Walmart continues M&A spree with acquisition of lingerie retailer Bare Necessities

Walmart continues to beef up its portfolio of digital brands, announcing on Friday that it had acquired Bare Necessities, an online retailer of lingerie, swimwear, hosiery and other intimates.

Walmart declined to disclose the terms of the deal.

The lingerie company, founded in 1998, will operate independently of Walmart. Over time, the e-commerce giant says it will make Bare Necessities’ products available on Walmart.com, as well as on Jet.com, which Walmart acquired for more than $3 billion in 2016 to bolster its e-commerce business.

Walmart has long been one of the most active acquirers of startups and hasn’t slowed down in 2018. Just last week, the company announced it would purchase women’s plus-sized clothing brand ELOQUII. Before that, it paid $225 million for a grocery delivery service called Cornershop and earlier this year, it completed its $16 billion acquisition of Flipkart — its largest M&A play yet.

ModCloth, Bonobos and Moosejaw are other Walmart-owned brands, all of which were acquired in 2017.

In a statement, Walmart said Bare Necessities fit into its broader acquisition strategy, “which includes digital brands that offer unique products customers can’t find anywhere else.”

As part of the deal, Bare Necessities co-founder and chief executive officer Noah Wrubel will continue to run the company alongside chief operating officer Bill Richardson. Wrubel will also take charge of the intimates category for both Walmart.com and Jet.com. Bare Necessities’ 170 employees will continue to run the business out of Edison, N.J., where the company is headquartered.

The global lingerie market is expected to bring in upwards of $60 billion in revenue by 2024, driven in large part by tech-enabled direct-to-consumer businesses’ e-commerce sales.

How this Kazakhstan internet giant built success on ideas from Russia and China

The advantage of entering an emerging market is that the market still has a lot of empty space to fill, and as a startup you can be the first player. Kazakhstan might not be the first country that comes to mind when you think of overseas expansion. However, it is the world’s largest landlocked country, and shares borders with Russia and China, which are important consumer markets as well as technology hubs.

In fact, companies in Russia and China provided good benchmarks for Chocofamily, now the biggest e-commerce holding in Kazakhstan. The 2011-founded startup’s current capitalization is $50 million, and they’ve hired 350 employees in their office in Almaty, the country’s largest city and previous capital.

The company claims it has 2 million registered users on its platform, and expects $170 million gross billings in 2018 with 7,000 purchases per day. Chocofamily launched their payment app, Rakmet, in 2017, following in the steps of WeChat Pay.

2011: Copying from Russia 

Looking at how Groupon was exploding in Russia, and how Delivery Club, a Russia-based food delivery service, was growing at a fast pace, the founder of Chocofamily, Ramil Mukhoryapov, decided the success could be replicated in Kazakhstan. So he quit his studies in Russia and went to Kazakhstan.

“Russia is three years above Kazakhstan. Check out what is happening in Russia and do the same in Kazakhstan, it is going to work in three years. That’s what we did, how we started the Chocofamily itself,” Nikolay Shcherbak, CEO at Chocofood says. “We just copied. If this works in Russia, it will work in Kazakhstan as well, because the markets are really close to each other.”

Ramil started with a daily deal service, Chocodaily, in Kazakhstan. After his first attempt was successful, he later started Chocofood, a food delivery service; Chocotravel, an online travel service; Lensmark, an online shop for contact lenses; and iDoctor, a platform with all the doctors in Kazakhstan where patients can find the doctor that they need and check doctor and hospital information and reviews. Now all these services are affiliates of Chocofamily Holding. 

How this company consolidated the market

In Kazakhstan, Chocofamily had competitors, but they either defeated them, purchased them or merged with them.

Chocofamily’s food delivery service, Chocofood, faced stiff competition in the market. Its rival was Foodpanda, which also started in Kazakhstan in 2013. After a four-year war of attrition, Foodpanda remained as No. 2 and wanted to get out of the market — so Chocofood acquired Foodpanda and took over their customer base and the legal entity. The company got additional growth uplift after integrating with Foodpanda.

“The best we got from the deal was the team, the people. They joined the company and just doubled our orders,” Nikolay says. 

Now Chocofood has an 80 percent market share in the food delivery market with 34,000 orders per month, working with 350 restaurants.

Online travel services Chocotravel merged with its rival Aviata in 2017. Now the two companies take a 67 percent combined market share. They’ve been profitable since the second half of 2018, with 80,000 air tickets and 50,000 railway tickets sold per month. 

In the future, Chocotravel plans to enter the South-Eastern and CIS (Commonwealth of Independent States, namely northwest Russia, Eastern Europe and the Baltic states) travel markets, and they are looking for additional funds for expansion.

2017: Copying from China

In 2017, the company launched a payment app, Rakmet, which means “thank you” in Kazakhstan. It allows users to pay for purchases by simply scanning QR codes. For users, the advantage is that every merchant gives them cash back.

The idea for the app came about in early 2017, as they were looking at other companies in different countries. 

“We were looking at WeChat, and it had a good system of using QR codes for payments. We thought it was a good idea. QR code technology is really old, but it only comes to our everyday life now,” Nikolay said.

