment-free way to shop for things like birth control pills and acne treatment. The company has also added new products to its men’s category, including vitamins and cold sore kits.

Initially, Hims stood out for being one of the first brands to sell erectile dysfunction treatment direct-to-consumer. But even as Hims expands its SKU assortment—a trajectory both the men’s and women’s brand will likely continue pursuing—it’s unclear how it will reach Dudum’s goal, or make the necessary returns for investors, especially if an additional $100 million fundraise occurs. One month before Hims was founded, another direct-to-consumer brand called Roman launched to sell erectile dysfunction treatment online. Today, Hims’ expanding inventory is increasingly overlapping with other digitally-native brands in the health and wellness category—Dollar Shave Club, Bevel, Harry’s and Ritual, to name a few, not to mention many other traditional brands.

Hims’ fixation on fundraising has detracted from building a defensible brand in the face significant competition, which will hinder paying back investors in the long run.

While Harry’s—which has fundraised more than any other digitally-native brand—has pursued wholesale accounts, getting its products in front of shoppers at mass retailers like Target and Walmart both in person and online, Hims remains 100% direct-to-consumer and digital, maintaining high margins, but failing to differentiate from the competition and limiting its customer acquisition channels. It’s possible that Hers customers will strengthen Hims’ shopper base if consumers come from the same household or friend circles much like Walker & Company’s Bevel and FORM brands. But compared to Hims, Bevel grew much more sustainably, raising only $33 million to date despite being four years older. Bevel also pursued various wide-reaching wholesale accounts early on to bring its online brand to brick-and-mortar spaces and focused on providing opportunities to spread via word-of-mouth. As a digital-only brand, Hims has seen customer retention fall from 46% one month after purchase to 35% ten months after purchase, according to data from Second Measure, a company that analyzes billions of dollars worth of anonymized debit and credit card purchases. But compared to the direct-to-consumer vitamin brand Ritual, Hims maintains superior rates in the wellness and subscription category: Ritual has seen customer retention fall from 75% one month after purchase down to 37% six months after purchase and 29% 14 months after purchase.

In contrast, Hims seems to have bypassed any attempt at organic growth, enacting large-scale advertising campaigns that have attracted more negative press than positive—a tactic it has mirrored since Hers’ launch. Hims is spending a good portion of its funding on this marketing—as of October 2018, the brand had a whopping 531 active Facebook ads, according to our 2018 Q3 Megaphone Report, approximately 97% of which consisted of promos or discounts, showing that it’s trying to get people to order as quickly as possible.

Hims is pushing up on the same flawed logic that has challenged many other digitally-native brands that seek to raise money to turbocharge growth, often at the expense of building an actual brand that keeps customers coming back. The company is likely confident that once someone starts using its products he or she will keep using them, powering its subscription economics. But given the brand’s young age, there is no proof that these results will manifest in the years to come.  

Michael Kors (Traditional, Class I)

Michael Kors was founded as a luxury brand, but turned to affordable luxury to expand and acquire mid-market customers.

Michael Kors was founded in 1981 as a luxury womenswear brand, later embracing affordable luxury in the women’s, men’s, accessories, children’s and home goods sectors. The company first reached $1 billion in revenue in 2011 and made approximately $4.5 billion in 2017, placing it in our Billion-Dollar Brands revenue bucket for 2018.

The brand initially sold at a boutique called Lothar’s in New York where Kors worked as a sales associate after dropping out of the Fashion Institute of Technology. There, Michael Kors was discovered by a buyer and made its way into high-end department stores, including Bergdorf Goodman and Saks Fifth Avenue. In 1990—nine years after launch—the founder debuted a diffusion line, KORS Michael Kors, as a licensee, in order to go after mid-market customers. Just three years later in 1993, Michael Kors would be forced to file for Chapter 11 bankruptcy when the Italian manufacturer of KORS Michael Kors, Compagnia Internazionale Abbigliamento, ended production on the line, slashing the brand’s revenue. This put the Michael Kors brand on hold for a few years, while the founder grew his personal brand in other ventures.

