Why Volition Invested in Grove Collaborative (Again)

In August 2023, Volition made a $10M investment into Grove Collaborative (NYSE: GROV), and I joined the Board of Directors of the company. Today, roughly a year later, we are very excited to announce an additional $15M investment into Grove. We believe this investment will enable Grove to extend its leadership in sustainable household essentials and better delight its loyal base of conscientious consumers while continuing to work towards delivering on Grove’s three core financial goals: consistent profitability, balance sheet strength, and revenue growth. 

Our investment made at $1.9328 per share of Class A Common Stock issuable on conversion of the preferred stock issued in the financing represents a 38% premium to the company’s price per share of $1.40 on the date of closing. This significant premium reflects our conviction in the company, its mission, and the potential for long-term profitable growth. To provide more context on our latest investment, it’s helpful to reflect back on the state of Grove prior to our original investment in 2023. 

Challenges Building (Pre-2023)

To be candid, we thought Grove was not managed well in the years prior to our original investment. From a financial performance perspective, there were many concerning issues. The company had burned nearly $400M in Adjusted EBITDA losses since 2019, had yet to deliver a profitable quarter in its history, and had been reporting steep revenue declines. Additionally, Grove was laden with $72M of term debt that we thought it may have difficulty fully servicing.

From a customer perspective, the Grove experience wasn’t sufficiently delightful. They had a default subscription model which customers disliked, a pandemic-era fee that added to customer costs, a lack of selection in key product areas which limited the value of shopping at Grove, and inadequate product data for customers who cared deeply about sustainability. All said, there was significant room for improvement.

The Turnaround Period (2023-2024+)

So, why then did we invest $10M in August 2023? In short, we recognized the underlying quality of the company and believed it could successfully turnaround. Jeff Yurcisin joined as the new CEO after a storied career in e-commerce, most notably as a senior leader at Amazon. We thought he could help Grove return to focusing on the customer – above all else. The management team and board of directors were aligned on achieving profitable growth. And we were seeing green shoots across much of the underlying data leading us to believe that there was potential for significant improvement along Grove’s core three financial pillars of profitability, balance sheet strength, and revenue growth.

Here’s what has transpired in the last year since our original investment in August 2023:

Path to Profitability

Grove has delivered four straight quarters of Adjusted EBITDA positivity – the first four Adjusted EBITDA positive quarters in the history of the company. Grove has also delivered positive operating cash flow in three of the last five quarters – the first three operating cash flow positive quarters in the history of the company. There has been monumental effort across all aspects of the business – marketing efficiency, vendor negotiation, opex reductions, fulfillment optimization, working capital enhancements, margin expansion initiatives, among many others – to achieve these impressive results. 

Balance Sheet Strength

At the time of our original investment, Grove had $72M of term debt. The company has since paid down $42M of that and has $30M of term debt as of today. Grove plans to pay back the remainder of the $30M term debt in November 2024 so that the company will be term debt free. The only remaining debt at the company is a small ABL with ~$7.5M outstanding under it, which makes sense to maintain for ongoing operations and working capital purposes. These efforts are designed to substantially strengthen the balance sheet for the company. Importantly, this also means that instead of using its income from operations to pay interest and principal on debt, the company will be able to re-invest that capital to help drive key growth initiatives – which gets us to Grove’s third financial pillar….

Revenue Growth

Of the core three financial pillars, Grove has prioritized profitability and balance sheet strength over revenue growth. This sequence was deliberate – the order matters because you have to build the growth of a company on top of a solid foundation. Now with the foundation strengthening, revenue growth is up to bat. There are many efforts the company is pursuing to drive revenue growth: greater performance marketing efficacy, category product expansion, subscribe and save expansion, active M&A efforts, etc. This has led to strong results such as DTC Net Revenue Per Order growing every year since 2020 and an upward trajectory in orders per customer. We believe that these initiatives and others have contributed to the revenue decline slowing (-2.7% QoQ in Q2 2024). With continued progress, the company has projected in its Q2 2024 earnings call sequential quarterly revenue growth potentially in Q4 2024 and beyond.

Delighting Customers

While financial goals are essential, the central goal that Grove is pursuing is to better and more consistently delight customers. Grove has expanded and plans to continue expanding the number of brands and products across their core product categories, with a focus on vitamins, minerals, and supplements (wellness), but all while maintaining rigorous standards around both human and environmental health. The company no longer utilizes recommended baskets in first orders that included a higher percentage of Grove Branded products so that customers can build their own basket and choose what’s best for themselves and their families. Grove aims to create and curate the best selection and merchandising of better-for-you and better-for-the-planet products in household essentials. And importantly Grove has replaced a complicated default subscription model with a tried-and-true transactional model that also allows customers a subscribe and save option. Delighting customers comes from putting them at the center of company decisions – which is exactly what Grove has done over the past twelve months.

The Mission & Closing Thoughts

Lastly, and most importantly, we at Volition align with the mission of Grove. Grove exists to help conscientious consumers fill their homes with planet-first, better-for-you, high-performance household essential products. Grove puts tremendous effort into vetting and evaluating each product it carries precisely so consumers don’t have to. Through that effort, Grove aims to impact people and the world we live in for the better. We believe this mission can only be accomplished by a company that is totally focused on achieving it – which we believe Grove is doing.

Therefore, we’ve decided to invest an additional $15M into Grove to help pursue this worthwhile mission while bringing tremendous value to customers. We also believe Grove has the foundation in place to be an adjusted EBITDA positive, balance-sheet-strong growth company in the not-too-distant future. The company has a tremendous platform, which is now stronger than ever, from which to delight its loyal base of customers, reach even more conscientious consumers, and positively impact the world in which we live.  

We are very excited about the prospects ahead for Grove and are honored to continue to partner with the company on this journey.  

Disclaimer

The views and opinions expressed herein are solely those of the author and do not reflect the views or opinions of Grove Collaborative or its affiliates. The author does not guarantee the accuracy or completeness of the information provided in this document. You should not treat any opinion expressed herein as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of the author’s opinion.

 All information provided is for informational purposes only, and shall not be relied upon as financial or investment advice. Any reference to a specific investment strategy is only to assist in learning, and shall NEVER be relied upon when making future investment decisions. Except where otherwise indicated, the information provided herein is based on matters, opinions and views as they exist as of the date of preparation and not as of any future date, and the author undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional materials.

The author and the author’s affiliates may currently have long or short positions in the securities of certain of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities). To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.

Investments in securities involve the risk of loss. Past performance is not indicative of future results. Neither the author, Volition Capital, Grove Collaborative nor any of their respective affiliates guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment discussed herein.

Neither the author nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein. In addition, nothing presented herein shall constitute an offer to sell or the solicitation of any offer to buy any security.