Like other payment apps, users can use the Rakmet app by connecting their bank card to the app as a payment option. With a population of 18 million in Kazakhstan, bank card penetration is quite good; 19 million bank cards have been issued in total, and there are 10 million active bank cards.

For businesses to join the Rakmet app, they must give a certain percentage of cash back to customers. The approach has been especially popular with cafes and restaurants that have been using loyalty cards to attract consumers. Nikolay says it is a marketing strategy for merchants, because they’re paying the commission to Rakmet only for those transactions. To date, 300+ predominantly small businesses in Almaty have posted their stores via the Rakmet app. 

“Rakmet app will be on top of the ecosystem of all Chocofamily affiliates. We also plan to add different services to Rakmet app, such as allowing users to pay traffic fines to the government on the app and pay the parking fee using the app,” Nikolay says. 

Women are typically responsible for the household in Central Asia. Thus, women make up 60 percent of their users, making transactions on mobile such as booking flight tickets, ordering food, and making doctor appointments. The biggest growth is among their users in the age group between 25 to 35.

They also are working on big data. The team is now building the infrastructure for big data analysis, such as data warehousing and the support. Then they plan to build the mechanism for data processing. In September, they signed a contract with one of the universities in Kazakhstan so they can attract students who are experts on big data analysis.

In 2011, Chocofamily started with their own money. In 2013, they received $50,000 from two angel investors, then another $150,000. Then they attained Series A funding of $1 million from Murat Abdrakhmanov, an experienced entrepreneur in Kazakhstan, and later received $2 million in Series B.

Facebook Workplace adds algorithmic feed, Safety Check and enhanced chat

Workplace, the version of Facebook tailored to enterprises that has over 30,000 organizations as paying customers, is ramping up the service today with a rush of new features to help it competes with the likes of Slack and Microsoft’s Teams.

The additions are being announced at a new, standalone conference called Flow — the first time Facebook has built what’s likely to become a recurring event for a specific product, Workplace’s head Julien Codorniou told me in an interview. He described Workplace as “Facebook’s first SaaS startup.” He tells us that for existing clients, the goal of Flow is to show off new features that deepen employee engagement with Workplace so they can’t imagine switching away. And for enterprise software partners Facebook integrates with, it’s to foster an ecosystem surrounding Workplace so it can adapt to any business.

In a big upgrade to the “chat” features of Workplace (conversations that happen outside the news feed, first launched last year), users will now be able to start chats, calls and video conversations either one-to-one or in groups, in the style of WhatsApp or Messenger. Facebook is also making it easier to navigate through high volumes of messages in your channels by adding in replies, do not disturb and pinning features — Facebook’s first move to bring in algorithmic sorting to Workplace. And Facebook is also bringing its Safety Check feature from the main app to Workplace, delivered via Workchat, as a tool that can be controlled by admins to check on the status of employees during a critical incident.

Workplace has picked up 30,000 businesses as customers in the two years since it launched (including some biggies like Walmart, the world’s largest employer); and today it also added a couple of notable large enterprises to the mix: GSK, Astra Zeneca, Chevron, Kantar, Telefonica, Securitas, Clarins UK, Jumia and GRAB.

But Facebook has never revealed how many users (or “seats”, in enterprise parlance) it has on Workplace. As a point of comparison, Slack today has 8 million users across 70,000 organizations, and Facebook hasn’t updated its 30,000 figure in a year.

Facebook Workplace multi-company chat

The range of features Facebook is introducing today are notable both for their breadth and for what they are aiming to do. Some help put Workplace more on par with the core Facebook experience in terms of functionality, but ultimately they are all squarely aimed at making Workplace into something that fits more closely with how enterprises already use IT.

The chat features that are being incorporated build on the minimal chat features that were already present in Workplace and essentially create something like WhatsApp or Messenger that sits within the same secure framework as Workplace itself. It’s effectively Facebook’s first step forward into unified communications — a specific branch of enterprise IT that used to be centred around PBXs and other expensive physical equipment, but has more recently become more virtualised with the rise of voice of IP and cloud-based systems that can be used over any internet connection.

Workplace had already had a feature in place for up to 50 companies to converse in multi-organizational conversations on the platform, and now if some members of those groups want to take the conversation to a more direct channel potentially with voice or video calling, they can do that directly from within the app without having to open a separate messaging client (which may or may not be under the control of IT).

The three features that help you better organise your conversations — do not disturb, replies and pinning important items — will be especially welcome to people who have especially “noisy” channels on Workplace.

Replies, Codorniou said, will work “like on WhatsApp” — where you can select a message and reply to it and it will appear with its mini thread later in the feed.

But they are perhaps most notable of all because they will be the first time that Facebook is introducing “algorithmic” sorting to Workplace. For those who already use normal Facebook, or Twitter, or other social media services, algorithmic sorting is something that is well-known, as it plays with the sequence of posts to show you what is deemed to be more important, versus what’s most recent.

In the case of pinning, Facebook is letting the IT admins, and users, effectively play a part in the algorithmic sorting: Admins can pin “important” posts to the top of a feed, and that will affect what users see and can respond to first. “If the CEO posts a message, this might be more important than something posted an intern,” he said.