Investors enabled Michael Kors to form a holding company that contained both luxury and mid-market lines, making the brand a household name.

After filing for bankruptcy, Kors served as a designer of the heritage brand Céline (owned by LVMH) starting in 1997, becoming creative director in 1998. The next year, LVMH invested in Michael Kors, purchasing a 33% stake and sending the brand a more lifebuoy that not only kept it afloat, but allowed it to start expanding. By 2001, Michael Kors had debuted a higher-margin accessories line—perfume, watches, handbags—followed by a menswear line in 2002. That December, the founder officially relaunched the brand as a holding company: Michael Kors Holdings.

In 2003, the private equity firm Sportswear Holdings acquired an 85% stake in Michael Kors, buying out LVMH and sending the company a more serious lifeline than LVMH had in 1999. Flooded with new investment for his eponymous brand, Kors left Céline in 2004, joining “Project Runway” as a judge for a 10-season stint that made him and his brand a household name. That same year, the founder launched a new sportswear diffusion line, MICHAEL Michael Kors, for ready-to-wear accessories and apparel. MICHAEL Michael Kors sold in more than 350 wholesale accounts at launch, performing well throughout the subsequent recession thanks to its lower price point. With the majority stake from Sportswear Holdings—whose co-founder Silas Chou has a long track record of buying up late-stage luxury brands and restructuring them to appeal to mid-market consumers, as he did previously with Tommy Hilfiger—Michael Kors was able to grow in the subsequent years from making $20 million in revenue in 2004 to $2.1 billion in 2012. Able to grow the Michael Kors network thanks to Sportswear Holdings, the founder’s impetus to target both luxury and mid-market consumers with additional diffusion lines would initially help bring Michael Kors a wide customer base, but prove detrimental to the business and brand equity in the long term.

Michael Kors vastly expanded its retail presence in the 21st century, which popularized the brand, until overexposure eroded brand equity.

In 2000—19 years after launch—Michael Kors opened its first retail stores (so-called “lifestyle stores”), in addition to maintaining preexisting wholesale accounts. Five years later, in 2011, the company filed for an IPO, raising $944 million—the single biggest public offering in U.S. fashion history (the title was previously held by Ralph Lauren whose 1997 IPO raised $882 million). With the IPO, Michael Kors was valued at $4.6 billion.

Now securely on the map, the company took the opportunity to proliferate its wholesale footprint. By 2014, the brand was available in more than 3,000 locations, a number that crept up to 4,000 by 2015. At that time, 526 of these locations were owned retail stores, up twofold since 2013.

But in the ensuing years, this fast retail expansion led to overexposure. As fast fashion rose to prominence in the 2000s and brands began churning out new styles with unprecedentedly short lead times and cheaper price tags, Michael Kors attempted to compete, honing its ready-to-wear, accessibly priced diffusion lines. But in doing so, the founder decentered the brand, moving in a direction that was incongruent with its initial luxury and runway image.

Despite expanding owned retail, which brought in higher margins, Michael Kors also preserved an unconstrained wholesale presence; in 2015, owned stores only accounted for about 13% of the brand’s retail footprint. This over-indexed Michael Kors at department stores, which—because of the brand’s fast ascent and popularity around the time of its IPO—overbought inventory, later slapping excessive discounts on the products in order to sell. Today, slashed price tags and off-price products are practically synonymous with the brand—a critical consequence of focusing too heavily on wholesale accounts, which reduce a company’s control over brand image.

Between its December 2011 IPO and the beginning of 2015, the brand saw 20% comparable sales growth, but financial health quickly soured: As inventories went up, same store sales and overall store sales declined. Since then, the company has taken steps to rejuvenate its financial health and revive its brand—in 2017, Michael Kors announced it would shutter 125 stores because of low sales, and it has also reduced its wholesale accounts (in 2018, the company’s revenue share from owned retail topped 60%, compared to only 29% in 2008). But after so many years of attempting to sell to high-end, mid-market and discount shoppers simultaneously, Michael Kors effectively cannibalized its luxury sales and corroded its overall brand equity. It will take more consolidation of the business in order to stabilize it for the long term and resuscitate the brand, granted that Michael Kors seeks to align more closely with luxury.

