There Goes Another Unicorn: Jessica Alba’s Startup Valuation Crashes More Than Half

Back in the summer of 2014, roughly a year and a half before the second bubble of profitless, “story”, aka “tech”, companies had burst, we wrote in dismay, that “the true indicator of just how bubbly the second coming of the dot com era has become comes courtesy of none other than Jessica Alba’s, yes the actress, own startup: a company launched in 2012 and which makes “non-toxic” diapers (as opposed to toxic diapers?), called the Honest Co., has raised $70 million at a valuation just shy of $1 billion in preparation for an IPO.”

What was the company’s business model? Simple: one part Amazon monthly subscription purchase, and one part promise that its products are clean and don’t contain what it says are harsh chemicals found in most other mainstream products, which apparently is a critical deciding factor for today’s largely unemployed Millennial generation:

“since launching in 2012 with its non-toxic diapers and other natural baby products, the California-based startup has grown quickly by blending its environmentally sensitive products with a social mission. Annual revenue is tracking to hit north of $150 million in 2014, or three times the revenue of 2013. Roughly 80% of Honest revenue is from customers who subscribe to a monthly service delivering diapers and other consumable products on a recurring basis.”

All this happened at a time when frauds such as Theranos were being valued in the billions, so in retrospect the “Honest Company’s” idiotic valuation was explainable. And just like Theranos, the Honest Company had managed to drag in the “who is who” of venture capital, raising over $220 million in funding from firms like General Catalyst, Lightspeed Venture Partners, Institutional Venture Partners, Fidelity, Wellington Management and Hartford Financial.

What wasn’t as easily explained is that by March 2016, when we followed up on Alba’s “Honest Company“, its valuation has grown by another 70%, and according to the WSJ it is now $1.7 billion with total funding raised more than $200 million “thanks to its marketing of cleaning supplies, diapers and other consumer products that it says are safer and more ecologically friendly than other brands.”

This prompted us to write: “The Next Startup Fraud? Jessica Alba’s $1.7 Billion “Honest Company” in which we said:

… what Alba herself will have a very difficult time explaining is why, just like in the case of Theranos, her company it not only grossly misnamed, but may also be another fraud, because according to a just released WSJ expose, “one of the primary ingredients Honest tells consumers to avoid is a cleaning agent called sodium lauryl sulfate, or SLS, which can be found in everyday household items from Colgate toothpaste to Tide detergent and Honest says can irritate skin. The company lists SLS first in the “Honestly free of” label of verboten ingredients it puts on bottles of its laundry detergent, one of Honest’s first and most popular products. But two independent lab tests commissioned by The Wall Street Journal determined Honest’s liquid laundry detergent contains SLS.“

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Then there is the question of what “Honest” uses instead of SLS: the WSJ reports that Honest supposedly prefers an alternative called sodium coco sulfate, or SCS, which the company says is less irritating and a different compound from SLS. “We have evidence that our laundry detergent contains SCS, not SLS, and any contention to the contrary is wrong.” The problem is that SCS contains SLS, which means fundamentally the fraud at the Honest company, one which it uses to pray on naive and impressionable young moths, is one of cheap marketing alternatives.

We concluded by noting that “Alba, who is Honest’s chief creative officer in addition to co-founder, declined to be interviewed for the WSJ article. Just like Elizabeth Holmes, when the WSJ demolished the skyhigh valuation of Theranos. Her attorney Bert Fields said, “Jessica Alba and the folks at Honest truly believe that their detergent is free of non-trace SLS and have been assured of that by their suppliers.” Sadly that too is a lie.”

Now, one and a half years later, our allegation just got a more than 50% valuation, because as Axios reports in its latest capital raising round, The Honest Company – may have been just a little dishonest – and is raising $75 million in new venture capital funding at a valuation that is more than half off its last valuation round, according to a document filed last week with Delaware regulators.

Honest’s new round would be Series E stock priced at around $19.60 per share, which is 57% lower than the price of its Series D shares (sold in the summer of 2015). It also would slash the Los Angeles-based company’s valuation from around $1.7 billion to below $1 billion. An Honest Co. spokeswoman declined comment.

To be sure, as Axios’ Dan Primack caveats, the Delaware document (uncovered by CBInsights) is only a share authorization, not an indication that the shares have necessarily been sold. A venture capitalist not previously involved with Honest told Axios that he had seen the deal, but it’s also possible that it would be done only by insiders. Some more context from Primack:

Honest Co. was floated last year as a possible acquisition target of Unilever, which was seeking inroads into both the “green” household goods market and direct-to-consumer channel. But that  disappeared once Unilever instead agreed to buy both Seventh General (for between $600m-$700m) and Dollar Shave Club (for $1 billion). Earlier this year, Honest Co. co-founder Brian Lee stepped down as CEO, and was replaced by former Clorox executive Nick Vlahos.

So now that Alba’s former unicorn has been officially dehorned, and the days of higher valuation rounds are over, we expect the remaining 43% in valuation differential to zero to quickly fill the gap, as yet another startup which rode the bubble thanks to the attractiveness of its female founder – something that was certainly not lost on Elizabeth Holmes – at the expense of a viable, credible business model, crashes and burns.

And since the underlying premise behind the company’s “valuation” was false marketing, in keeping with the theme, here are some more gratuitous, photoshopped representations of reality.