Do not disturb, meanwhile, will let users set times when they do not get pinged with messages, but when you “return” again to Workplace, Facebook decides what gets sorted to the top of what you view.

Facebook’s VP of Workplace Julien Codorniou

Codorniou notes that Facebook uses machine learning and AI “to make sure that if you don’t use Workplace for two weeks [as an example] you have the most relevant information on top of the news feed.” Signals that it uses to sort include who you work with, and which groups you are most active in. “It’s algorithmic by default,” he noted, and added that this was something that was requested by Workplace users. “People don’t believe in the chronological feed anymore,” he said. “It’s important to guarantee reach to communications teams.”

The Safety Check also fits into this concept. Here, Facebook will be putting IT managers/Workplace admins into the driver’s seat, “giving them the keys to the feature”, said Codorniou, and letting them control the use and distribution of a feature that in regular Facebook is controlled by Facebook itself.

Frederic takes a deeper diver into Safety Check here, but the main idea, as Codorniou described it to me, is that it allows companies “to track and clear who is safe and who is not” when a particular location has been through an emergency or critical incident. There are apps that companies can use to run safety checks, or sometimes they might use SMS, but these tend to work more manually and are harder to execute quickly, he said. Facebook doesn’t reveal how well penetrated their apps are at organizations like Walmart and Starbucks, but this potentially becomes one lever to helping get Workplace distributed more widely.

“Employees are a company’s number-one asset of the company, and this helps make sure you are safe,” he added. “People don’t want to play Candy Crush, but things like Live” — which Workplace launched last year — “and Safety Check are relevant. They help turn companies into communities.”

(Community, of course, is the big theme for Facebook these days.)

All these updates are happening at a time when many people have been scrutinising Facebook for its approach to user privacy and personal data.

The issue was notably highlighted over the Cambridge Analytica scandal many months ago, specifically over how third parties were able to access users’ information; and then more recently Facebook faced criticism two weeks ago, when it emerged that a bug in one of its features exposed user information to malicious hackers. Both of these problems were squarely about Facebook’s core consumer app, but I couldn’t help but wonder what kind of an impact it has had on the company’s enterprise business — given that levels of security in workplace networks typically tend to be higher as they are connected to corporate information.

“We had a few questions of course but we have no reason to believe that Workplace was affected,” Codorniou said. He noted that there had once been a feature to log in to Workplace using a user’s Facebook ID, but that was disabled some time go. “We have been investigating, but most customers are on single sign on,” he noted, which uses services like Okta, One Login and Ping to connect and sign in employees to their Workplace spaces.

Facebook’s scale brings it huge advantages in the enterprise. The consumerization of the office stack means Facebook can easily port over its familiar features. It’s big enough to extensively dogfood Workplace within the company. And it already has advertising relationships with many of the world’s top brands. But being a tech giant comes with the associated scandals and constant criticism. Facebook will have to convince business leaders that its social troubles won’t muddy their suits.

SoundCloud finally lets more musicians monetize four years later

SoundCloud moves painfully slow for a tech company, and no one feels that pain more than musicians who are popular on the site but don’t get paid. 10 years since SoundCloud first launched, and four years since it opened an invite-only program allowing just the very biggest artists to earn a cut of the ad and premium subscription revenue generated by their listeners, SoundCloud is rolling out monetization.

Now, musicians 18 and up who pay SoundCloud $8 to $16 per month for hosting, get over 5000 streams per month, and only publish original music with no copyright strikes against them can join the SoundCloud Premier program. They’ll get paid a revenue share directly each month that SoundCloud claims “meets or beats any other streaming service”. However, the company failed to respond to TechCrunch’s inquiries about how much artists would earn per 1000 ad-supported or premium subscription listener streams, or how many streams would earn them a dollar.

Beyond payouts, Premier members can post new tracks instantly without having to wait to be discoverable or monetizable, they’ll get real-time feedback from fans, and extra discovery opportunities from SoundCloud. The company hopes monetization will lure more creators to join the 20 million on the platform, get them to promote their presence to drive listens, and imbue the site with exclusive artist-uploaded content that attracts listeners.

It’s been a year since SoundCloud raised an $170 million emergency funding round to save itself from going under after it was forced to lay off 40 percent of its staff. That deal arranged by Kerry Trainor saw him become CEO and the previous co-founder and CEO Alex Ljung step aside. With underground rap that had percolated on SoundCloud for years suddenly reaching the mainstream, the startup seemed to have momentum.

The problem is the slow speed of progress at SoundCloud has allowed competitors with monetization baked in to catch up to its formerly unique offering. YouTube Music’s launch in June 2018 combined premium major label catalogues with user uploaded tracks in a cohesive streaming service. And last month, Spotify began allowing indie artists to upload their music directly to the platform. Meanwhile, licensing distribution services like Dubset are making it legal for big streaming apps to host remixes and DJ sets. Together, these make more of the rarities, live versions, and hour-long club gigs that used to only be on SoundCloud available elsewhere.

The delays seem in part related to the fact that SoundCloud wants to be Spotify as well as SoundCloud. It’s refused to back down from its late entry into the premium streaming market with its $9.99 per month SoundCloud Go+ subscription. As I previously recommended, “to fix SoundCloud, it must become the anti-Spotify” by ruthlessly focusing on its differentiated offering in artist-uploaded music. Instead, another year has passed with only a light revamping of SoundCloud’s homescreen and some more personalized playlists to show for it.