The Honest Company (Digitally-Native, Class I)

The Honest Company was founded in 2011 by Jessica Alba and her business partners as a digitally-native brand and one of the first celebrity companies to launch lower-margin CPG products—alternatives to household and baby products “honestly made without” toxic chemicals. After starting as a subscription service offering 17 products in 2012, the company saw $10 million in sales in its first year, growing to $300 million in 2015 as it added direct-to-consumer and later pushed heavily into wholesale. In 2017, the company made an estimated $400 million, placing it in our $251-$500 million revenue bucket for 2018.

As a celebrity brand, the Honest Company was flooded with investment, which crippled its optionality, including a potential acquisition by Unilever.

With Alba’s name attached to the brand, the Honest Company was swarmed with interested investors from the beginning. The brand launched with funding from the private equity firm L Catterton. Then, between 2011 and 2015, it was flooded with $222 million in funding, valuing the company at $1.7 billion. But with this massive amount of investment, the company needed to find ways to pay back investors, and in its attempt to do so, grew too fast and became too overvalued, crippling its own optionality. The Honest Company grew its product assortment to 100 SKUs in less than five years and turned away from focusing on direct-to-consumer sales to entering thousands of wholesale accounts, from Whole Foods to Target, Nordstrom to buybuy Baby. This move abided by the company’s newly appointed CEO, but it also ensured that the Honest Company’s already low margins would suffer.

But more importantly, the massive amount of funding and bloated valuation stood in the way of an acquisition and the company’s interest in filing for an IPO in 2016. In September 2016, early talks between Unilever and the Honest Company about a merger fell through—the price was set below the Honest Company’s $1.7 billion valuation to begin with, and because the Honest Company was so overvalued, Unilever ultimately bought competitor Seventh Generation for $600 million—a company that, without a celebrity at the helm, had grown more sustainably, launching 200 SKUs over a 25-year stint. In turn, the Honest Company put its plans to go public on hold. Its October 2017 Series E round poured $75 million more into the brand, but its valuation—further eroded by lawsuits questioning the eco-friendliness of certain SKUs and voluntary product recalls around that same time—lowered to $860 million.

Post-failed acquisition, the Honest Company continues to raise money, and has yet to prove it can grow sustainably.

Despite the setback with Unilever, the Honest Company has continued to raise money, likely thanks to Alba’s presence. In June 2018, it raised $200 million in a possible down round, which the company plans to use to expand its international footprint, as well as research and develop new products—approximately 80 more baby and beauty SKUs by the end of 2018. This round brought the Honest Company’s total funding to $503 million, though its valuation likely hovers around an estimated $860 million—a far cry from the $1.7 billion valuation at its peak.

Still, ideally the brand is beginning to understand the limitations that investment can impose and starting to consider a more sustainable route forward. The company has not considered owned retail—in fact, it’s looking to grow its wholesale presence from 17,000 third-party doors in 2018 to 35,000 in the next few years, including an announcement this summer that it will partner with the European beauty retailer Douglas at 2,500 stores, which abides by the plan to expand globally, but maintains low margins. What’s more, selling the Honest Company will be even more difficult in the future, even if, with Alba at the forefront, investors keep pouring money into the brand.

Tuft & Needle (Digitally-Native, Class I)

Tuft & Needle grew sustainably into a successful direct-to-consumer mattress competitor by bootstrapping and maintaining autonomy.

