Deal to Watch: Customized Water Filtration for Every Home

Key Stats:

Summary

The Vand Labs team has been selected as a “Deal to Watch” by KingsCrowd. This distinction is reserved for deals selected into the top 10%-20% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology, please reach out to hello@kingscrowd.com.

Problem

Some organizations and individuals believe that a history of lax regulation and poor scientific progress has led to an abundance of contaminants in today’s water, even in the water that is treated and handled by major utilities. As health consciousness continues to grow, some people are seeking ways to address the cleanliness of their water directly. Because the types and levels of contaminants can vary materially by region and even utility provider, there is no one-size-fits-all approach to mitigating or correcting the issue.

Solution

One company that appears to have a solution to the aforementioned problem is Vand Labs. The company is capable of providing clean water delivered straight into your shower. They do this through a new and advanced water filtration system. The firm’s initial product is a high-tech shower accessory that consists of two cartridges. The first cartridge is a subtractive filter that removes contaminants while the second is an additive cartridge that adds vitamins and minerals to the water.

Though this sounds really simple, there’s a lot packed into the firm’s product. For instance, the shower accessory uses carbon microfiltration to remove chemicals from the water it filters. The technology is capable of removing all sediments larger than 7 microns because of its use of nano-composite membranes. It also has a built-in anti-bacterial filter that kills ‘all’ bio-contaminants in the water. Its additive cartridge, meanwhile, injects Vitamin-C into a user’s water.

Unlike other filtration systems, Vand Labs uses a data-driven approach to create new cartridges. These are customized for its shower accessory’s users. They do this based on water contaminant info collected by zip code. Under a subscription plan, it sends to its customers new cartridges whenever they estimate the old ones run out. This model provides a recurring source of revenue for the firm and ensures the continual quality and effectiveness of the product.

The underlying premise supporting the business is that dangerous contaminants are in your water and that they can hurt you if concentrated in amounts that are too high. There is an element of truth to this. However, investors should also understand that the data used by Vand Labs in its marketing materials is incredibly biased. A lot of the data they use comes from EWG (Environmental Working Group). This organization is not a government entity. It is, instead, an activist organization with a controversial history known for being ‘alarmist’ in nature.

As an example, the contaminant-by-area-code database that Vand Labs referenced is run by EWG. For the purpose of this article, we looked up contaminants for our own offices in Boston. During this process, we discovered that EWG reported 17 contaminants found through the water system, including 6 that exceeded their health guidelines. The amount by which they exceeded guidelines ranged from a multiple of 8.2 to a multiple of 80, and all of them are allegedly linked to cancer.

The worst of these fell under the definition of trihalomethanes, but a review of literature on the EPA’s website found that this chemical is unlikely to cause cancer. Specifically, the EPA found that there “is insufficient evidence to indicate anything but the weakest, if any, tumor initiating activity for trihalomethanes.” They found that “chloroform in all the tests other than the low level of DNA binding did not indicate any possible tumor initiating activity. The only indication that the other trihalomethanes are tumor initiators was their marginal mutagenic activity in the Ames Salmonella Assay.”

Perhaps less controversial is what the technology built by Vand Labs will do for hard water. According to one source, about 85% of households in the US have some degree of hard water. Vand Labs correctly states that hard water can be bad for skin and hair. When you wash your hands with soap and water, the presence of hard water can be confirmed by residue left over that many refer to as soap scum. Their shower accessory allegedly solves this problem, but it’s also worth noting that hard water can also be a positive. The minerals in it are largely calcium and magnesium, the consumption of which can be beneficial for the human body.

Through its 2019 fiscal year, Vand Labs still has not generated any revenue. In 2019, its net loss was $86,575, and its operating cash outflows were $86,135. Though the firm did not generate any revenue for the year, it did claim that $4,000 worth of Facebook advertising resulted in pre-orders for more than 1,500 units. This advertising campaign targeted mostly women between the ages of 22 and 37. This success is a nice step toward validating demand for the product. Irrespective of the necessity for it, the demand is what will really matter in the long run.

A Niche Market

There exist a number of estimates regarding the size of the water filtration unit market. According to one source, the home water filtration unit market is estimated to be worth about $11.55 billion this year. The expectation is for this space to grow at a rate of about 15.9% per annum through at least 2025. In that year, the market is expected to hit about $24.16 billion in size. Another source pegs the market at $11.25 billion with an expected growth rate through 2024 of 4.2%. If this comes to fruition, the market will be smaller at $13.90 billion. Yet another source estimates it to be worth $12.49 billion with an expected annual growth rate of 6.9%. By 2026, that source claims the global market will grow to $18.50 billion.

Most of these estimates are fairly close together, but there are others that show some disparity in size. One source, for instance, looked at the market from the perspective of “point-of-use.” It found that the market is quite a bit larger than current estimates, sitting at $24.26 billion in size this year. If their estimates are accurate, the market should grow at a rate of 10.4% per annum until at least 2023. In that year, the market should be about $32.70 billion in size. Another source, meanwhile, looked at the broader global water purifier market and found the space to be worth about $36.85 billion this year. If all goes according to plan, it should grow at about 9% per annum to achieve a size of $58.32 billion in 2025. The fastest-growing regions, the source said, will be LAMEA (Latin America, Middle East, and Africa) at 14.5% per annum and Asia/Pacific at 10% per annum.

Terms of the Deal

In order to continue growing the company, management has decided to raise capital by issuing common shares in the enterprise at a pre-money valuation of $5 million. This figure appears high for a firm with no revenue and with what little traction it has today. In all, the company is trying to raise between $10,000 and $107,000. As of this writing, investors have contributed $11,825 toward the firm’s raise. The minimum amount of money required per participant has been set at $250.

An Eye on Management

There are, at this time, two core members of the Vand Labs team. The first of these is Koustubh Parulekar, one of the company’s co-founders and its CEO. Prior to his time running Vand Labs, Parulekar served as a Business Development Advisor for IBM’s Blockchain Accelerator. He was also a Business Mentor at German Accelerator. His experience also includes serving as a Director of Business Development and Partnerships for the Americas division at OST. Before that, he worked as Head of Finance & Strategy for NXTImpact. The other co-founder of the company is Sankalpa Dashrath. At present, she works as a Consultant at Slalom. She was previously a Senior Consultant at Deloitte. Before that, she worked as a Consultant at The World Bank.

Rating

Based on the data provided, we have decided to rate Vand Labs a Deal To Watch based on the potential we see for the firm. Whether the science is controversial or not is less of a concern in our eyes. What matters is that, irrespective of what the science says, there will always be market participants who go against the grain. Even if the claims made by management are questionable, there can be no harm in having purer water. Its subscription model also makes it an attractive prospect, as does management’s progress in establishing and running the firm.

This isn’t to say that this is a slam dunk. The absence of revenue is less-than-ideal. Even so, the losses, while material, are not too bad for a firm that certainly required some research and development. Another negative is the company’s valuation. For where it is, its valuation is not ridiculous, but it is lofty, especially considering that the industry it’s competing in is generally seen as low-margin. Those low margins are due to it being a commoditized space that is highly-competitive in nature. In all, these negative attributes deserve consideration from investors, but we believe the positives likely outweigh the negatives in this case.