SoundCloud proudly announced it had reached $100 million in revenue in 2017, and exceeded its financial and user growth targets. But filings reveal it lost over $90 million in 2016 and it was previously projected to not become profitable until 2020. That begs the question of whether SoundCloud will have to raise again, or might once again open itself to acquisitions. With Apple, Google, Amazon, and Spotify all in fierce competition for the future of streaming, any of them might be willing to pay up for music that fans can’t easily find elsewhere.

Facebook adds A.I. to Marketplace for categorization, price suggestions and soon, visual search

Facebook is celebrating the two-year anniversary of its Craigslist competitor, Facebook Marketplace, with the launch of new features powered by A.I. Specifically, the social network says it’s adding price range suggestions and auto-categorization features to make selling easier, and it says it’s testing camera features that would use A.I. to make product recommendations.

Automating price suggestions and categorization, however, is not unique to Facebook – eBay earlier this year introduced a feature in its mobile app that will fill out your listings for you, using technologies like structured data and predictive analytics. Letgo can also make generalized price suggestions.

In Facebook’s case, the company says it will be able to categorize items based on the photo and description, then suggest a price range (e.g. $50-$75) for sellers to choose from. According to the company, when this autosuggest feature is enabled, sellers are less likely to abandon their listings, it has learned. (9% of sellers abandoned listings before the feature was enabled, it noted.)

AI in Marketplace

Posted by Facebook on Tuesday, October 2, 2018

Facebook also highlighted some of the other ways it uses A.I. – to automatically enhance the lighting of images uploaded by sellers, for instance, and for detecting and removing inappropriate content.

And while not A.I.-based, the company additionally noted its new buyer and seller ratings where people can rate their experience and leave feedback.

Further down the road, things may get more interesting. Facebook lightly teases its plans to turn Marketplace into more of a discovery tool for finding things you want to buy using your smartphone camera. For example, the company writes in a blog post, you could point your camera at something you like – such as your friend’s cool headphones – snap a photo, and then Marketplace would search across its listings for similar items.

This sort of visual search tech is also common among competitors, including eBay again, plus Pinterest and even Google. Facebook, then, is playing a bit of catch-up for the time being.

Further down the road, Facebook’s plans for Marketplace put it more directly up against Pinterest. It says it envisions using A.I. in the future to help people with home design – like, by uploading a photo of their living room, then getting suggestions about furniture to buy. Home design and inspiration, of course, is the bread-and-butter of sites like Pinterest, Houzz and others, including newcomer Hutch.

That said, even if it’s lacking in some features today, Facebook Marketplace is not one to be counted out. Thanks to Facebook’s size and scale (and the annoying way it continuously red badged the Marketplace icon, forcing users to keep tapping it), the company says its buy-and-sell platform has grown to be used by more than one out of every three people in the U.S. on a monthly basis.

 

 

 

Walmart to acquire women’s plus-size clothing brand ELOQUII

Walmart is expanding further into apparel with today’s announcement of its plans to acquire the digitally native, women’s plus-size clothing brand ELOQUII for an undisclosed amount. The deal includes ELOQUII CEO Mariah Chase, her executive team and its 100 employees, who will continue to be based in Long Island City, NY and Columbus, OH. They’ll join Walmart’s U.S. e-commerce organization, reporting to Andy Dunn, SVP of Digital Consumer Brands, Walmart U.S. eCommerce, when the deal closes later this year.

Women’s plus-size fashion is of interest to Walmart because it’s one of the fastest-growing segments of women’s apparel, and an estimated $21 billion market, the retailer explains. More than half of U.S. women ages 18-65 now wear a size 14 or higher, but traditional fashion brands often overlook their needs by limiting clothing options, or failing to address fit.

ELOQUII was founded in 2011 and then relaunched in 2014 as a direct-to-consumer brand catering to this market. Since 2015, the company has seen 3x revenue growth and has achieved a Net Promoter score of near 80.

Beyond simply having the means to address this market with more inventory, ELOQUII is another means for the retailer to reach a segment of online consumers who perhaps wouldn’t have otherwise considered shopping Walmart. This is a similar strategy Walmart made when snatching up other fashion brands, including Bonobos ($310M) and ModCloth ($75M), for example. In fact, Bonobos and ModCloth shoppers were so anti-Walmart in some cases, there was a backlash following their acquisitions.

ELOQUII has grown its online profile thanks to savvy internet marketing and high-profile relationships, like the one with Reese Witherspoon, who partnered on a plus-size collection from her clothing line Draper James. The retailer also tapped other brands like Stone Fox Bridal and Jason Wu – the latter designer who’s a fav of celebs like Karlie Kloss, Diane Kruger, and Lily Aldridge.

It has also listened to and promptly responded to customer feedback as it grew.

“Addressing customers’ vocal requests for fashion-forward styles is something ELOQUII does incredibly well,” notes Dunn, in a blog post about the deal. “For example, they recently uncovered 80% of ELOQUII customers work full-time, and one of the most frequent requests from customers was for fashionable work wear. Embracing the feedback, ELOQUII launched The 9-5 Kit and most recently The Premier Workwear Kit, filling an unmet need in the category and further reinforcing trust with customers in the process,” he says.

