Drink LMNT is raising capital via Crowd SAFE at a $200 million valuation cap. This is a $140 million valuation increase from the company’s 2021 Republic round, which does not seem justified given its 2021 revenue of $31.6 million. The company initially projected $36 million in revenue for 2021, so it fell short of its goal. This $200 million valuation cap represents a valuation-to-revenue multiple of 6.3x, which is higher than average for the consumer packaged goods industry. As a result, Drink LMNT is overvalued for this round.

Drink LMNT operates in the US sports drinks market, which is worth $10.4 billion in 2022. The market is set to grow at an annual rate of 6.6% until 2025. The sports drink market is large, but it’s growing rather slowly.

Additionally, this market is dominated by major legacy players like Gatorade (owned by PepsiCo) and Powerade (owned by Coca-Cola). Even if it attracts a significant customer base, Drink LMNT may struggle to hold on to its market share. If major competitors with much larger budgets see enough demand, they could create similar products and use more marketing dollars to take some of Drink LMNT’s market share. Drink LMNT’s success likely depends on product expansion and spreading awareness of its brand. If Drink LMNT successfully makes a name for itself, dominant competitors might see Drink LMNT as an attractive acquisition target. 

Overall, Drink LMNT’s opportunity is large and is not a winner-take-all market. But it is growing slowly and is dominated by established competitors. Unless Drink LMNT makes itself an attractive acquisition target, it may struggle to hold onto its market share.

The inspiration for Drink LMNT came from co-founder Robb Wolf, an influencer in the nutrition space who runs a popular self-named website selling books and creating health and fitness content. Wolf began to make salt-based drink powders to help him maintain electrolyte levels when his body entered ketosis, and realized that many others could benefit from this type of product. Thus, Drink LMNT was born. Wolf has a Bachelor of Science in biochemistry from California State University, Chico. 

Wolf’s wife, co-founder Nicki Violetti, has a Bachelor of Arts in economics from the University of California San Diego. She is the co-owner of NorCal Strength & Conditioning, and she hosts a podcast covering health topics called Healthy Rebellion. Due to their other business ventures, Wolf and Violetti were not able to operate Drink LMNT themselves. So they brought in a venture studio called Proton Enterprises to run the company.

James Murphy is Drink LMNT’s CEO and third co-founder, and he is responsible for sales and operations. He is also the CEO and founder of Proton Enterprises. After getting a Bachelor of Arts in humanities at Yale University, Murphy held a management role at Sitwayen Development Group, a social business venture firm. For the past 10 years, he has worked as a partner and business manager at a health food company called Empowering Neurologist.

COO Brianna Segerson is responsible for supply chain fulfillment and operations. She is also the COO of Proton Enterprises. According to Drink LMNT’s raise materials, she has a Bachelor of Arts in psychology from Yale University and previously worked as a director of acquisitions at Albion Residential.

Tyler Cartwright and Luis Villasenor are also Drink LMNT co-founders and provide strategic guidance to Drink LMNT. Currently, they are both co-founders of three other companies together, including a virtual health company called AtGo Health and a health and fitness coaching business called Ketogains. Cartwright has an MBA in finance from Bellevue University. Villasenor is a certified trainer from the International Sports Sciences Association and has a bachelor’s degree in business and marketing from the Ibero-American University, Mexico City. In addition to his other current positions, Villasenor is co-founder at ARBCO Enterprises, which offers wellness and fitness services, and the owner, COO, and CMO of a restaurant business called Grupo Abastar.

Altogether, Drink LMNT has a seasoned team with complementary skill sets. Its members have strong industry experience in health and nutrition, managerial experience, and entrepreneurial skills. Drink LMNT’s team seems to have what it takes to guide and grow the company.

Drink LMNT’s drink mixes are designed to restore electrolytes, and they’re sugar-free, gluten-free, vegan, and paleo- and keto-friendly. The company’s core differentiator is in the mixes’ high salt content (1,000 milligrams) per serving. For comparison, Gatorade has 270 milligrams of sodium in a 20-ounce serving of its lemon-lime flavor, Powerade has 150 milligrams in a 12-ounce serving of its fruit punch flavor, and Liquid I.V. has 500 milligrams in one serving of its tropical punch flavor. Drink LMNT’s products get strong positive reviews from customers, so the company has clearly found a way to incorporate significant amounts of salt while maintaining good taste.  

However, given that salt content is the company’s main differentiation, Drink LMNT’s core product is not defensible. Legacy competitors with larger budgets — like Gatorade and Powerade — could easily put a similar product on the market if they notice strong consumer demand for it. Overall, Drink LMNT is not strongly differentiated.

Drink LMNT generated $31.6 million in 2021 revenue, up an impressive 347.9% from its 2020 revenue of $7.1 million. In 2021, the company retained 68% of its revenue after paying for its cost of goods sold, down from 73% in 2020. Still, 68% is relatively high for a consumer packaged goods company. The company is operating at a net profit of almost $2 million, which is more than double its 2020 profit of $880,000. The company continues to display strong performance and profitability metrics. At the company’s current run rate, Drink LMNT predicts about $50 million in 2022 revenue, indicating revenue growth of 58.3%. This is quite a steep drop from the growth seen in 2020 and 2021 and indicates the company’s steep upward trajectory may be leveling out.   

