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Eight Sleep CEO says his startup is more than a mattress company
Matteo Franceschetti, CEO of Eight Sleep, would prefer that you don’t call his startup a mattress company.
Eight Sleep does sell mattresses, albeit smart ones packed with sensors and temperature regulation controls. The company has raised north of $70 million from backers including Founders Fund and Khosla Ventures. A great deal of this funding surrounds the idea that there is more untapped potential in the sleep economy than existing players in the space have been able to imagine.
While Franceschetti says he intends for his company to remain private for the “foreseeable future,” Eight Sleep is in a less-than-comfortable spot following Casper’s botched IPO last week. Though Casper’s stock popped on its first day of trading, the process of pricing its shares ended up leaving its private investors a bit less than ecstatic. Casper debuted trading at a value of $575 million, a far cry from the $1.1 billion private market valuation it had previously achieved.
Franceschetti has been aiming to transform Eight Sleep into a company more focused on a robust tech platform than your average bed-in-a-box company. The startup’s initial effort, a smart sleep cover for your existing mattress, evolved into a mattress with a layer of sensors that then transformed into a sensor-laden mattress with a heating and cooling unit, called “The Pod.” The company’s product development has aimed to build out a more end-to-end platform for sleep, something Franceschetti says has made him reticent to compare his company to other direct-to-consumer mattress companies.
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IPO pricing for One Medical and Casper will set the tone for 2020’s unicorn debuts
Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
As One Medical looks to become the first venture-backed company to price its IPO in 2020 this afternoon and Casper aims to price its own shares next Wednesday, the market is gearing up for a pair of tests.
If you listen to the Nasdaq and the NYSE, IPO volume in 2020 will prove vibrant. A surprise, perhaps, in the wake of the WeWork meltdown that many had expected might reduce IPO cadence. One Medical and Casper, though, are charging ahead, meaning that their debuts will help set the tone for the 2020 IPO market.
If they struggle with weak pricing and slow initial trading, their disappointing offerings could slow the IPO market. If they price well and are welcomed by the street, however, the opposite.
Let’s take a look at how many IPOs are coming, what One Medical and Casper are hoping for and what their results might mean for unicorn liquidity. Don’t forget that we’re still living in the midst of a unicorn liquidity crisis — there are hundreds of private companies worth $1 billion or more around the world that need an exist, and the market is creating them faster than it can get them out the door. If IPOs stumble in 2020, lots just won’t make it out before the market turns.
An IPO crowd
Yesterday, CNBC reported notes from Nasdaq CEO Adena Friedman and NYSE President Stacey Cunningham, each speaking about their expected IPO cadence in 2020. Friedman said there are “lot of companies looking to tap the public markets in the first half,” implying a strong flow of potential debuts.
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Casper files to go public, shows you can lose money selling mattresses
E-commerce phenom and D2C bright light Casper has filed to go public.
The New York-based company that raised nearly $340 million while private, according to Crunchbase data, expects to trade on the New York Stock Exchange under the ticker symbol “CSPR.” Its S-1 filing includes a $100 million placeholder figure for its possible capital raise.
The company will need the money, as it loses money and burns cash. Let’s explore just how a mattress company does that.
Growth, loss
In the full years of 2017 and 2018, Casper recorded revenue of $250.9 million (net of $45.7 million in “refunds, returns, and discounts”) and $357.9 million (net of $80.7 million in “refunds, returns, and discounts”). That worked out to growth of 42.6% in the year.
Over the same two periods, Casper lost $73.4 million and $92.1 million on a net basis, respectively.
In the first three quarters of 2019 versus 2018, Casper put up $312.3 million in top line (net of $80.1 million in “refunds, returns, and discounts”), up just over 20% from its year-ago three-quarter tally of $259.7 million in revenue (net of $57.7 million in “refunds, returns, and discounts”).
The company’s net loss during the three-quarter period rose from $64.2 million in 2018 to $67.4 million in 2019. The company’s net losses are generally rising (though slowly so far in 2019), while its growth decelerates.
In contrast, and to the company’s favor, its operating cash burn is slowing. From $84.0 million in 2017 to $72.3 million in calendar 2018, Casper slowed its operating cash consumption further in 2019, to just $29.7 million in the first three quarters of the year, compared to $44.9 million over the same period of the preceding year.
But the company’s slowing growth and stiff losses using regular accounting methods (GAAP) could strain its valuation. Casper was valued at $1.1 billion in its most recent funding round.
While the company’s gross margins aren’t bad for a non-software company (49.6% in the first nine months of 2019), the firm spent over 73% of its gross profit last year on sales and marketing costs. That figure indicates that Casper spent heavily to generate growth, growth that came in at about 20% so far in 2019, as reported.
That fact implies that growth will remain constrained, as the firm can’t afford to spend too much more on the line item. Which begs the question: What’s the value of a firm that is showing slowing growth, non-recurring revenue and sticky GAAP losses?
The company’s adjusted losses aren’t much better. Looking at its adjusted EBITDA, a profit metric so distorted to flatter that it’s nigh a funhouse mirror, Casper only marginally improved on its 2018 tally looking at the first three quarters of that year (-$57.5 million) in 2019 (-$53.8 million).
Investors
Casper has raised from IVP, Lerer Hippeau, Target and New Enterprise Associates. The firm raised seed capital back in 2014 along with a Series A. Lerer and NEA were most active back then, looking at its funding history.
The company raised $55 million more in 2015, and a far-larger $170 million in mid-2017. A $100 million round came in 2019 that set it up for its 2020 IPO.