Walmart has picked up a number of brands to help it expand its reach and inventory in recent years, including Moosejaw ($51M), ShoeBuy, Jet.com ($3B), Hayneedle, in addition to Bonobos and ModCloth. Most continue to offer their own online stores, though Moosejaw just became the first acquisition to open its own storefront right on Walmart’s site. It also introduced its own Allswell home and bedding digital brand.

The retailer says the ELOQUII deal is expected to close later this quarter. The brand has raised $21 million to date, according to Crunchbase data, from investor including Acton Capital Partners, Greycroft, Grace Beauty Capital, Female Founders Fund, Fabrice Grinda, FJ Labs, Max Ventures, and HDS Capital.

Stitch Fix tumbles 20% in after-hours trading following lukewarm earnings report

Shares of Stitch Fix plunged more than 20 percent in after-hours trading on Monday following the release of a tepid fourth-quarter earnings report.

The online retailer and personal styling service’s adjusted earnings exceeded analyst expectations, but its revenue and active users fell short of estimates. In the quarter ending July 28, Stitch Fix reported a net income of $18.3 million, or 18 cents per share, up from analyst’s 4 cents per share estimate. Its reported net revenue of $318.3 million, a 23 percent year-over-year increase, failed to meet analyst expectations of $318.6 million.

The San Francisco-based company’s user base grew 25 percent YoY, to 2.7 million, another disappointment to Wall Street, which was looking for more than 2.8 million.

Stitch Fix, which has a market cap of nearly $4.4 billion, also reported fiscal year 2018 earnings. In its first year as a public company, Stitch Fix had $1.2 billion in net revenue, $44.9 million in net income and an adjusted EBITDA of $53.6 million.

Founder Katrina Lake took the company public on the Nasdaq in November 2017 in a highly anticipated consumer IPO. The company raised $120 million in the process, selling 8 million shares after making a last-minute decision to downsize its offering ahead of its first day of trading.

Following the release of its first-ever earnings report in December, shares of Stitch Fix similarly took a huge hit, plunging down 10 percent on the news.

The company usually finds its footing and, overall, its stock has continued to climb since its IPO. Stitch Fix had its best day yet on September 18 when its stock was valued at $52.44 apiece, up from the initial price of $15 apiece.

Alongside its earnings report, Stitch Fix announced the upcoming launch of Stitch Fix U.K., its first-ever international market expected to be available to consumers by the end of FY 2019. Following the release of its Q3 earnings report, the company announced the hire of Deirdre Findlay as its new chief marketing officer, as well as the launch of Stitch Fix Kids.

On the earnings call Monday, Lake emphasized how both services, Stitch Fix Kids and Stitch Fix U.K., will augment Stitch Fix’s total addressable market.

“We believe our ability to create a uniquely personalized shopping experience is something that will resonate with consumers and brands outside of the U.S.,” Lake said in a statement.

Subscription startup Bespoke Post is creating its own brands and products for men

Bespoke Post says it has more than 100,000 subscribers signed up to receive a monthly “box of awesome” (that’s what it calls its bundles of curated men’s products). Next up: Creating brands and products of its own.

It’s a common move for retailers and e-commerce companies to launch their own brands, but it sounds like Bespoke Post isn’t just looking to create generic versions of stuff you’re already buying.

Instead, it says its “brand development studio” the Foundry will identify opportunities for men’s products that don’t exist, work with manufacturers to create those products and improve them with feedback from Bespoke Post customers.

The company is also unveiling its first new brand, Base Light, which creates grooming products for men, starting with a line of bar soaps. How is this different from any other soap? Bespoke Post says the bars are handmade in the United States, without “harsh” ingredients like synthetic dyes, parabens, sulfates or phthalates.

Base Light soaps are available for purchase individually, or as part of the company’s Refresh Grooming Box. There also are plans to launch Base Light-branded face wash, face scrub, face moisturizer, shampoo, conditioner, body wash and beard oil products this fall.

“Each month, we deliver hundreds of thousands of unique box experiences filled with everything from apparel and grooming products to home goods and cocktail kits,” said Bespoke Post co-founder Rishi Prabhu in the announcement. “We know the kinds of products our customers will love and can spot market opportunities for products that don’t exist yet.”

Bespoke Post says it will also launch brands in categories like homewares, apparel and shoe care.

Vahdam Teas raises $2.5M to grow its tea-commerce business in the US

Vahdam Teas, an India-based e-commerce startup that cuts the supply chain down to sell fresh teas online, has pulled in a $2.5 million Series B investment for growth in the U.S. and other global markets.

The round comes from existing investor Fireside Ventures, a consumer brand-focused VC firm. It follows a $1.4 million Series A round that was announced at the end of 2017, and it takes two-year-old Vahdam to $5 million from investors to date. TechCrunch understands from a source with knowledge of discussions that the deal values Vahdam at the $25 million mark. Vahdam declined to discuss its valuation when asked.

