Quickly Unpacking The $1.4B Acquisition of Harry’s

Believe it or not, this will now be the second blog post on this site about a billion-dollar exit for a shaving-related startup. It was just about three years ago when the startup world learned that Unilever had decided to plunk down a cool $1B to buy LA’s Dollar Shave Club. Fast-forward to today, and we have a smaller conglomerate, Edgewell, paying a mix of cash and stock for NYC’s Harry’s. Any billion-dollar liquidity event is a rare event, so it will get the Haystack blog treatment.

Here are five (5) quick takeaways from the deal:

1/ Double-Down: What were the chances that one of the first really big direct-to-consumer (DTC) startup outcomes would be for razors? Perhaps one could have had a 20% chance of predicting that. Okay, I’ll give you that. But then, what would be the chances that there would be yet another, second exit in the same category? (See more on this in Point #3  below.)

2/ Capital Efficiency And Returns: While the companies aren’t exactly similar (slightly different models and product mixes), it is worthwhile to note that Dollar Shave raised about $170M, whereas Harry’s is believed to have raised somewhere between $350M-$400M in venture capital. No one is going to cry over a huge exit like this, but in terms of capital efficiency, we have to tip our hat again to Dollar Shave — capital efficiency, as folks only seem to figure out too late, helps preserve and pump up founder and employee equity, as well as drive multiples for the early investors. [*My colleague Alex Taussig smartly pointed out that Harry’s also took on debt to purchase a factory for manufacturing, so the amount raised for this by giving up equity is lower, ultimately.]

3/ Markets Matter: I read that Gillette owns nearly half the U.S. razor market. Harry’s reportedly captured single-digit percentages of that market, but it is such a key category and steady market (and channel for pushing other home goods through) that it could support not one, but two, large outcomes like this. One almost has to wonder if there’s a third razor exit lurking out there over the next few years.

4/ Frequency Matters: Underling a point made above, the channel relationship that Dollar Shave and Harry’s created with their customer base is very valuable for companies which own related brands and can cross-promote different mixes of products. Shaving satisfies that much needed “weekly active use case” (who shaves daily in the startup world?) that helps solidify the customer relationship.

5/ DNVB Ceilings and Floors: Does this mean we will see even more digitally-native vertical brands (DNVBs) getting more funding on the belief they can grow into multi-billion dollar outcomes? Or does this mean that it’s actually Dollar Shave and Harry’s demonstrating the top-end for what a brand can do without being able to IPO? My own opinion is that the outcomes forthcoming from brands like Warby Parker and Peloton (both NYC-based, too) will serve to show that this category could very likely stamp outcomes in the double-digit billions over the next few years.