KC Underweight Deal: Carcinogen-free Scented Candles

Summary

As of February 1st, 2019, Fragrance of Heaven LLC has raised $3,200 of the minimum target of $50,000.

Today we are reviewing the strengths and weaknesses of Fragrance of Heaven LLC. Fragrance of Heaven is a manufacturer and seller of carcinogen-free fragrances. The major business of the company is focused on scented candles and tarts.

Fragrance of Heaven claims that it does not use soy or zinc mixtures in its candle wicks, which makes them carcinogen-free. They also do not stretch their oils, which can be the cau se of headaches, allergies and asthma triggers from other scented candles.

Therefore, Fragrance of Heaven differentiates itself from its competitors, due to its customized scents and high-quality products. Terri Arthur, Founder of Fragrance of Heaven, started it as a home business in 2009.  The company was registered in June 2018.

Our most notable concern with Fragrance of Heaven is its extremely slow growth. Although it has been in the business for many years, the company has not been able to generate significant top-line growth.

Below we cover the business model and future potential of Fragrance of Heaven to ensure that investors make an informed decision. When making a decision to invest in any crowdfunding round, investors should examine the company, its offerings and its future merits to ensure that they don’t end up losing their entire investment.

Fragrance of Heaven, LLC: Raising on Mr. Crowd

Questionable Growth

The most significant concern that we have regarding Fragrance of Heaven is its slow growth. Although the founder incorporated the company in June 2018, the business has been in existence for almost a decade.

Despite being in the business for almost ten years, the company has not yet been able to generate a profit. Net losses have been on the decline but nevertheless the business remains in the red. Revenues for the most recent fiscal year-end were reported to be $59,995. The net loss for the year ended December 31, 2017, was $8, 529.

Although the company’s sale are increasing, so are its operating and other expenses. Bottom line: The company has not been able to reach the financial position it should be in by now.

Inflated Valuation

As we just noted, the financials of Fragrance of Heaven LLC are not extraordinary. It has been growing very slowly. At the same time, the company is competing with large, established market players.

Considering all these factors, a pre-money valuation of $5 million on a one-store candle company seems hard to justify. Fiscal year sales of about $50,000 equate to a valuation of 100x not profits but revenues.

Strong Competitors

Fragrance of Heaven is operating in a very competitive industry, competing with several much bigger and financially stronger companies.

Granted, the global scented candles market is a booming industry. It is expected to have a CAGR of 5.88% between 2017-2021. The market is dominated by North America, followed by Europe. Since there are many established players it leaves FOH with very limited potential for future growth.

The largest competitors of Fragrance of Heaven in the field of scented candles are Yankee Candles, Colonial Candle, The White Barn Candle Company, Virginia Candles, Bridgewater Candles, among others.

True, Fragrance of Heaven offers differentiation for its products, by keeping them carcinogen-free and free of headaches and asthma triggers. However, we are not sure how much this differentiation can help the company survive the strong competition.

Lack of a Management Team

Terri Arthur, the Founder of Fragrance of Heaven, has been running the company single-handedly. She does all the wicking, labeling, and packing by herself.

True, there is nothing inherently wrong with a one-person team. However, if the company wants to expand and grow, it will require a complete team with passionate and experienced members. The lack of such a team may hinder its long-term growth.

Also, there is a “key woman” issue whereby the business’ future depends entirely on Terri Arthur.

Rating

We are assigning Fragrance of Heaven, an Underweight Deal rating.

Fragrance of Heaven has been in operation since 2009.  However, it has not yet been able to generate positive financial growth or profitability. Revenues are increasing slowly and inconsistently.

The company also appears to be sizably overvalued. Taking its growth and market position into consideration, $5 million pre-money valuation appears to be unjustifiably high. Therefore, we have doubts as to this deals merits for investors.

As always, it is essential that investors perform their own examination and due diligence, before making an investment.

If you have any questions regarding the underweight rating of Fragrance of Heaven, you can reach us at hello@kingscrowd.com.