The Honest Co. is sincere about its IPO plans -- but it's not in a hurry.
Best known for creating diapers, sunscreen and cleaning products that are light on chemicals and heavy on green marketing buzz, the shopping startup co-founded by actress Jessica Alba had $275 million in revenue last year, sources close to the company told Bloomberg. That's ahead of previous expectations and a healthy uptick from the $150 million in revenue reported for 2014.
In addition to growing sales, Honest has cash on hand. The startup, which has raised $222 million from Glade Brook Capital Partners, Fidelity Investments, Institutional Venture Partners, Lightspeed Venture Partners and others, still has the majority of that money on its balance sheet, chief executive officer Brian Lee said.
"No one is in a rush to IPO," said Jeremy Liew, a partner at Lightspeed Venture Partners and Honest board member since 2011. "That's the luxury of having a good company that's growing quickly, is well-financed and isn't a capital hog. You can choose the best time and place for the IPO."
That golden moment isn't now for Honest, despite Twilio's blockbuster IPO last week. Although the communications software company had a great debut -- shares are now trading at more than double the IPO price -- it was just the second venture-backed tech IPO of 2016. Hopes that it could open the public market for other unicorns were tempered after U.K. voters decided to leave the European Union. Angst over the potential impacts of that decision have since dented the global financial markets and added volatility -- not a great ingredient for public stock listings.
"An IPO would be a financing and branding event for us," said Lee, adding the company isn't starved for either at the moment. Investors valued Honest at $1.7 billion in a financing round last year. Lee declined to comment on the Bloomberg report earlier this year that Honest is working with Goldman Sachs Group Inc. and Morgan Stanley on such an offering.
Alex Wilhelm, editor-in-chief of data analytics service Mattermark, said he's been hearing little enthusiasm from unicorns to enter the public market. He sees no reason for Honest to go public, "unless their investors are hungry for liquidity."
The sole focus now for the Santa Monica, Calif.-based startup is on rolling out more products and owning the U.S. market. It 2011, it started as an online-only site selling 17 products. Now it has deals with Costco Wholesale Corp., Target Co. and others to carry the most popular of the 1,200 items it now offers. Honest has sought to distinguish itself from other consumer packaged goods brands by promoting what it says are healthy, natural products for babies, moms and their homes.
Not all products have been a success. Consumers using its sunscreen filed a class action lawsuit last year saying the product didn't work, and questions persist over the legitimacy of Honest's marketing claims that its laundry detergent is free of sodium lauryl sulfate, or SLS. In April, the Organic Consumers Association filed suit against the company, alleging its "organic" baby formula includes 11 "synthetic substances that are not allowed in organic products." Attorneys representing the Organic Consumers Association did not respond to a request for comment. The sunscreen suit was transferred to the Central District Court of California in November, and attorneys representing the plaintiffs did not respond to a request for comment.
Lee said the company stands behind the safety of its infant formula. He also said the company "learned a lot" from last year's complaints about its sunscreen and has since worked to educate consumers on how to use it. Online sunscreen sales are up 50 percent year-over-year for the second quarter of 2016 and sunscreen sales at Costco are up 42 percent during that same period, Lee said.
Although the brand has played well on the coasts, heartland states have been slower to embrace it. Awareness of Honest overall nationwide -- when prompted -- hovers around 35 percent, according to a survey Honest commissioned. The next big push comes this fall when the company begins selling hair care products -- its third category.
Honest has also hired Laurence Dryer to head product development and innovation. She previously developed brands and formulations for Valeant Pharmaceuticals, Obagi Medical Products, Neutrogena and others.
The company's next category could be nail care, according to Lee. Liew said the focus is on continuing to introduce more products in the U.S. and learning to behave like a public company. Honest established internal controls including audit and compensation committees more than a year ago, he said.
Eric Liaw, a general partner at Institutional Venture Partners and also on the Honest board, said he also has no interest in going public prematurely.
"Honest is a stock I personally could hold for 10 years, 15 years or maybe longer. The category and growth is that large," he said.