Tuft & Needle was founded in 2012 as a digitally-native, direct-to-consumer foam mattress brand. The co-founders, JT Marino and Daehee Park, began the business with $6,000 of their own, and later took out a $500,000 loan, entirely bootstrapping the business. In its first year T&N made $1 million in revenue, becoming profitable after three. Together with other digitally-native mattress brands, T&N helped grow the share of digital companies in the market to 13% in 2018, up from 7% a year earlier. By 2017, T&N was making $170 million in annual revenue, placing it in our $101-250 million revenue bucket for 2018.

Central to T&N’s story is its lack of startup capital. Though approached by investors, Marino and Park declined these propositions in order to maintain autonomy over their business, sharing equal and majority equity. The first external funding they received occurred in September 2018 when Serta Simmons Bedding—the largest mattress maker and seller in the U.S., whose brands include Serta, Simmons, Beautyrest, and its direct-to-consumer brand Tomorrow—acquired the brand for $500 million. Post-acquisition, Serta Simmons plans to maintain the Tuft & Needle brand, and Marino and Park will manage and grow the holding company’s ecommerce operations for all of its brands.

Serta Simmons’ acquisition of Tuft & Needle will help scale the brand, but may dilute it in the long term as it embraces a stronger wholesale presence.

It’s probable that with this acquisition, Serta Simmons can learn more from Tuft & Needle than the other way around. Like other legacy mattress retailers such as Mattress Firm, which filed for bankruptcy in October 2018, Serta Simmons continues to struggle in a mattress economy that’s increasingly dominated by digitally-native brands: Allswell, Casper, Cocoon, Leesa, Nolah, Nest, Purple and Saatva, to name a few. Though it launched its direct-to-consumer mattress Tomorrow in June 2017, ecommerce sales accounted for only 10% of revenue in 2017 and total revenue declined 26.5%. Infusing a new, successful brand into its holding company like Tuft & Needle will bring freshness to Serta Simmons and ideally help it innovate.

For Tuft & Needle, the acquisition will help scale the brand and reduce operational costs. This is already noteworthy when it comes to T&N’s retail strategy. In addition to selling online directly, T&N first ventured into brick-and-mortar when it temporarily opened its Arizona showroom to shoppers in December 2014. Its first permanent store in San Francisco followed in January 2016, but has since shuttered. Since then, the company has opened four permanent locations across Arizona, Washington and Kansas and a fifth will soon debut in North Carolina. Before the acquisition, the company also sold mattresses wholesale, largely at Lowe’s and Crate & Barrel, amounting to 82 third-party doors as of November 2018.

Tuft & Needle also began selling on Amazon in 2013—by 2017, 25% of the brand’s sales stemmed from the ecommerce platform and it started offering all brick-and-mortar customers who were also Prime members two-hour delivery, in addition to peppering stores with Amazon Echo devices. This cooperation likely enhanced Serta Simmons’ opinion of T&N; the holding company lacks a strong presence that it is now seeking to bolster with the acquisition. In November 2018, after being approached by Amazon to create a cheaper version of its core mattress offering as an exclusive, the brand announced the Nod, selling at $275 for a twin with a 100-day trial period, compared to its typical $350.

Though the Tuft & Needle Amazon exclusive increases exposure to the brand, it comes with a series of caveats. First, it places T&N in direct competition with Casper, which forged a similar Amazon deal in 2014, offering the Casper Essential for $350, though it also sells this option direct-to-consumer (Casper’s typical twin costs $595). At the same time, Amazon is beginning to more overtly exploit these partnerships with T&N and Casper. In October 2018, the ecommerce platform debuted an AmazonBasics, private-label mattress that starts at $219.99—significantly cheaper than both the T&N and Casper options (Amazon simultaneously launched a second private-label mattress brand called Rivet, which starts at $449, in addition to its pre-existing private label Revel, whose mattresses start at $209). This move puts significant pressure on T&N and Casper as third-party vendors, which are already seeing lower margins by selling either directly to Amazon or using Amazon’s sales fulfillment network.

