Jessica Alba founded The Honest Company to bring safe baby products to parents. After controversy and lawsuits plagued it in recent years, the baby and household products company has slowly regained consumer trust. Now, it’s going public this week in a bid to strengthen its online business and global presence while competing with established brands made by the likes of Procter & Gamble and Unilever.
The Honest Company, which was founded by actress-turned-entrepreneur Jessica Alba, will debut on the Nasdaq as HNST with 25.8 million shares, priced at $14 to $17 a share. The company is aiming for a $1.5 billion valuation, and Alba will stay on as the chief creative officer and chair of its board. With its most recent round of venture capital totaling $200 million, Honest's valuation could have more to do with its funding rather than its revenue (the company hasn't yet posted a profit, though its net losses are steadily decreasing as revenue ticks up).
Some analysts aren’t exactly sure how to value The Honest Company ahead of the IPO. TechCrunch’s Alex Wilhelm pointed out that Honest’s financials paint a favorable picture, despite it reporting net losses in 2019 and 2020, but its IPO could be an attempt to ride the wave of other successful public debuts this year. In any case, its recent performance is a far cry from its struggling years as its products were revealed not to be as safe for children and eco-friendly as it promised. Here’s a look at the company’s history, and what to expect from its IPO.
Why "The Honest Company"?
Jessica Alba founded The Honest Company in 2012 after a three-year struggle to get it off the ground. The idea first came when Alba became a mother: her allergic reaction to a laundry detergent prompted her to research the ingredients in common household and baby products. After having difficulty finding products that were safe for children and eco-friendly, Alba decided to take matters into her own hands.
“I knew I wanted one brand that I could trust, because there was so much confusion in the marketplace,” Alba told WebMD. “I felt like the more I read, the more confusing and difficult it was to find the best-quality products.”
It wasn’t easy courting investors early on — many of them were more interested in Jessica Alba the movie star rather than Jessica Alba the entrepreneur. To gain more industry expertise, Alba partnered with Christopher Gavigan, the former CEO of baby product company Healthy Child, along with LegalZoom founder Brian Lee and COO Sean Kane. By January 2012, with Alba serving as chief creative officer and Lee serving as CEO, The Honest Company launched with 17 products and $6 million in seed round funding led by Lightspeed Venture Partners.
The company launch was an initial success, spurred on in part by Alba’s star power and its forward-thinking mission (in the decade since, the market has become littered with eco-friendly startups). A $27 million Series A round closely followed the launch, and growth continued since then — in 2015, the company attained unicorn status.
Company controversy and the road ahead
Unfortunately, The Honest Company was not quite as honest as it promised. In 2016, The Wall Street Journal revealed that the company was using the very same toxic chemicals it was marketing itself as avoiding. According to the independent labs the newspaper commissioned, Honest’s laundry detergent was found to contain SLS, or sodium lauryl sulfate, a common ingredient found in many mainstream products, which is also known to cause skin irritation.
It wasn’t just detergent that caused a stir — the company was sued that same year for allegedly using synthetic compounds in its organic infant formula. After settling that lawsuit for $7.35 million, the company reformulated its detergent and embarked on a mission to regain consumer trust. In 2017, Alba launched a line of skincare and makeup products under the Honest name. The company also saw internal shakeups in the form of a CEO change and layoffs at a US-based call center. Former CEO Brian Lee was replaced by Burt's Bees head Nick Vlahos after talks to be bought by Unilever fell through.
Honest’s shaky footing was made clear when it reported a net loss of $31 million in 2019, despite receiving $200 million in venture capital to grow the business. When the pandemic hit, the company saw its luck turn: revenue surged 28% to $300 million in 2020 alone, along with a smaller net loss of $14.5 million.
Today, investors value The Honest Company at $1.5 billion, and it's raised over $500 million in total funding. While scandal, and stagnant growth ever since, have kept the company from getting much bigger, its IPO could change that, especially after a string of successful public debuts from other companies have kept investor confidence high.