Ernest Supplies Deal Memo (Closing Date: 2021-07-31)

Muhan Zhang -

Deal Abstract

Ernest Supplies
Omnichannel skincare brand redefining clean, sustainable, and inclusive products.
SeedInvest

The Honest Company meets a direct to consumer skincare brand. Declining revenue in the year where their revenue should have gone bazonkers, can they cross the chasm?

Financials (VRB)

Question Notes
1. Fundraising Target? $1250000
2. Fundraised So Far? $56600
3. Pre-Money Valuation? $5000000
4. Previous Year's Annual Revenue $93526
5. Previous Year's Annual Net Income (+ Profitable, - Burning Cash) ~$-28677
Source

The 6 Calacanis Characteristics ("Sow Passion, Not easy mediocrity", or S2 P6 N18)

Criteria Yes/No
1. A startup that is based in SV? False: New York, NY
2. Has at least 2 founders? True: Two
3. Has product in the market? True: Revenue generating
4. 6 months of continuous user growth or 6 months of revenue? False: Revenue DECLINED
5. Notable investors? False: No one I recognize
6. Post-funding, will have 18 months of runway? True: Low burn

The 7 Thiel Questions (Every Time Man Profits, Don't Dismiss Serendipity)

Question Score Notes
1. Engineering? 3 Sort of like the Honest Company for skincare
2. Timing? 3 Good timing, more consumer knowledge, more online commerce
3. Monopoly? 1 Relatively little market share
4. People? 4 Small but mighty
5. Distribution? 3 This is a d2c brand
6. Durability? 2 How do you make this company durable? Is it proprietary supply chain?
7. Secret? 3 Building the Honest Company for Skincare is a billion dollar opportunity

What has to go right for the startup to return money on investment:

1. Building subscription revenue/ongoing relationship; 2. Dominate e-commerce; 3. Identify product-market fit customers

What the Risks Are

1. Heavy competition; 2. Declining revenue means 2020 was not a make-it year for a digital native brand; 3. Skincare may not be venture backable (*may* being the operant word)

Bonus Muhan's Notes

Very cool, but declining revenue concerning.

Updates

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Other thoughts, questions, comments, or concerns? Write me at mail@muhanzhang.com and let me know.