With the endless benefits of healthy living, more and more people are adjusting their lifestyles.  Some people change their food consumption style and adopt vegetarianism, fruitism, paleo diet or other restrictive diets.  

One of the most recent trends is the keto diet.  It recently rose to popularity due to its appealing promise. The keto diet requires the subjects to limit their protein and carb intake so that the body will be using fat as an energy source.  

 However, this is extremely hard to maintain. In order for such a diet to succeed, one has to intake less than 25 gram of carb a day, which rules out a lot of common staple foods in ou r diets such as bananas, bread, rice, and potatoes to name a few.

Keto diet is not the only one with such a rigorous standard.  In order for someone to be considered as living healthily, the individual has to maintain a balanced diet, sleeping schedule and living habits. In fact, less than 3% of the population is able to meet such standard.  

In attempt to keep up with such a lifestyle, many people turn to dietary supplements as an alternative. Such supplements could vary from simple vitamins to more complicated herbal products. They usually come in the form of three claims: health, nutrient content and functional claims.  

Supposedly, they provide additional nutrients and boost certain functions within the body. However, they are still made up of chemicals and substances that may have detrimental effects to the body.  

In the United States, dietary supplements are not regulated as drugs and no proof of their efficiency and safety is needed. While the Food and Drug Administration (FDA), maintains a list and puts bans on certain high-risk ingredients, it is relatively lax and the administration holds no responsibility over any potential issues. Essentially, there is no official regulations.   

Based on the 18th Annual CRN  Consumer Survey on Dietary Supplements, it is revealed that about 90% of the population are comfortable and trust the supplements that they are taking.   

Certain ingredients that are commonly used can pose a huge risk to the users.  The following table introduces some of the ingredients and their detrimental effects:

NowKeto aims to change the actual lifestyle of users and enhances the keto diet. Through a suite of products including supplements, e-books, meal prep plans and life coaches, the team aims to manage the person’s well being holistically. A balance of education, supplements and other resources makes the originally difficult diet achievable for almost everyone.

The product consists of collagen, ketone supplements, and MTC oil powder that follow the stringent ketogenic diet requirements meaning low carbs, no fillers or gums, and no sugars. In order to accommodate more users, they are also vegan, gluten free, dairy free and GMO free.

The science behind NowKeto can be found on their their blog, but essentially the premise of the product is lowering the carbs and proteins that users are taking in.

The body will get used to burning fat almost all day long and use up the stored up fat within the body as well.  Some of the benefits include weight loss, reduced blood sugar, increase of energy, better brain health, and even possible chances of fighting off illnesses.

Another part of the product offer is personal coaching program, which helps people with the transition to the keto lifestyle. Through a customized approach to coaching, they are meeting the needs of each user rather than just giving them cookie cutter advice that won’t work for everyone.

This also means they can charge a premium for their customized service.

In order for everyone to achieve the healthy living that NowKeto aims to provide for all its customers and clients, they are attempting to add in personalization as a part of everyone’s experience. Every month, there would be a monthly call or webinar that serve as a check up for the individual.

Though this may at first sound like a way to minimize the ability to scale, it is infact a way to build a higher margin business with higher engagement and less turnover. Thus sustaining revenues and increasing the LTV of customers.

At the same time, they would also have access to a health coach that they could reach at any time. On top of these services, NowKeto also offers meal ideas, meal plans and health related e-books. They are trying to provide everything they can for people to achieve their goals.

Another issue that many health supplements pose is their safety quality. Without strict restriction and inspection of the FDA, the companies themselves are responsible for making safe products. NowKeto sends their product to a third party laboratory for safety testing before serving them to the general public. It is still able to provide proof of a safe product and give customers the reassurance that they need.

The dietary supplement is a large and growing market.  In 2016, the global market size was about $133.1 billion. In a recent survey to the general public held by the CRN, 76% of people said they are already taking dietary supplementary.

45% among the rest of the population who currently aren’t taking anything claimed that they would be willing to take it if their doctor recommend it.  Moreover, it is predicted that it the dietary supplement market size will grow to 278.04 billion by 2024. Put simply, NowKeto is playing in a vast market opportunity with a unique value proposition in one of the fastest growing segments of supplements.

1. Strong Traction:  Since the beginning of the year, they have sold $75k in product with minimal marketing spend and essentially a bootstrapped budget.  

Monthly growth has remained in the double digits with management projections of reaching $500K in monthly recurring revenue within a couple years. It’s clear that customers want what they are providing, which is an indicator for us that this team is onto something.

2. Ripe for acquisition: There has been several better-for-you products that have reached similar demographics that have had major success recently. These include, Ancient Nutrition, which is now a $103M revenue business.  And RXBAR with started with $10K in funding and went on to be sold to Kellogg for $600M. Needless to say, this is a space where opportunities for high multiple acquisitions will exist.

3. Distribution Channels:  Currently, NowKeto is working on expanding marketing through a podcast, intuitive app, youtube channel and retail distribution channels. These channels should act as conduits to accelerate growth and brand recognition.  

4. Philanthropy:  The founders aren’t just doing this for themselves.  Their goal was to help people live a healthy life and they are also doing that for people who aren’t their consumers.  

For every product sold, they will provide an entire year of vitamin to either a mother or a child in need. Malnutrition is a huge problem in some parts of the world. This is a life saving effort and one that will drive sales as it speaks well to their core customer.

Joshua Christensen first founded NowKeto in 2017. As a workout fanatic, recognized the lack of good natural health supplements. He began working on the product at the end of year and is speeding along the process.  

 In addition, he is not new to building companies with experience in building regional franchises and being featured on major broadcast television channels regarding his work. Joshua is the king of entrepreneur who knows how to make a name for himself and get businesses going with minimal resources. He’s the kind of scrappy founder we like to identify.

 Getting to $75K in revenue with nearly no marketing spend in a matter of months is something that gives us confident he can utilize capital raised effectively.

The Recommendation: Deal To Watch

As the health supplement market keeps expanding due to the increasing importance people place on health, there is great room for growth.  As it has been seen in the past few month, NowKeto is a fast growing business with high demand. Different from its competitors, it utilizes healthy and natural ingredient while providing other related services that would assist its users.

Customer feedback has been strong and the messaging of the brand has resonated with clients without very much marketing effort showing there is a pent up demand for the product line.

Obviously one of the major concerns for the organization is whether or not the keto diet is more of a fad rather than a trend, though to date it has shown signs of being a sustainable trend that can support a business like NowKeto.

The other challenge is if NowKeto can’t open up certain channels like a GNC, then early traction may not be enough to make this into an enormous business ahead. At the current valuation of $6 million, we think it’s an investment worth considering for your portfolio despite our concerns around upside potential.