How Snuggie maker Allstar earns sweat equity
Allstar Innovations, a maker of consumer products like the Snuggie, has developed a unique investment strategy — taking over brands' operations and earning equity in them upon specific sales milestones, CEO Scott Boilen tells Axios.
Why it matters: At a time when fundraising is difficult for many startup brands, Allstar's "strategic equity model" offers an alternative to achieve growth.
- It also theoretically protects the founders from immediate equity dilution, since Allstar receives zero percent equity upfront.
- In exchange, Allstar pays the owners of these brands a licensing fee, Boilen says.
Of note: "It’s been blown up a little bit because of the current fundraising environment," Boilen says, though the model was started when money was easier to come by.
Details: The proposition is to take brands with between $5 million and $10 million in sales and expand them to between $50 million and $100 million, he says.
- Areas of particular interest are health and wellness, toys, beauty (particularly men's personal care), pets and the kitchen.
How it works: With relationships with retailers such as Walmart and Amazon, as well as operations in research and development, marketing and sourcing, Allstar can plug brands easily into its infrastructure, Boilen says.
What's next: Allstar could partner with VC or PE firms in need of soft landings for existing portfolio companies they don't want to continue to fund.
- "Those are the discussions we're having," Boilen says.
State of play: Brands that Allstar has partnered with include magnetic screen door brand Magic Mesh, men's personal care line Black Wolf, and Mission Cooling Gear, which makes products that provide cooling by accelerating evaporation.
- Mission Cooling Gear was Allstar's first deal under the new model and one of the company's success stories, having sold a stake to PE firm Topspin Consumer Partners earlier this year.
- Meanwhile, Black Wolf's sales are likely to double this year and it's on a path to a potential exit within three-to-four years, according to Boilen.
What they're saying: "I wish we had done it before we raised any other capital," says Black Wolf's co-founder and CEO Sam Lewkowict of the deal with Allstar.
- Lewkowict says he believes licensing deals could fill the void left by the lack of traditional financing.
- Plus, Allstar has more than 20 years of experience developing, sourcing, marketing and selling consumer products, Lewkowict notes, which is invaluable for new entrepreneurs.
By the numbers: Though Boilen declined to be specific, he says Allstar's revenue falls between $200 million and $1 billion per year.
- He added that he owns a majority of the company, with individual minority investors, though he declined to comment further.