This company’s IPO is a pricing question. And one that will impact a host of startups that both compete directly with Casper or operate in a different vertical with a similar business. Get hype.
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What we can learn from DTC success with TV ads
Kevin Krim is EDO‘s President & CEO. His 21-year career has spanned search, social and TV advertising across start-ups and major companies like Yahoo and NBCUniversal. Sebastian Chiu is EDO‘s Chief Data Scientist. He earned his undergraduate and post-graduate degrees from Harvard, working previously as a data scientist at Dropbox.
One of the most-discussed plot twists in recent advertising has been the pivot of Direct-to-Consumer (DTC) brands to linear TV. These data-driven, digital-first players are expanding well beyond Facebook and Instagram—and becoming serious players on the largest traditional medium in advertising.
A January 2019 Video Advertising Bureau study found that in 2018, 120 DTC brands collectively spent over $2 billion in TV ads—up from $1.1 B in 2016. 70 of those 2018 advertisers ran TV ads for the first time.
But while we know that they’re advertising on TV, what may be less discussed is whether they’re succeeding on television—and what strategies they use to achieve their success.
At EDO, we have a unique and differentiated ability to measure how DTC advertisers perform on TV by tracking incremental online searches above baseline in the minutes immediately following individual TV ad airings as viewers translate their interest in advertised brands and products directly into online engagement with them.
By measuring incremental search activity across 60 million national TV ad airings since 2015, we are able to effectively isolate the effects of TV ad placement and creative decisions that are most likely to cause online engagement.
We ran the numbers on DTCs as well as advertisers in various other categories to better understand how DTCs specifically are succeeding in TV ads—and what DTCs who are considering TV advertising can do to achieve success on TV.
Table of Contents
- Does the David vs Goliath story play out on TV?
- Is there a newcomer advantage on TV?
- How does the DTC marketing playbook translate to TV? (A brief history and how-to, plus a Casper mini-case study)
- Conclusion: 3 keys to DTC TV success
Does the David vs. Goliath story play out on TV?
The DTC revolution is a quintessential David and Goliath story. In vertical after vertical, small, digital-native upstarts are changing the game and overtaking major brands. Does that story play out on TV as well—or is TV advertising one area where DTC marketers have finally met their match?
To answer that question, EDO looked at how effectively TV ads elicited viewer activity since September 2018 across eight major industry categories including DTC. Guided by historical ad performance across billions of ads, we rated ad performance based on how closely the DTC ads came to meeting the benchmark volume of brand-related online activity in the minutes following each TV ad airing.
We index each industry accordingly—giving an index value of 100 to an ad that meets benchmark standards, and below-par ads getting a score under 100 while higher-scoring ads receive a score over 100. We chose to set our index baseline of 100 to the average Consumer Packaged Good (CPG) ad since it is such a large and broad ad category. Our results are as follows:
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Mattress startup Casper valued at $1.1B with new funding
Direct-to-consumer mattress business Casper has secured a $100 million Series D investment from existing investors Target, NEA, IVP and Norwest Venture Partners.
The fresh infusion of capital values Casper at $1.1 billion, Bloomberg first reported and Casper confirmed.
“We are in the very early chapters of our growth story as demand for Casper products continues to expand across the globe,” Casper chief executive officer and co-founder Philip Krim said in a statement. “Today’s financing accelerates Casper’s vision to become the world’s largest end-to-end sleep company. Our growth will continue to be catalyzed by state-of-the-art sleep products, best-in-class customer experiences, and world-class leadership.”
Casper posted $373 million in net revenue in 2018, according to leaked financials published by The Information this week. In a press release issued today, however, Casper said 2018 revenue topped $400 million. The company, of course, isn’t profitable, with losses reaching $64 million last year, again per The Information. According to Casper’s projections, it will become profitable on an EBITDA basis in 2019 and is expecting revenues of $556 million this year.
Casper has previously raised $240 million in equity funding from celebrity investors Leonardo DiCaprio and 50 Cent, as well as institutional investors, including Lerer Hippeau .
Founded in 2014, the New York business will use the latest investment to expand overseas and open additional brick-and-mortar stores. Competing with other well-funded startups in the business of sleep, like the publicly traded Purple and the VC-backed Leesa Sleep, Casper has taken to physical retail to augment its following. The company opened its first store in New York City in 2018 and has detailed additional plans to open another 200 stores.
An initial public offering is likely the next step for the sleep products retailer, which sells pillows and an $89 sleep-friendly light, in addition to mattresses. Per a recent Reuters report, Casper is in the process of hiring underwriters for its IPO.
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Mattress startup Purple launches in 13 Mattress Firm store locations
A number of bed-in-a-box startups have taken different approaches to selling their mattresses and bed ware in the last year. Casper and Tuft and Needle, for instance, launched their own branded physical store locations. However, Purple, a mattress startup out of Utah that recently merged with a New York shell company, took a different approach, instead striking a distribution deal with… Read More
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Target just gave Casper $75 million
Target has reportedly rolled $75 million into Casper, the direct-to-consumer mattress startup you may have heard about in all those podcasts. The funding is a good chunk of what should end up being a more than $100 million round. U.K. Mattress Startup Eve Picks Up Backing From Octopus Investments
What is it about e-commerce mattress startups of late? In the U.S., Casper made headlines last year after raising $13.1 million in Series A funding led by New Enterprise Associates. The company wants to “reinvent the way mattresses are made and sold” by selling its own high quality brand directly online, thereby cutting out the commission-based middle person inherent in the… Read More
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