Vahdam founder and CEO Bala Sarda, a 26-year-old who comes from a tea industry family, told TechCrunch that the company could have raised more money but it is aiming to be picky. There’s clearly demand. Teabox, the startup that pioneered the digital distribution model for tea sales, has raised nearly $15 million from its backers to date, for example.

“We’ve chosen to raise patient, intelligent capital from people who know this industry,” Sarda said. “We’re not profitable yet but not burning a lot of money.”

He admitted that the company could look to raise more funds next year if it sees the right growth opportunities to merit it. He expects the company to reach breakeven over that period, too.

Vahdam Teas founder and CEO Bala Sarda

Stepping back for a moment, Teabox, Vahdam and others like them are aiming to redesign the way people consume and buy tea by massively cutting the time between picking and drinking.

In traditional corporate circles, that process is something like 9-12 months as produce is kept in warehouses and supply chain takes time. Now, the new standard is freshly-kept teas that can go from plantation to home in as few as 10 days depending on harvest time. That’s thanks to temperature-controlled storage and the efficiencies of e-commerce. For consumers, these digital tea sellers offer not just fresher teas, but an easy way to buy a premium selection that is tough to find on the high street.

Vahdam recently said it had delivered its 100 millionth cup of tea — note: it sells loose leaf tea not bags — having just hit 200,000 customers to date. (Teabox said it had delivered 40 million cups in December 2017, but it hasn’t issued a new figure.) Revenue is on track to grow 2X this year, and CEO Sarda believes the company can reach 500,000 customers before the end of next year.

The company sells in over 85 countries, but it has focused on the U.S. market, which accounts for up to 75 percent of its revenue, according to Sarda.

Vahdam first entered America largely through Amazon — which sells its teas, alongside those of Teabox and others, although Vahdam was part of Amazon’ Launchpad startup accelerator program. While that relationship has helped break into the market, Sarda said that Vahdam is on track to see activity from its own website overtake that of its own Amazon store by the end of 2018. That’s important because it helps establish a direct relationship with customers, which is essential for new products, that will soon include a subscription-based service and also a ready-to-drink teabag option.

That subscription was originally going to launch this year, but Vahdam has delayed it while it set up logistics in the U.S. market. Using its previous Series A financing, the startup opened an office in New York and warehouse in New Jersey and Indianapolis — the location of Fedex’s second-largest U.S. hub and a UPS “super hub” with convenient links between east and west coast consumer markets.

Through these locations — and the use of delivery partners — Sarda said Vahdam can now deliver its product to U.S-based customers more effiently. The CEO said it managed U.S-based inventory mostly predictively, but the new locations make it much easier (and cheaper) to handle smaller packages quickly in the U.S. That’ll help with its upcoming subscription, which will include a ‘surprise box’ or regular orders that can be scheduled over variable times, such as weekly, monthly, quarterly, etc.

Vahdam Teas plans to introduce a subscription-based option for its customers

“We are targeting mainstream tea-drinking customers in the U.S, it’s a multi-billion market,” Sarda told TechCrunch. “Our focus is to disrupt the mainstream brands and we’ve been converting [consumers] because they believe it is much fresher tea that’s also easier to order.”

The company is also giving attention to its native market. Not only is it preparing to begin to sell tea in India — it has focused on global markets to date — but it has also unveiled a CSR project aimed at putting money back into the grassroots industry.

Its TEAch Me project sets aside one percent of company revenue to fund the school fees for the children of workers at its partner plantations, where the tea sold to consumers is sourced. Vahdam works with over a dozen partners which, Sarda said, should mean it covers the education costs of over 1,000 students before this year is out. A pilot with one estate saw it cover 60 students and Sarda said that already Vahdam is planning a follow-up initiative focused on health insurance.

“Education is a big part of their salaries [and it] can become a burden for their families even with the [incoming national] minimum wage. As we have more capital to infuse we’ll also look at health care options,” he said.

While it is involved with its estates through these projects, Sarda said there are no plans to own any outright. In some cases, Vahdam buys up a majority, or all, of an estate’s premium tea products but there are other goods sold on to other merchants or at auction. He did say, however, that the company would consider buying stakes where an estate needs new capital, and it is actively helping its partners to embrace technology.

Juul, the popular e-cig startup under growing FDA scrutiny, says removing flavors is “on the table” among other things

Juul has been on an incredible, and in some ways, nightmarish, ride this year. The three-year-old, San Francisco-based company has handily won 75 percent of the e-cigarette market in the U.S., thanks in large part to the sleek design of its nicotine vaporizer. It is reportedly on track to see at least $1 billion in revenue this year. And the company has capital to invest in its business, having sealed up a $1.2 billion round that it began raising in summer. Much of that money will be spent internationally, and no wonder. Roughly 95 percent of the world’s billion smokers live outside of the U.S.

Against the backdrop of this supercharged growth, dark clouds have gathered around the company as parents and regulators have grown concerned by its adoption by teenagers, many of whom might never even consider smoking a cigarette but are taking up nicotine vaping and “Juuling” specifically. In fact, FDA Commissioner Scott Gottlieb told an audience in New York yesterday that his agency is releasing data in November that will show year-over-year use among high schoolers has risen by at least 80 percent and that middle-school usage has grown, too. Gottlieb further warned that the agency might also eventually ban the sale of e-cigarettes online out of concern that they are being bought in bulk and acquired by minors.