Drink LMNT has raised at least $3.3 million to date from top venture capitalist firms such as ALIVE Ventures, Thrive Market Ventures, Wild Ventures, and more. Several high-profile athletes have also invested in Drink LMNT, including Joe Thomas, Bradley Beal, and JD Martinez. Given the importance of marketing in the sports drink industry, having such a strong roster of professional athlete endorsements is a major positive for Drink LMNT. Additionally, the company has an average 4.5-star rating across all its major direct-to-consumer channels.

All in all, Drink LMNT is doing well financially, although projections indicate revenue growth is slowing down. The company also benefits from a supportive customer base and a strong list of investors.

Drink LMNT is a moderately risky investment. It has a very strong financial profile and is poised for another banner year in 2022. However, the company has a very high valuation. Because this raise is a SAFE round with no discount, investors are solely betting on the company being worth more than $200 million. That could make it much harder for new investors to make a substantial return. 

Additionally, as a company with only one type of product, Drink LMNT will likely need to expand into other verticals to keep up the major revenue growth it has seen since inception. It should be noted that the company makes no mention of additional product lines on its raise page or Form C. The company currently predicts $50 million in 2022 revenue, which would represent 58.3% growth from 2021 revenue. This is substantially lower than the revenue growth seen in previous years. In comparison, revenue increased by 347.9% between 2020 and 2021, from $7.1 million to $31.6 million. This shows that revenue growth is declining and could soon be difficult to maintain.  

The biggest change from Drink LMNT’s last round is the company’s valuation cap. In its previous Republic round ending October 2021, Drink LMNT had a valuation cap of $60 million. The company’s new valuation cap for this current Republic round is $200 million. The company has also significantly increased its revenue from $7.1 million in 2020 to $31.6 million in 2021. This is impressive growth, but it falls short of the $36 million Drink LMNT projected during its previous raise. Overall, the company doesn’t seem to have achieved any significant milestones since its last raise. For these reasons, Drink LMNT’s KingsCrowd rating has been downgraded from a Deal to Watch to a Neutral Deal.

The core downsides of Drink LMNT’s current raise are its extremely high valuation and lack of defensibility. The company is no longer an early-stage startup. In order for investors to receive a 10x return, the company would need to eventually be worth more than $2 billion. There is no guarantee that will happen, though. In other words, there is substantially less upside for investors given its new valuation.  

Additionally, Drink LMNT’s main differentiation is its high sodium and electrolyte content. This is not a differentiator the company can protect with patents. Drink LMNT operates in a market dominated by legacy brands like Gatorade and Powerade. Well-established competitors could easily create a similar product, which could draw away Drink LMNT’s customers. As a result, the long-term success of the company will be heavily reliant on successful marketing and product expansion to capture further market share. Additionally, the company’s revenue growth is on track to sharply decline in 2022 from 347.9% to 58.3%. While this is still strong growth, it reveals a potential cooling off of the company’s sales trajectory, which could affect investors’ returns.

Given Drink LMNT’s lack of defensibility, the success of the brand will almost exclusively depend on marketing. The good news is that the company has been extraordinarily successful in marketing the product thus far, which is clearly seen in its revenue figures. Drink LMNT has a very strong operating history. The company has generated sales every year since its founding, starting at $1.5 million in 2019 and increasing to $7.1 million in 2020 and $31.6 million in 2021. Additionally, this is not a winner-take-all market, which is important to note given the extremely crowded field of competitors. The founding team has experience scaling other businesses in this space through its work at Proton Enterprises and has the expertise to effectively navigate this industry.  

Drink LMNT has clearly struck a chord with the fitness, paleo, and keto consumer bases and is highly rated across all its e-commerce platforms. Drink LMNT acknowledges on its raise page that brick-and-mortar retail remains untapped, and it plans to eventually expand into that sales channel. Given that the company exclusively sells directly to consumers, an expansion into brick-and-mortar could help it continue its strong growth trajectory. If the company can continue to market itself effectively and maintain strong revenue and profitability figures, Drink LMNT will likely become an extremely attractive acquisition target for legacy incumbents in this space. 

Drink LMNT is a beverage company that produces electrolyte-rich hydration powders with no sugar or artificial ingredients. The company is run by a seasoned team that has experience building other health and nutrition companies. Drink LMNT has an extremely strong financial profile, with $31.6 million in revenue in 2021. The company has seen massive revenue growth since its founding in 2019, with 2021 revenue growth at 347.9%.

Despite the company’s strong financial profile, Drink LMNT’s long-term prospects are uncertain. First off, the company has a highly replicable product that is competing with legacy players (Powerade and Gatorade) and more recognizable incumbents (Liquid I.V.). Therefore, deep-pocketed competitors could easily make a competing product and use more marketing dollars to take back market share from Drink LMNT. Additionally, the company’s $200 million valuation is extremely high for an early-stage investment opportunity, limiting the upside potential for investors. For these reasons, Drink LMNT has been rated a Neutral Deal.

For questions regarding the KingsCrowd analyst report or ratings for this company, please reach out to support@kingscrowd.com. 

Analysis written by Teddy Lyons, June 24, 2022.