🌱 Is this the best value deal I've seen?

Today we’re going to deep dive into The Sill, a national houseplant retailer that’s digitizing the way people buy plants.

This one stuck out like a sore green thumb to me for a particular reason: they have a location just blocks from my apartment! We’re dropping The Sill on the CROWDSCALE and seeing if I’m willing to invest or not. Here’s what you can expect:

• 🌱Seed Round: The Sill is bringing the digital revolution to plants

• 🚿 Needs Watering: Revenues shrivel as The Sill seeks profitability

• 💸 Will I Invest: Does a savory valuation make the risk worth it?

SEED ROUND

The Sill has roots in 7 locations across the US, and 4 stores in NYC alone.

That’s an impressive feat for any plant store, as most operations are single-location companies. But don’t be misled by The Sill’s impressive retail footprint - they are laser-focused on dominating the digital marketplace.

It’s a space that’s been largely left out of the digital revolution - just 7% of indoor houseplants are purchased online. Going against the grain, The Sill brings in 70% of its revenue through it's online store.

Eliza Blank started the company at the age of 26 with a whopping budget of $5,000. After bootstrapping for 5 years, she took on institutional money and rapidly expanded the business - right into the jaws of COVID.

Blank’s business was caught up in the global supply chain crisis, and specifically could not obtain their pots which are made overseas. Blank’s seven-year slog to build up her plant empire was at risk of coming to an end.

She made some fairly drastic changes to the business to right the ship, and is now conducting a crowdfunding round on Wefunder to let the public invest in the company’s new path forward.

To lure investors in, The Sill has a very generous valuation relative to their annual revenues. Let’s see if this could be one of the top value plays out there - or a situation we want to avoid.

To help research this article, I connected with Eliza and got the full run-down of where her company stands today.

NEEDS WATERING

Bargain Bin for a Reason?

Looking at the valuation in comparison to The Sill’s annual revenue, I knew immediately that something was off. Many factors go into valuation calculations, but most revenue-generating companies are valued somewhere around 3-7x annual revenues.

The Sill did $13M in 2022 revenue, but set their valuation at just $7.3M. This is a revenue multiple of 0.5x, indicating that all is not well in plant-land. Some quick digging revealed the culprit - revenues at The Sill have been on a worrying downward trajectory. 

• 2021 - $16.5M

• 2022- $13.4M

• 2023 - $10M (forecasted)

To see declining revenues over multiple years is a bad sign - but not a death sentence. And with COVID throwing a wrench in every company’s trending revenue, I decided to investigate further.

Blank outlined that the decreasing revenues were a result of two forces, one internal and another external. While COVID presented inventory challenges, it was a boon for The Sill’s topline. With everyone locked indoors, The Sill’s online plant offering thrived under the restrictions.

As the world reopened, there was not as much of a pandemic-induced tailwind propelling the company higher.

Second, Blank made the conscious decision to shift from a growth focus to one of profitability. Although The Sill was bringing in millions in revenue, it was hemorrhaging cash at an unsustainable rate. Both 2021 + 2022 saw net losses in excess of $6M.

Blank enacted a round of layoffs, slimming the corporate structure down to just 12 employees. She also greatly reduced advertising spend, a direct hit to the company’s topline growth.

The Sill only has audited financials through 2022, but Blank confided that the march towards profitability is beginning to bear fruit. The latter half of 2023 was finally seeing months close to breakeven, and she expects that The Sill can start generating profitable months in 2024.

On revenues of ~$10M, I find it extremely difficult to swing from a $6M loss to breakeven/profitable in just two years. I’m going to take Blank at her word here, but do want to note that the audited financials for 2023 are not available to back this up.

Blank also noted optimism around the topline for 2024 - given the trends she’s seeing in late 2023, she believes that The Sill should be able to hit $11M in 2024. If true - this would finally put an end to sliding revenues at the company.

So that’s where the company stands - in this next section, I’ll reveal if I’m investing or not.

WILL I INVEST?

Am I along for the ride?

It’s really tough to get behind a company whose revenues have declined 20%+ in each of the past two years.

But Blank and her team have acknowledged their current situation by offering investors an entry point at an extremely low valuation. 

If Blank’s optimistic outlook is true and the company grows revenues to $11M in 2024 at breakeven/profitability, this will be a great deal in my opinion. Slap a 4x revenue multiple on that company, and you now own a ~$44M company that you bought at a $7.3M valuation just a year ago.

I believe that investors are getting deep value at the current valuation, but I want to expand the lens of my investment horizon. Sometimes I like to boil investments down to a few key beliefs that I have. And if those beliefs align with the incentives of the company, then it lends more confidence towards investing in the company.

Belief #1 - People will continue to invest in houseplants

It’s estimated that the North American houseplant market will record a compound annual growth rate of 7% for the next decade, which I believe is feasible.

The Sill taglines its merchandise with the phrase ‘Plants make people happy’. Numerous studies have shown this to be true.

As humans have collectively moved up Maslow’s Hierarchy of Needs - the longing for connectedness, wellness, and mental health have never been more present. Plants play a role here and I believe this will fuel continued growth in the space

Belief #2 - Houseplant purchasing will continue to move online

The current % of plant purchases happening online is already so low, it’s hard to imagine it could be any lower.

Similarweb shows us that the bulk of The Sill’s web traffic comes from the 25-34 age demographic. This indicates that growth is coming from a young-ish portion of the population and should fuel adoption in the coming years.

And heck, I’ll throw out this stat to back it up - 19% of plant purchasers plan to increase their spending at online plant stores. It’s not going to change to digital overnight, but I do believe physical purchasers will slowly cede market share to digital players.

Belief #3 - The Sill is the dominant player in the online houseplant market

The Sill surprisingly does not have many significant competitors. Only one is operating on the same level as The Sill - a company called Bloomscape. They’re well capitalized (raised $24M in totality), but I think The Sill maintains a lead over them.

Bloomscape is private and therefore doesn’t make their revenue figures public. However, the Sill drives higher web traffic than Bloomscape, and Bloomscape doesn’t have the backing of a national retail footprint like The Sill does. While I wouldn’t call it a ‘dominating’ position, The Sill appears in the lead in the online houseplant marketplace.

IN SUMMARY I BELIEVE THAT…

1. Houseplant spending will increase.

2. Transactions will continue to shift online.

3. The Sill is the leading online houseplant player.

When you boil it down to those 3 key beliefs, I feel confident about The Sill’s long-term future. Although I’m not going to place a huge bet on The Sill, I’m going to invest a small sum due to its salivating valuation and long-term tailwinds.

If you would like to check out The Sill in greater detail, check out their fundraising page on Wefunder below!