Goldman Puts Money Behind Vitamin Startup Valued Close to GNC
(Bloomberg) -- Care/of, a startup selling vitamins and herbal supplements online, raised funds from investors including Goldman Sachs Group Inc.’s venture arm that value the company at $156 million, within striking distance of publicly traded retail chains that are among the industry’s leaders.
The New York-based startup sells monthly subscriptions of vitamin packs on its website and advertises through Facebook and Instagram, following the playbook of direct-to -consumer brands in other industries like Casper mattresses and Warby Parker eyeglasses. Two years since launching, the company announced Tuesday that it had raised $29 million from investors including RRE Ventures.
The startup’s $156 million valuation isn’t far from Vitamin Shoppe Inc., with 3,860 employees and a market capitalization of about $203.5 million, or GNC Holdings Inc., which has a market value of $254.2 million with 6,400 employees. Care/of has about 100 workers, Chief Executive Officer Craig Elbert said.
“Consumers are increasingly shifting spend online and so I think large retail footprints have the potential to be a liability,” Elbert said in an interview. “There’s a lot of growth ahead of us and lot of reasons why this should be an e-commerce business.”
Care/of’s rapid rise shows the enthusiasm investors have for online boutiques, which seek to cut out retail stores and a high workforce and pour money instead into hip, narrative-heavy marketing. Vitamins make a lot of sense for the e-commerce treatment because they’re cheap to ship, lend themselves well to a subscription business model and aren’t generally returnable, Elbert said. The U.S. market is estimated at $23 billion and is set to grow around 6 percent a year, according to by McKinsey & Co.
The growth means there’s plenty of room for new entrants, said Beth Kaplan, a former executive at GNC and Procter & Gamble Co. who has invested in Care/of and is joining its board. That’s not why traditional retailers in the space are struggling, she said. “The incumbent retailers like my alma mater have done a pretty poor job of late addressing millennials.”
Care/of’s branding is clean, colorful and clearly in line with the aesthetic pioneered on subway ads by others like Casper or health insurance startup Oscar. Elbert, a former executive at online clothing boutique Bonobos, took care to skip the vitamin cliches of the hippie and gym-rat crowds. He also knew people were being turned off vitamins and supplements because of conflicting claims and sketchy science.
“We live in a world where the internet is full of forums with people giving various recommendations and opinions,” he said. Care/of tries to meet that head on, asking potential customers how much they care about peer-reviewed studies that support a certain vitamin’s effectiveness. At the same time, the company doesn’t short-change traditional remedies like turmeric or milk thistle, it just lets people know those remedies are based on tradition, not necessarily lab results.
“What people want most is being presented with what research is out there,” Elbert said. “The more transparent we are the better.”
There’s one major threat that looms large over Care/of -- Amazon.com Inc. The Seattle-based behemoth has set its sights on health care, buying online pharmacy PillPack for almost $1 billion in June and participating in a major project with Berkshire Hathaway Inc. and JPMorgan Chase & Co. to improve the U.S. health insurance market.
The lackluster public valuations of GNC and Vitamin Shoppe aren’t due to competition from Care/of -- they’re because of bargain prices offered on Amazon.
“Whenever you are in e-commerce, Amazon is never far from your mind,” Elbert said. “Ultimately, our goal is to focus on the full customer experience in a way that we think can position us in a way that is unique from the purely transactional relationship of traditional e-commerce.” In other words, Amazon is fine for bulk purchases, but only Care/of will customize a set of pills for you, and remind you every day on an app to take them.
More than 1.5 million people have taken Care/of’s quiz, which spits out a custom set of vitamin recommendations based on consumers’ age, gender, health goals and level of skepticism about traditional medicines. Elbert declined to talk about revenue or subscriber numbers.
His vision is to eventually build a well-rounded wellness company that sells a variety of products based on users’ personalized needs. Care/of already plugs into Apple Inc.’s health and nutrition tracking app.
Personalization is a defense many online boutiques can take when it comes to Amazon, said Christopher Dawe, co-head of venture capital at Goldman Sachs Investment Partners, which led the financing round.
Care/of’s approach is also fun and engaging, “there’s a virality to the product,” Dawe said.
©2018 Bloomberg L.P.