eve Sleep (LON:EVE), founded and run by tech entrepreneur Jas Bagniewski, aims to be to the mattress market what Uber is to taxis and Airbnb to accommodation. The word is ‘disruptive’.
Here’s the model: eve makes mattresses, which it sells at a significant discount to the offline competition (prices start at £399 for a single bed). The product is built from foam, which is compressed for easy and cheap shipping.
Its vacuum-sealed bedding is sold in 10 countries including the UK, Germany, Switzerland, Belgium, France and the US and the returns policy is generous – people have 100 days in which to send the product back, free of charge, and eve will even collect it from the customer’s home.
The idea is a smart one. Even so there were some eyebrows raised when this loss-making internet mattress business listed on AIM earlier this month with a market capitalisation of £140mln, raising £35mln in growth capital.
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Bagniewski only has to refer to what’s occurring in the US to show just what is achievable – whether it fully justifies the company’s current lofty valuation is another debate.
Privately held Casper Sleep, founded less than four years ago, doubled its sales to £155mln last year and expects that figure to double in 2017. The company did its last funding round at a valuation of £386mln (US$500mln) – though this was back in 2015 when revenues were a third of what they are today.
Leesa, Yogabed and Tuft & Needle are all challenging the bricks and mortar dominance of companies such as Tempur Sealy over in the States.
The market, estimated to be worth £11bn, is big enough to support all four.
Here in Europe the opportunity is slightly smaller at around £6bn, with £1bn of sales emanating from the UK alone.
Virgin territory
More to the point, it is a virgin territory that is only just being tapped by the likes of eve and UK rival Simba.
However, the competition will ramp up, says eve founder and CEO Bagniewski.
“It is different in every market we are in. We have a strong local competitor in each of our markets that’s funded at a local level. Then there’s nobody who’s pan-European,” he explains.
“We reckon at some point there will be pan-European competition, which will probably be Casper, the US guys, and Simba, our main rival in the UK.
“After that, I’m not sure any of the other guys have the funding.”
Going international
Mentioned above, the listing brought in £35mln, which will be used to fund the expansion of the eve business to profitability (so it won’t be back to the market for cash, says Bagniewski).
The cash is being spent on the internationalisation of the business, brand awareness and new product development.
eve was backed early on by London and California-based VC DN Capital, which brought on board Silicon Valley internet entrepreneur Fabrice Grinda during the seed round. DN was also instrumental in recruiting prolific UK investor Octopus Ventures.
In later rounds Neil Woodford’s fund joined the share register, while the broadcaster Channel 4 did a media-for-equity deal, following the template set down by Germany’s ProSieben and online retailer Zalando.
Chairing the company is Paul Pindar, the man who built outsourcing firm Capita into a multi-billion pound business and who also chairs the hybrid estate agent Purplebricks.
So there are a lot of savvy people buying into the idea that this mattress in a box model has legs. Certainly the sales are heading in the right direction, growing 355% in 2016 to £12mln.
Room for more than one
Investors in the IPO are betting that this a base-camp figure and the company can push on and emulate the success of American rival Casper here in Europe.
It is worth pointing out the business doesn’t have to grow into a 600 pound gorilla of the mattress world to succeed; the market is big enough for a handful of online players to prosper, says Bagniewski.
“It is not a case that one guy emerges and kills the whole category,” he explains.
“I think it is possible to build a very large, very profitable business online in this sector.
“We think it is a better way of selling the product. It is why we have grown so fast. The message has begun to resonate with people.”