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Red Antler’s Emily Heyward explains how to get people obsessed with your brand
If you’re currently building a startup, you know what product you want to build. But do you know if people are actually going to notice you? That’s the question I asked of Red Antler co-founder Emily Heyward during our virtual TechCrunch Early Stage event.
In case you’re not familiar with Red Antler, Heyward’s branding company has worked with some of the most iconic startups of the past decade, such as Casper, Allbirds, Brandless and Prose. She knows her topic so well that she just wrote a book on branding called “Obsessed.”
Let me break down the key takeaways of her presentation and responses to questions from our virtual audience — we’ve embedded a video below with our entire conversation.
Branding matters — anybody can launch a startup
It has never been easier to launch a startup. If it’s a software company, your infrastructure will be managed by a cloud hosting company. If you’re selling consumer goods, you can find manufacturing partners more easily than ever before.
“There are fewer traditional gatekeepers standing in your way. You don’t need to be able to afford a national TV campaign to get people to notice you and to hear about you. It’s a lot easier to get it out there and start selling directly to people,” Heyward said.
The result is that there are many companies competing in the same space, launching around the same time. Casper isn’t the only online mattress company anymore for instance. Brand obsession can set you apart from the rest of the crowd.
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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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3 unicorn takeaways from the Casper and One Medical IPOs
With Casper’s public offering earlier this week, we’ve closed the book on the first two venture-backed IPOs of note in 2020. Casper, joined by One Medical, carried over $870 million of private capital, venture and otherwise, across the finish line.
Even though each IPO featured an unprofitable tech-enabled business that had posted sub-30% growth and gross margins under 50% (far more, in the case of One Medical), they wound up miles apart in terms of their market reception and resulting valuation, measured in revenue multiples terms.
So what can we learn from the two IPOs as we look ahead to other unicorn debuts in 2020? A great number of things that help set the stage for the rest of 2020’s IPO class. Let’s discuss three observations that stick out the most.
Tech-enabled businesses can secure high-flying valuations in public offerings
The surprise of the year so far has been the public market’s reaction to One Medical’s IPO. The company, today worth $3.13 billion, is trading at 11.3x times the top end of its 2019 revenue projections (the company has yet to close the books on its Q4 accounting).
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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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Baby food delivery startup Yumi spoon fed another $8M in strategic funding
Babies have options these days when it comes to what goes in their mouths. No more is it just the standard mush in a jar. Now they’ve got everything from pouches to organic purees delivered right to their parents’ door — and Yumi is one of several startups cashing in.
The company has just announced that it raised another $8 million from several of Silicon Valley’s household names, including Allbirds, Warby Parker, Harry’s, Sweetgreen, SoulCycle, Uber, Casper and the CEO of Blue Bottle Coffee, James Freeman. That puts the total raised now to $12.1 million.
But it’s a tough and saturated market full of products all vying for mom and dad’s attention, and that’s not a lot of cash to go on, compared to the billion-dollar industry Yumi is up against. According to Zion Market Research, the global baby food market could reach as much as $76 billion by 2021. However, you wouldn’t know Yumi was up against such odds if you ask them and their financial supporters.
The advantage, according to the company, is in providing fresh food alternatives, and that “shelf-stable” competitors like Gerber lack key nutrients parents want for their little ones.
“Our goal is to change the standards for childhood nutrition, and completely upend what it means to be a food brand in America,” Yumi co-founder and CEO Angela Sutherland said. “This group of visionary leaders have all redefined their categories and now we have the opportunity to work together to reimagine early-age nutrition for the next generation.”
Will that bet pay off and help this startup stand out? Sales continue to rise and have risen by 10 times in the last year, according to the company — we’ve asked but don’t know what those sales numbers are, unfortunately. However, Yumi’s bet on fresh and delivered could prove to be just what parents want as the company continues to grow.
“As a parent, Yumi’s mission immediately resonated,” said co-founder and co-CEO of Warby Parker Neil Blumenthal . “As we’ve seen at Warby Parker, and now at Yumi, there is a massive shift happening in the world of retail. There’s now a new generation of consumers who are actively seeking brands that reflect their values and lifestyle — the moat that big, legacy brands once enjoyed has evaporated.”
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Startup ads are taking over the subway
If you’re a New Yorker, one of the easiest ways to keep up-to-date on the latest consumer products — furniture, beauty products, mobile apps, you name it — is to hop on the subway.
Even before you board, you may find yourself walking through a station filled with colorful startup ads. And once you’re actually on the train, you may find yourself surrounded by even more of those of ads.
It felt very different when I first moved to New York in 2013, back when the only companies that seemed to buy subway ads were local colleges, law firms and sketchy-sounding surgeons. Over the next few years, I noticed that the companies I wrote about in TechCrunch were starting to show up on the subway walls.
These ads are managed by Outfront Media, which has an exclusive contract with the MTA and says it’s worked with more than 150 startups and direct-to-consumer brands since 2018.
