Many investors today want to know that the companies they choose to invest in are operating from a standard of integrity. The wellness and baby-care products brand founded by Jessica Alba, The Honest Company (Honest Co. for short) has long focused on building that level of trust among customers. Now the nearly ten-year-old company is reportedly setting its sights on a public offering. Here’s what you need to know about the Honest Co. IPO.
Like a lot of fledgling businesses, Honest Co. has had its struggles since it first launched products into the market in 2012. Sales grew rapidly and reached a peak of $300 million over the course of 2016. However, revenue stalled in 2017 and the company has dealt with class-action lawsuits and voluntary product recalls that marred its “honest” reputation. In January, news came about an Honest Co. IPO date potentially worth $2 billion.
TL;DR
- Actress Jessica Alba founded The Honest Company with Chris Gavigan, Sean Kane, and Brian Lee in 2012.
- The brand focused on making baby products (especially diapers) as well as beauty and household products without harmful chemicals.
- Honest Co. fundraising totals to date have been about $500 million, including $200 million from L Catterton.
- Sales of Honest Co. products grew steadily from $60 million in 2013 to $300 million in 2016.
- The company faced lawsuits and product recalls that shed doubt on the quality and effectiveness of their natural ingredients.
- In 2020, Honest Co. hired a new Chief Financial Officer, Kelly Kennedy, to help effectively guide and implement its growth plans.
- Honest Co. is now said to be seeking an IPO with a $2 billion valuation, though its last valuation after a fundraising round was only $1.7 billion.
You can learn more about IPOs here.
The Honest Company at a glance
Actress Jessica Alba, known for the TV series Dark Angel and the Fantastic Four movies (or Never Been Kissed if that’s more your scene), has said that she became inspired to start Honest Co. when she couldn’t find safe and effective products to use in her home after the birth of her first child, Honor.
In 2008, Alba met Christopher Gavigan. The two began imagining a new home-and-wellness brand that would offer cleaner ingredients and better transparency for customers. Following a 2011 $6 million seed funding round, The Honest Company was born.
From its earliest days, The Honest Company had a vision of being set apart from other baby-and-beauty brands. In 2012, the brand earned the designation of a certified B Corporation, joining 3,000 other businesses seeking to balance purpose and profit. B Corp. certified companies are “legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment” according to the certification provider itself.
Honest Co. bases its philosophy on its expressed top priority of protecting human health. The six steps of its “Honest Standard” are as follows:
- Ingredient and material assessment
- Testing and validation
- Production quality
- Packaging (environmental responsibility)
- Label transparency (including avoiding the term “fragrance” in its ingredient list)
- Ongoing evaluation
Related: How and why to start impact investing
Sales of Honest Co. products grew from 2013–2016, but stalled in 2017. During that same year, quality issues were brought to light when customers began complaining of moldy spots on some Honest Co. baby wipes. The company voluntarily recalled certain lots of the product and destroyed millions of dollars worth of product inventory in response.
Co-founder Gavigan released an apology video about the recalled items, though he stated the company’s belief that the affected products were “not likely to cause adverse health consequences.”
The year 2017 was a rough one for Honest Co. During the same time period, co-founder Brian Lee left his post as CEO, passing the mantle to Nick Vlahos. As a former Clorox executive, Vlahos brought experience building global retail brands such as Burt’s Bees, Brita, and GreenWorks.
Honest Co. currently sells its line of products in over 32,000 store locations in the United States as well as select locations in Canada and Europe.
Along with everyday standards of quality products free from harmful ingredients, Honest Co. also seeks to do good in society. The company partners with Baby2Baby, an organization that helps provide necessary products to children from low-income families. According to the company website, Honest Co had donated a total of 20.6 million products (diapers, personal care, and cleaning products) from its founding in 2012 through 2019.
Related: How to invest in women-led companies
Honest Co. fundraising to know about
All told, the celeb-led brand has raised about $503 million in 7 funding rounds. Here’s a breakdown of the key Honest Co. fundraising over the years:
- Seed Round: In 2011, Honest Co. conducted a $6 million initial fundraising round led by Lightspeed Venture Partners.
- Series A: Honest Co raised another $27 million in a 2012 round from General Catalyst, a venture capital firm founded in 2000.
