IPO

The Market Minute: Consumer Brands Are Capitalizing On The IPO Market 

The IPO pipeline for the rest of the year is beginning to stack up, and quite a few of the names coming up are recognizable to more than the people who keep up with public market news.

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Several well-known consumer brands have filed to go public, following a year of notable public debuts. 

Some of the VC-backed consumer brands that have gone public so far this year include fashion-forward DTC medical scrubs maker FIGS, Jessica Alba-founded CPG startup The Honest Company, and clothing resale marketplace Poshmark. Other consumer brands in the pipeline include DTC eyeglass seller Warby Parker (expected to start trading next week), popular haircare brand Olaplex (you’ve seen it on TikTok), and the tech industry’s favorite shoe brand, Allbirds (the company’s filed its S-1). 

The simplest reason for the hype around consumer companies going public, according to  Rick BatenburgIII, a VC at Cliintel Capital Management Group, is there are more retail investors participating in the market. That’s something well-documented (remember the Gamestop saga at the beginning of the year, anyone?), and retail investors tend to be drawn to consumer-facing companies.

“Consumer-facing companies are going to do well specifically because people know what they are,” Batenburg said. “People like what they understand.”

So while it’s true that retail investors could feel strongly about B2B SaaS companies, it’s more likely that they’ll want to invest in the companies and brands they use. Investing has become more emotional, Batenburg said, and that means retail investors are more drawn to a company’s story than necessarily the underlying financials. The retail investors, Batenburg said, aren’t doing “PE ratios and looking at pro formas,” and that’s why we’re seeing a change in the types of companies that are going public.

Some consumer brands in the IPO pipeline: 

And investing is easier than ever. With platforms like E-Trade, Robinhood, and Public it’s simple for retail investors to create accounts and start investing. 

“The times have changed in the last 10 years,” Batenburg said. “These deals are a lot more accessible than they used to be. There’s a lot of cultural focus on the stock market right now.”

For many people, the COVID-19 pandemic has put more money in their pockets, thanks to stimulus checks and fewer dollars spent on travel, and given them more time to invest, thanks to remote-work policies. Consumer-facing companies have benefited from this, according to Josef Schuster, founder of IPOX LLC.

“These companies have benefited from more disposable income. People have more cash in the bank account, that definitely has helped,” Schuster said. “There’s good pent up demand for these because it’s a good deal at the onset.”

Consumer-facing companies tend to be cheaper on the onset, Schuster said, and appreciate in the aftermarket. 

“Typically what we’ve seen, and it’s been a challenge for the IPO market generally, application software companies, if they’re really high growth companies … they have a hard time to go high in the aftermarket because they’re so expensive at the outset, the valuation,” he said. 

Warby Parker’s IPO next week will be Menlo Ventures’ third consumer public exit this year, following Poshmark and pet care marketplace Rover. Half of Menlo’s portfolio is consumer, so consumer exits aren’t anything new, according to partner Venky Ganesan, but consumer spending habits during the pandemic fueled growth for consumer companies, which can now go public during “one of the most vibrant IPO markets of our lifetime.” 

“It’s not new for us, but the pandemic has accelerated consumer behavior meaningfully,” Ganesan said. “And we have incremental disposable income because people aren’t traveling, so they’re spending it more on these consumer experiences.”

Illustration: Dom Guzman

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