Investing in a Sustainable Tissue Company pre-IPO
A Short Framework for Assessing 'Pre-Public Company' Investments
Bamboozle Me
Remember when there was that shortage of toilet roll all across the country when lockdown first hit? Well at that point I was too embarrassed to be seen fighting for such a basic item in a supermarket. Instead I decided to do what every other millenial/Gen-Z person does - logged on to Amazon and ordered a bunch from the first affordable & sustainable brand I could find with next to zero effort. Turned out to be Cheeky Panda.
Interestingly, they are raising another round of private financing (I’m kinda late to the party) before going for the big Initial Public Offering (IPO) in a few years. A lot of the early stage vetting has been done. Having been a customer for the past year and likely the foreseeable future, I decided to pay some attention, scan the opportunity and decide whether to invest some money. I am a repeat customer but if they do well, I also want to do well.
Here’s the framework I used to quickly assess whether Cheeky Panda was worth the punt. Let me expand on each segment…
[1] Theme Relevant ? Ripe Conditions?
The biggest thematic associated with Cheeky Panda is the notion of sustainability and given its composition, it should score super high as an ESG pure play. Not many of these exist on a relative basis in the publicly traded equity market especially when you look in terms of market cap.
Most large companies have to deploy huge operational U-turns or conduct significant divestments in order to screen better against sustainable driven investors’ scorecards. Sustainability in the investment community is a major thematic so there should be good reception towards a company like Cheeky Panda when it comes to crossing over into the public equity space. Theme? ✅ Ripe Conditions? ✅
[2] Company Has The Right Levers To Maintain Thematic Relevance?
The biggest lever Cheeky Panda has is the brand. Despite operating in a saturated space, its ethos from the core allows it to naturally tap into the sustainability thematic without any barriers. Furthermore, its product mix yields healthy margins which means it maintains scope to pivot into other products that can be disrupted with bamboofication. Scrutiny will be more acute but it is what it is.
One concern I had was around inflation and supply-chain bottlenecks.
I asked the CEO about this for which his answer was:
[3] Intention For Liquidity Event
Cheeky Panda have undergone numerous rounds of funding, this is not their first rodeo. Management have already trimmed some returns off the table so as to be financially free and capable to focus entirely on the business. The co-founders are hyperfocused on delivering the strategic plan over the next few years which culminates in an IPO. They have a soft conditional IPO valuation already, modelled in partnership with a major investment bank.
This hyperfocus can be viewed as a strong intention to create an exit for early and pre-IPO investors. This is not always the case, some founders have no intention on being acquired, going public or inducing any other type of liquidity event so opportunities to exit and realise gains are limited. If it does successfully IPO, I would probably cash out my initial principle and leave the remaining shares to mature in the stock market and ride the sustainability thematic further.
[4] Management Team Capable of Delivery
The co-founders/CEO are a strong complementary partnership which have a solid track record in bamboo derived product, supply-chain and consumer products - absolutely essential. Moreover, one of the cofounders has exited a business before (a sale). Added bonus, the chairman spent 34 years including at executive level at Proctor & Gamble. Many sharp signals here. There is a solid plan, if they can deliver, they will exit successfully as the appetite thematically is there.
[5] Time Horizon For Items 1-4
Sometimes investing in early stage businesses might mean taking a bet on achieving the items we have discussed here despite them not being in place already. But in this case, Cheeky Panda is fully ripe across the board and IPO should happen in the next few years. Really, the larger risk is that the valuation is too punchy and despite delivering on finances, the IPO flunks. Entirely possible. Nothing is riskless. Anyhow, I’m invested so let’s see how this long road plays out.
For any recent grads (and everyone in general) check out the below thread, hope it’s useful!
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Until next time,
Peace!
[If you’re a corporate person don’t forget to check out the crypto drop ➡ Trad-Fi to DeFi]