Last night, at an industry event hosted in San Francisco by this editor, I sat down with Juul’s founders, Adam Bowen and James Monsees, who met while at Stanford and have teamed up to develop numerous vaporizer products over the years, including the popular Pax cannabis vaporizer and, more recently, to develop Juul, where they are currently CTO and chief product officer, respectively. Over the course of 30 minutes, we talked about the future of the company (they have secured more than 100 patents between them and have applied for many more), whether they would consider an acquisition offer from a tobacco company (the answer seemed to be yes), and why they don’t drop the most controversial feature of the Juul product: its variety of flavored e-cigarette liquids, which critics argue are attracting children but that Juul has long insisted is imperative to getting its target customer — adult smokers —- to switch to Juul.

We’ll have video of our conversation available at a later date. In the meantime, here are outtakes from our conversation, edited lightly for length.

TC: You see Juul as a technology company focused on harm reduction. But your product has been adopted by high school students in part, which has parents pissed and regulators worried, and this firestorm seems to grow worse by the day. How are you dealing with all of this on a personal level?

JM: Man, this is quite an experience, one that we never really knew if it was going to come to fruition or not, though I think we always expected that if this was going to work, it was going to be really hard. As smokers ourselves, we were really passionate about ending the combustible cigarette once and for all. There are a billion smokers globally, and the U.S. has 38 million smokers. We don’t see them as much here in the Valley. But I’m from St. Louis, and when I grew up, I was exposed to cigarettes and I think the story was somewhat the same for Adam. Half of long-term smokers will die of smoking-related diseases if we don’t do something about this. Unfortunately, along with that comes a lot of challenges . . . I think what we really didn’t expect was the unfortunate level of adoption by underage consumers, and that is definitely something that we now take on as our mantle to own.

TC: Before we get into this issue and the surrounding controversies, I hoped to pull back the curtain on your company, which is fascinating from a business perspective. How many employees do you have, and are they mostly in San Francisco?

JM:  We’re changing very rapidly. At the beginning of this year, we had about 225 employees and today we have about 1,100.

AB: Our biggest offices are in San Francisco, with offices in multiple cities in multiple countries, including in Israel. We just launched in Canada recently. And we’ll be launching several more [offices] this year.

TC: Didn’t Israel ban Juul?

AB: No. Israel imposed a restriction on the nicotine strength allowable for e-cigarettes, so that includes the 5 percent version of our product, which we currently sell in the U.S.,  but we have since switched to a reduced strength that is compliant with the now-effective limit [there].

TC: 1,100 is a lot of employees. What do they do?

JM: This is an incredibly complicated company, perhaps the most we’ve ever seen and perhaps the most that most of our investors have ever seen. I’m sure there are people in this room who either invest in or have started hardware companies, and [who know that] hardware is just hard.

We are a hardware company. We’re a hardware company that makes and sells millions of products a week. We’re a hardware company that has produced those products at incredibly high volume, all five of them, all of which we manufacture on equipment and tools that we built from scratch. We have to work with contract manufacturers and vendors that are selling us parts in the tens or hundreds of millions on a weekly or monthly basis. We have to do that in multiple countries around the world. We have to comply with regulatory guidelines in many, many different countries. We have to market our products as carefully and effectively as possible. We have to communicate publicly in as grown-up and responsible a fashion as possible.

I could keep going, but the point is we have an incredible diversity of employees. There’s just an amazing amount of cross-functional work that happens at the company.

TC: A story came out in Inc. today where an unnamed employee said the morale is actually very high, that employees really do believe that you never marketed to minors, and that they believe you’ll find a way to stem adoption by underage people. They also said they were ‘making money hand over fist.’ What do you think of those comments?

AB: I think morale is very high. People are energized and galvanized to continue working on this cause, which is providing smokers with a satisfying alternative and address the challenges that we face head on. People are really energized to address the issues like youth usage. So that is an accurate reflection of the vibe at the office right now.

TC: You already have more than 100 patents to your names. Does Juul become a holding company for much more than what is on the market currently? What’s next?

JM: The technologies that we’ve been building are incredibly powerful and could be deployed in other markets, there’s no doubt about that. Some of our patent filings cover some bases outside of the core areas that we’re really focused on right now, which is the elimination of smoking from the face of the earth. But the mission of this company is exactly that, to eliminate smoking. The reason that it is the mission is that smoking is the leading cause of preventable death in the world. And we’re very interested in that, I think, conceptually, intellectually, and it’s just kind of a fun mission to work on.

TC: You’ve already raised $1.2 billion, including from Tiger Global and Fidelity. Where do you go for future funding, given that VCs have vice clauses that preclude them from backing the company? Would you consider an IPO?

AB: Sure. Listing the company is certainly a possibility [as is] continuing to grow it privately. These are tactics that we can that we can employ. But really, we’re just focused on growth, both domestically and abroad. So that’s the primary use the proceeds from the most recent round raised. I mean, we have a ways to go just here in the U.S. We’re 75 percent of the e-cigarette market, which sounds like a lot, but we’re only 4 to 5 percent of the U.S. cigarette market. And that’s what we’re really out to displace. So we’re really just getting started here, and we’ve just scratched the surface outside of the U.S., where 95 percent of smokers live.