“Startups and DTC brands, now more than ever before, are looking for ways to raise awareness and gain market share among a heavy competitor set,” said Outfront’s chief product experience officer Jason Kuperman via email. “For these brands, it is all about testing and learning, and leveraging out-of-home (OOH) [advertising] and advertising on the subway allows them to do just that.”
Kuperman added that when they launch their subway campaigns, many of these startups are unknown, so they “find value in a permanent place to advertise that people pass through every day.”
From out-of-home to in transit
John Laramie, CEO of out-of-home advertising agency Project X, agreed that there’s been a big shift over the past few years.
He and I first spoke in 2011 about startups buying billboard ads alongside Silicon Valley’s main highway, Route 101. More recently, he told me, “Fast forward to the last four years, and who cares about the 101? It’s all about the New York City subway.”
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How to negotiate term sheets with strategic investors
Alex Gold is co-founder of Myia, an intelligent health platform employing novel biometric data to predict and prevent costly medical events. Previously, Alex was Venture Partner at BCG Digital Ventures and a co-founder of Traction, a marketplace of digital marketing experts.
Three years ago, I met with a founder who had raised a massive seed round at a valuation that was at least five times the market rate. I asked what firm made the investment.
She said it was not a traditional venture firm, but rather a strategic investor that not only had no ties to her space but also had no prior investment experience. The strategic investor, she said, was looking to “get their hands dirty” and “get in on the ground floor.”
Over the next 2 years, I kept a close eye on the founder. Although she had enough capital to pivot her business focus multiple times, she seemed to be at odds, serving the needs of her strategic investor and her customer base.
Ultimately, when the business needed more capital to survive, the strategic investor didn’t agree with the founder’s focus, opted not to prop it up, and the business had to shut down.
Sadly, this is not an uncommon story as examples abound of strategic investors influencing startup direction and management decisions to the point of harm for the startup. Corporate strategics, not to be confused with dedicated funds focused on financial returns like a traditional venture investor like Google Ventures, often care less about return on investment, and more about a startup’s focus, and sector specificity. If corporate imperatives change, the strategic may cease to be the right partner or could push the startup in a challenging direction.
And yet, fortunately, as the disruptive power of technology is being unleashed on nearly every major industry, strategic investors are now getting smarter, both in terms of how they invest and how they partner with entrepreneurs.
From making strong acquisitive plays (i.e. GM’s purchase of Cruise Automation or Toyota’s early-stage investment in Uber) to building dedicated funds, to executing commercial agreements in tandem with capital investment, strategics are getting savvier, and by extension, becoming better partners. In some instances, they may be the best partner.
Negotiating a term sheet with a strategic investor necessitates a different set of considerations. Namely: the preference for a strategic to facilitate commercial milestones for the startup, a cautious approach to avoid the “over-valuation” trap, an acute focus on information rights, and the limitation of non-compete provisions.
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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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Hear how to build a brand from Tina Sharkey, Emily Heyward and Philip Krim at Disrupt
For startups, especially e-commerce companies, branding is everything.
A slogan, an ad, even the design of the logo can make the difference between success and failure. But understanding how to develop a brand and strategically evolve that brand over time isn’t the easiest task. Luckily, three experts are coming to Disrupt to talk through the ins and outs.
Red Antler’s Emily Heyward, Brandless’ Tina Sharkey, and Casper CEO Philip Krim will join us at TC Disrupt SF in early September, and it’s a conversation you won’t want to miss.
Emily Heyward cofounded Red Antler in 2007 after working in advertising at Saatchi & Saatchi. She graduated magna cum laude from Harvard with a degree focused on postmodern theory and consumer culture. At Red Antler, she serves as Chief Strategist and has helped brands like AllBirds, BirchBox and Casper find their unique voice in a cluttered market.
Tina Sharkey hails from Brandless, the new e-commerce company that brings its own line of household and food items to the market for $3 each. Brandless has raised nearly $300 million since launching in 2016, an impressive feat on its own. What makes Brandless so attractive to investors? Tina Sharkey’s unwavering focus on understanding her customers. Alongside democratizing these products, and bringing eco-friendly and FDA-approved ‘safer choice’ goods to the masses, Sharkey makes data around consumer behavior a priority at the company, which helps with insights on how to sell Brandless’s portfolio of more than 300 products.
Heyward and Sharkey will be joined by Casper CEO and cofounder Philip Krim. Casper sprung onto the market in 2013 with a relatively simple premise: sell a quality mattress for cheaper. While it makes sense, it’s not the sexiest brand proposition. But with the help of Heyward and Red Antler, and a keen sense of the type of customer who chooses Casper over a traditional mattress, Casper has become one of the most effectively marketed brands out there right now.
We’re thrilled to hear from this trio of greatness at Disrupt SF.
Check out the full agenda here. Tickets are still available even though the show is less than two weeks away. Grab one here.
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