Though both T&N and Casper, among other digitally-native mattress brands, benefit from selling a product with a high profit margin, transactions are generally one-time purchases, raising the significance of price and the importance of being profitable on the first sale. In the beginning, T&N offered a referral program, giving the first customer and their friend $50 off each, but intelligently chose to abandon the discount in September 2014, which kept the value of their mattresses high and maintaining full-price sales.

Now that it is selling a cheaper option on Amazon, T&N risks cannibalizing its full-price sales, particularly given the convenience of Amazon fulfillment that is sure to win over a large number of shoppers. The mattress brand says that Amazon didn’t pay the company to develop a cheaper option for its site, but is augmenting the brand’s visibility—however, Amazon is increasingly advertising its private-label brands on the site, and will continue to prioritize its own products. As this trend continues, it will force more third-party sellers to fork over more ad dollars to Amazon and lower their own prices. Overall, cozying up to Amazon can dilute T&N in the long run, not to mention the margin cut its taking as a seller on the ecommerce platform.

This is also concerning given relentless competition in the mattress space outside of Amazon. Not only is Casper a competitor for T&N on Amazon, but it also has a wholesale partnership at Target in addition to selling direct-to-consumer. Additionally, Casper announced it was contemplating filing for an IPO after its latest round of funding led by Target in June 2017.

Vineyard Vines (Traditional, Class I)

Vineyard Vines, the preppy, but laid-back traditional apparel brand known for its pink smiling whale logo, was founded in 1998 by brothers Ian and Shep Murray. After selling ties door-to-door, the founders launched an ecommerce site in 2000, and in 2001, surpassed $1 million in cumulative sales with the help of wholesale accounts. They then opened their first standalone store in 2005. In 2016, the company made $476 million in revenue and was valued at $1 billion. By 2017, revenue grew to $500 million, placing the company in our $501-$1 billion revenue bucket for 2018.

Vineyard Vines rose to prominence with zero outside funding. As the founders look to own more retail and distribution, the brand is on the path to achieve lasting cultural resonance.

The company’s rise is particularly noteworthy given that the Murray brothers continue to own 100% equity in the company and raised no external capital. Beginning as a quirky tie brand—a fun-loving answer to Brooks Brothers and Ralph Lauren—the Murray brothers rang up $8,000 in credit card debt, printing their own catalogs, photographing friends as models and selling the products out of their boat and Jeep. Eventually, selling door-to-door and via word-of-mouth peaked interest outside of Martha’s Vineyard and the Northeastern coast. In 2002, Vineyard Vines received its first big custom order—10,000 ties—from the insurance company Aflac, followed by various wholesale deals. Two years later, the brand was able to expand its product assortment, and in 2005, it opened its first store on Martha’s Vineyard, where it all began.

The lack of investment helped restrain the urge to overscale Vineyard Vines, as did the 2008 recession, which compelled the founders to bring various capabilities in house in order to cut costs and maximize efficiency; they purchased inventory and data management software, opened their own distribution centers and purchased new retail real estate. (Since the Aflac order, the company has also used the same manufacturer in Queens, New York for production.)

This trend is echoed by the founders today; as more brands close their brick-and-mortar stores, Vineyard Vines is expanding the brand’s square footage, focusing on where customer density is highest through ecommerce orders. As of April 2018, the company operates 95 owned stores, up from 70 in 2016, which make up 55% of sales. Ecommerce accounts for another 25% of sales—the company recently stopped offering discounts on its own site in order to claim full-price sales, which fortifies a high-end reputation. The remaining 20% of sales is comprised of wholesale—in college bookstores, resort boutiques, pro shops and high-end department stores like Bloomingdale’s and Nordstrom—licensing and custom orders.

While the company saw slower sales growth in 2017 (5% year over year), scaling is entirely up to the Murray brothers, who don’t have to appease investors’ or shareholders’ vision for Vineyard Vines’ future. Though the founders considered selling a minority stake in 2016, they decided against it—an intelligent move to continue operating the brand autonomously.