- Series B: In 2013, IVP led the next $25 million in Honest Co. fundraising. IVP is a later-stage venture capital firm that has invested in over 400 companies, including 116 that have gone public.
- Series C: The next round of fundraising for the wellness brand jumped in value to $70 million. Honest Co.’s Series C round of capital was led by Wellington Management in 2014.
- Series D: Continuing the trend of ever-swelling fundraising rounds, in 2015 Glade Brook Capital Partners led a $100 million round for Honest Co.
- Series E: As sales slowed somewhat, in 2017 The Honest Company raised $75 million from Fidelity Management and Research Company. Its valuation was estimated below $1 billion (they were a unicorn, and then they weren’t).
- Private Equity Round: The latest round of capital raised for Honest Co. was led by L Catterton, which injected $200 million into the company.
Path to the Honest Co. IPO
Honest Co. has not been on a straight-and-narrow path to an IPO. Their sales revenue grew rapidly in the early years, giving them the “unicorn” designation by 2015 when their approximate valuation was $1.7 billion. Two years later, Honest Co.’s valuation had dropped below the billion-dollar mark, effectively revoking their unicorn status.
(Unicorn is just investor-speak for startups that exceed a $1 billion valuation.)
CEO Nick Vlahos stated in a 2018 interview that he wasn’t interested in the pursuit of an IPO or sale of the company in the near future. Instead, he noted in WSJ, “I’m interested long term in creating a legacy and brand that will test time.”
Now, three years later, the company is said to be getting ready for an IPO soon. So what changed?
Honest Co. has not released an official statement about IPO filings, but people familiar with the matter told Bloomberg that the company was looking to file confidentially. The anonymous sources also said the company might be hoping for a $2 billion valuation in the IPO.
Honest Co. has spoken to world-class bookrunners Morgan Stanley, J.P. Morgan, and Jefferies to secure underwriting for its IPO, though representatives for these firms have not confirmed their participation.
When is The Honest Company IPO date?
Since the potential filing is to be confidential and no SEC paperwork has yet been released to the public, the Honest Company IPO date is a mystery at this point. Companies often keep things under wraps until close to the IPO date, but the reasons for this differ.
L Catterton, Honest Co.’s major investor, did not give a statement when contacted about the potential IPO filing. A representative from Honest Co. noted, “As we continue pursuing our mission to inspire everyone to love living consciously, we regularly explore all various financial strategies and options.”
What investors should know about the Honest Co. IPO
There are risks associated with any company investment. Let’s start with some of the risks investors in the Honest Co. IPO will have to assume when they hop on board.
Foremost, there’s a company history of subpar product efficacy. The company will need to avoid any future controversy. Consumers only give companies so many changes, and Honest Co. already has numerous strikes, including the moldy wipes debacle and an ingredient-labeling controversy.
They’ll also need to be strategic about which markets they tap into and which they avoid, if only to keep sales up and costs down.
The recent hiring of new CFO Kelly Kennedy seems like it will be a boon for Honest Co. as its IPO date draws near. Kennedy has over 25 years of experience in financial strategies for major companies both public and private. Her resume includes positions as CFO of Sur La Table and Annie’s Inc, the latter of which she successfully guided through an IPO.
Alba herself praised Kennedy’s “business and financial acumen” as well as her belief in the Honest Co. mission.
Honest Co., though smaller, must compete with other beauty and personal-care companies such as Johnson & Johnson, Burt’s Bees, and Seventh Generation. Johnson & Johnson has shown steadiness in the market, increasing its dividends each of the past 57 years. Burt’s Bees is now owned by Clorox, and Seventh Generation was bought by Unilever in 2016.
Globally, the baby skin care market could reach $18.93 billion by 2025. Since Honest Co. avoids over 2,500 potentially harmful ingredients in their products (and is reportedly committed to full transparency of its ingredients), consumers like their way of operating.
Bottom line
Honest Co. looks to be pursuing an IPO soon, although the company hasn’t released an official press release to that effect. Honest Co. stands to benefit from the trends of environmental responsibility and corporate transparency. If the company is able to maintain standards of integrity while manufacturing quality products, the Honest Co. IPO may be one worth considering—but they’re not immune from risk, and neither are their future retail investors.
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