TC: And where you’re not dealing with the same regulatory issues as here, although I wonder if it’s going to be sort of a contagion, where people in other countries worry about their teenagers based on what they’re reading in the U.S. In fact, you’re reportedly embroiled right now in three lawsuits, including by a family who says their kid is addicted to your products. You didn’t market [to underage users], as far as you’re concerned. Do you feel at all culpable?

JM: Any under-age use of this product or any nicotine product is strictly unacceptable. And that is the challenge that we are more than happy to take on, and we’re excited to take them on. Frankly, I think this has been way too longstanding of an issue in the market.

And things are changing. We’re moving away from a stick that you light on fire and beginning to have the ability to apply technology solutions to a massive problem has existed for a really long time.

TC: At TechCrunch’s Disrupt event a couple of weeks ago, you talked about connecting Juuls to people’s phones, so that if someone were to leave their Juul behind but had their phone with them, someone else, a minor, couldn’t pick up that Juul and use it. But that seemed like a very unlikely scenario to me.

JM: That’s one of many examples of technologies we can use to deploy to reduce or eliminate these problems. We’ve been using that as sort of an illustrative example of many things because, look, we’re in the midst of conversations with the FDA. We believe very strongly that some of these technology solutions will be huge steps ahead of how this industry has been able to tackle these challenges in the past. But I don’t think at this moment, we’re ready to really talk about specific things.

TC:  I don’t know if Juul has suggested it, or it’s merely been suggested that Juul this, but what about creating geofences around schools so that kids can’t vape there? That seems like a no-brainer.

JM: Yeah, there was there was an article that speculated about this. That is one of many, many patents that have been filed publicly, and if you dig even further, you’ll see a whole bunch of exploration that we’ve done because we’ve been working on this issue for a long time. Unfortunately, the U.S. is unlikely at this moment to be the ground zero for the deployment of some of these youth prevention technologies because there’s a moratorium on new product introductions, but obviously that’s changing very rapidly, so if the opportunity for potentially the U.S. to move even more quickly [arises] . . . that would be tremendous.

TC: Do you feel like the FDA has been fair to you? It seems like you’ve been telling your story to the public, and the FDA has meanwhile been suggesting that it’s not getting the information that it needs from you.

AB: We’re trying to solve the same problem as the FDA actually. Our interests are really aligned in that they want to see smokers move to reduced risk products while minimizing the uptake by youth and other unintended consequences, and so do we. So it’s really a question of, how do we get there collectively. And we need to work with them.

TC: As you point out, you’re staring at a huge opportunity. Why don’t you just get rid of the flavored e-cigarette liquids, which is what the FDA hates the most? There’s much more evidence to suggest that flavor profiles entice children to use your product versus help adults switch over to your products.

JM: All options around the table. And that’s one of them.

Look, this issue has to be resolved. We mean that. We have absolutely no interest in any underage consumer ever using these products. It is detrimental to the mission of the company. We are not a major tobacco company. We have not saturated this market. We are less than 0.5 percent of the global tobacco market. And all of this upside will only be achieved if we create goodwill and stand out in contrast to the way tobacco companies have traditionally behaved.

Removing flavors is certainly on the table. But we have not seen evidence that there’s causation necessarily for flavors being a lead-in for underage consumers. Cigarettes have been a major problem for underage consumers for some time. What we do see strong evidence of internally is a much stronger correlation for adult consumers staying away from cigarettes as they move further from everything that reminds them of cigarettes in the first place, which includes the taste of cigarettes.

TC: How are you tracking the reasons that smokers are gravitating toward your products and staying? How can you say that it’s because of the flavors, versus them wanting to quit traditional cigarettes?

JM:  That is evidence that is amongst the many many many things that we will be sharing with the FDA.

TC: In the meantime, have you talked to the tobacco companies? Have you fielded any offers?

AB:  We know many folks in the tobacco industry but we’re very proudly independent and continue to grow the company independently.

JM: Obviously, the big concern for pretty much anyone, including us, is what does that mean to the mission of the company, to consider partnering with, working with, the major tobacco companies. We’ve done that in the past. Many, many years ago, we had a partnership with the third largest global tobacco company [which bought the trademark and IP for Monsees’ and Bowen’s earliest vaporizer, called Ploom]. Then we bought them out of the deal; we parted ways.

Look, if a partnership with a major tobacco company — if, frankly, any number of things that we could do, will accelerate the decline of adult smoking and improve the lives of consumers around the world, we would certainly consider it. We’re not necessarily convinced at this moment that that’s the move that would make that happen.

TC: Before you go, the FDA today also said it’s considering banning the online sale of e-cigarettes. How much would that impact your business?

AB: The majority of our sales are actually offline, though we still think that online is a an important route of access for adult smokers to get the product. Fortunately, there are very strict age-verification technologies you can employ, and we have the strictest in place, so it’s a matter that we think should be addressed just by employing very rigorous age verification, on our own site and by requiring that any e-commerce resellers we work with use those strict controls, as well.