Though the company has no plans to file for an IPO, it may look to expanded its presence globally or open up new lines that allow customers to participate in the Vineyard Vines world outside of apparel, such as furniture and dining. Particularly if it continues in this direction, the company is on the path to attain cultural relevance, and could reach legacy brand status. If this happens, it will be interesting to see whether the company decides to capitalize on legacy or decry it considering the founders’ original intention was to create clothing that evaded the stuffiness and stagnation of brands like Brooks Brothers and Ralph Lauren.

Goop (Digitally-Native, Class II)

Goop’s recent fundraising rounds have provided fuel to expand ecommerce, retail and private labels, but as its valuation rises—especially given Paltrow’s celebrity status—the brand’s optionality is decreasing.

At launch, Goop was funded personally by Paltrow, in addition to some family and friends: a total of $3.5 million in startup capital. This propelled the company forward until 2015, when Goop began raising growth capital—a total of $75 million, spurred largely by its latest $50 million round in March 2018, in addition to the company’s $15 million round in August 2016.

Goop plans to use this fundraising to expand its consumer product business to new international markets, as well as its ecommerce and retail capabilities—particularly the realm of private labels. But the new rounds have also raised the value of the brand to $250 million. Since Goop will do over $100 million in 2018 revenue, this implies a 2.5 times multiple on revenue, which is more tame than most other venture-funded brands (Allbirds, for instance, is now valued at close to six times 2018 revenue). That said, to continue growing at the same pace, Goop will likely require even more capital, which will push the valuation even higher.

One of the best moves Goop is undertaking is building out its private labels, which not only come with higher margins, but also are naturally growing: Since 2016, G. Label has grown significantly (faster than its multi-brand business) and the company predicts that its private label will account for more than 50% of Goop’s ecommerce revenue in 2018.

While celebrity-driven brands theoretically offer companies the opportunity to avoid steep marketing costs since they come with a built-in audience, they also can attract a large amount of investment because of the founder’s fame. This helps brands grow, but also can cripple their optionality in the long run (just look at Jessica Alba’s the Honest Company). Goop now has to swing for the fences versus building something Paltrow can own and operate for the rest of her life. At the same time, Goop has raised a significant amount of funding, which raises questions about why Paltrow’s status isn’t enough to propel the brand—something that’s likely tied to the aspirationality of the brand itself, which naturally excludes the bulk of consumers.   

The founder has also stated that she wants Goop to eventually become a brand in its own right, rather than one that is synonymous with her personality and lifestyle. But if anything, the business has increasingly conjoined Paltrow and Goop—if the founder stepped away from the helm, she would likely extinguish Goop’s lifesource, removing the bulk of its value. Surely any sale would be conditioned on Paltrow staying involved for a contractually-mandated period of time for it to be worth top dollar. Additionally, it seems that Paltrow’s cult of personality has so far managed to shield the company from severe accusations of endorsing pseudoscience. With this in mind, taking the celebrity out of the equation could be disastrous to Goop as a brand and business, which continues to be powered by the same chain reaction: The company receives celebrity-driven investment, rising its valuation, which drives Goop to expand operations and find new consumers to provide returns.

In order to meet investors’ expectations and grow its own revenue, Goop should continue to build off of its current retail strategy, opening more owned retail in high-density areas where its target customer resides, both domestically and abroad. But this trajectory can only continue to a certain degree—at some point, Goop may saturate this premium market. The company has a large potential customer base thanks to its newsletter—it’s just that the majority of these readers cannot fork over the money for such aspirational product.

Eventually, Goop may be forced to lower its prices, or provide alternative services for a more mid-range customer. The question, then, will be whether the company is capable of balancing its brand identity built on aspirationality and Paltrow’s celebrity with more mid-market products and services—or if the brand unravels in doing so. The brand’s future success is also inherently predicated on whether Paltrow remains at the wheel and how much capital it continues to ingest. Maybe it’s time for Goop to take its own advice and start fasting, rather than taking on more venture capital.