It was a big fall for the public debut in the direct-to-consumer space. Warby parker, which could be more than any other company synonymous with the rise of the DTC model, went public through direct listing in September. Rent the track went public in October. All birds followed suit in November.
Casper Sleep beat them all: it was made public early last year. Instead, this week brought a different kind of deal for the DTC brand that kicked off the idea of putting a mattress in a box.
Casper’s IPO in February 2020 was disappointing to say the least. At the time, CNN described it as “officially a disaster.” There was only descent from there. Casper has fought mightily as a state-owned enterprise, continuing to hemorrhage money even as the larger mattress market has exploded amid the pandemic. Its share price has fallen by more than 70% since the beginning of June. So this week, Casper decided to return to the private market with a deal to sell himself to a consumer-focused private equity firm. Sustainable capital management for $ 6.90 per share, or just under $ 300 million.
This represents a 94% premium over Casper’s share price before the deal was announced. It’s an impressive vote of confidence from Durational Capital. But it’s also a far cry from the $ 1.1 billion valuation that venture capitalists gave Casper not too long ago, in April 2019. The price is a sign of the drop in price. ‘star of the company over the past two and a half years. ever since – and the hardships so many DTC companies face as the industry struggles to live up to its disruptive dreams.
Casper was founded in 2014 to revolutionize the mattress industry with a simplified model and the promise every consumer needed was its “One Perfect Mattress”. It quickly became a popular commodity for venture capitalists. In 2015, Casper was valued at over $ 500 million. In 2017, it attracted $ 170 million in new funding to the tune of $ 920 million, climbing into the realm of the DTC elite.
In the process, Casper raised capital from some of the biggest names in venture capital: Norwest Venture Partners, Lerer Hippeau, IVP, NEA. And he also wooed a group of famous investors who chose to pay cash in exchange for lending their cache to Casper. Adam levine, Leonardo DiCaprio, Shaun White, 50 cents, Ashton kutcher and Kyrie Irving all participations in the company.
These famous investors were perhaps as much a marketing operation as they were a major source of liquidity. In many ways, marketing has been the key to the rise of the business. When Casper first started operating, the DTC industry was much less crowded and VCs were very optimistic. This allowed it to raise tons of funding and flood the market with ads targeted at millennials to quickly build brand recognition. Casper was also one of the first big DTC brands to start opening physical locations. It was a commercial version of blitzscaling, the same go-go philosophy that drove Uber and so many other startups into the early days of the unicorns.
But things have changed. Nowadays, there is more competition from other upstarts with the same model, which drives up the cost of advertising. Established mattress brands copy Casper’s best ideas. And profitability remains out of reach: Casper has lost money every quarter as a public company, with a net loss of $ 80 million in the first nine months of this year.
Casper was one of many companies to try something similar in the mattress market. Nowadays, few prosper. Tuft and Needle got out of the race early, selling at Serta Simmons in 2018 for $ 500 million. Violet innovation, which went public through a PSPC merger in 2018, has seen its stock price fall by more than 60% so far this year. In October, Cerberus Capital Management acquired Brooklyn Bedding and Helix Sleep and merged the two former competitors. Leesa has not raised funds since 2019.
There are parallels between Casper’s story and Blue Apron’s story. Both were direct-to-consumer businesses that rode a wave of early investor optimism and podcast ads to huge reviews and impressive brand recognition. But the two were also caught in a crowded field of competitors. And in the end, for both of them, the business model just didn’t work, at least not in a way that appealed to public investors.
From now on, Durational Capital will have a chance to turn the tide. But above all, company executives need to get a good night’s sleep.