Pit Liquor is raising a Crowd SAFE at a $5.8 million valuation cap — $4.25 million for early bird investors — with a 10% discount. This valuation is reasonable given the company’s current $1 million annual recurring revenue (ARR) traction, and Distilled Bath and Body’s broad range of proprietary products, some of which are patent-pending. Therefore, Pit Liquor’s price rating is above average.

The market for natural deodorant is expanding rapidly, but it is still very small at this time. It was valued at just $62.9 million in 2018. Even with a projected CAGR of 14.1%, the market is very niche. Moreover, this small market is already dominated by semi-household name brands like Tom’s and Schmidt’s. As the market continues to grow, mainstream deodorant brands like Secret and Degree could also introduce natural alternatives, further squeezing out small players like Pit Liquor. Therefore, Pit Liquor’s market rating is its lowest across all five metrics. 

Pit Liquor was founded by a husband-and-wife team with a compelling story. Erica Feucht was pregnant when she began experiencing underarm rashes. Her husband, Jason Feucht, set out to investigate alternative deodorant options. Concerned by the potential impact of the ingredients in most brands, he conducted thorough research to identify the most effective, all-natural alternative. He initially identified hand sanitizer as a viable option, but developed an even more natural product based in liquor (whiskey, gin, etc.). 

Erica, Pit Liquor’s CEO, has a bachelor’s degree in English and worked for several years as a writer and editor before founding Pit Liquor. Jason, the company’s COO, graduated from the Colorado School of Mines with a B.S. in Economics (minor in Materials Engineering) before holding a range of IT and technical writing positions. 

The Feuchts have grown Pit Liquor impressively over the last three years, evolving from a bootstrapped business out of their kitchen to a growing startup with a $5.8 million valuation. That being said, the co-founders don’t have particular experience in entrepreneurship or scaling consumer brands. Therefore, Pit Liquor’s team rating is middle-of-the-road.

Pit Liquor stakes its reputation on its differentiation both from mainstream deodorants and antiperspirants as well as “natural” alternatives. At least from an aesthetic perspective, this differentiation is clear. Pit Liquor is a spray-on deodorant in a bespoke-looking glass bottle, a far cry from the mass-produced plastic sticks that line the shelves at supermarkets. Pit Liquor’s primary ingredient, liquor, is also unusual in the deodorant market, and allows the company to produce catchy marketing materials that are distinct from competitors. 

However, it may be difficult for the average consumer to recognize the real difference between Pit Liquor’s all-natural formula and that of more established competitors. Pit Liquor may in fact be too unusual to be deemed effective by the casually-browsing shopper. Spraying alcohol on your armpits is a strange proposition, and consumers seeking a natural deodorant might prefer not to stray too far from the norm. While the ultimate effectiveness of Pit Liquor’s differentiation is certainly up to debate, KingsCrowd’s differentiation rating for the company is low.

Pit Liquor’s most impressive figure is the $1 million of annual recurring revenue (ARR) that the company touts throughout its raise page. While this level of stable subscription revenue is certainly a huge asset, the company’s realized revenue through 2019 is a bit less eye-catching. Distilled Bath & Body generated $287,521 in revenue in 2019, but posted a net loss of $110,202. Notably, though, the company did grow significantly between 2018 and 2019. In 2018, revenues were just $84,654, representing more than 200% year-over-year growth. 

Financials for 2020 are not available, but Pit Liquor implies that revenues grew 3x since 2019. Notably, the company’s profit margins are 86%, a strong foundation for future growth (though the company is currently far from net profitability). Overall, Pit Liquor’s financial performance offers mixed signals: impressive year-over-year growth and high profit margins, though net income is strongly negative and 2020 financials can’t be assessed. Therefore, Pit Liquor’s performance rating is its highest — though still middle-of-the-road.

Pit Liquor seems to have built a base of loyal customers, and its innovative products and catchy marketing have helped it to carve out a niche among those seeking an alternative to mainstream deodorant. However, this group of consumers is still small. Pit Liquor’s biggest risk is the niche nature of the market it plays in. Even the most all-star products won’t become household names if the potential audience for those products is small. 

Moreover, there is some inconsistency between Pit Liquor’s high unit profit margins of 86% and the company’s overall unprofitability. This trend is particularly concerning given the fact that Pit Liquor is only now beginning to spend on growth marketing, which is historically the source of unprofitability for consumer brands. If the company has lost money with primarily organic marketing thus far, how much does it stand to lose by cranking up paid ads? Pit Liquor seems to have some progress to make on a sustainable business model before investors can confidently expect a return on investment. 

While there are some questions about the effectiveness of Pit Liquor’s differentiation (can a product be too different from existing alternatives and thereby turn customers off?), overall the company’s core strength seems to be the innovative nature of its products. With catchy marketing and high profit margins, Pit Liquor could be steps away from a profitable flywheel that positions it for acquisition within the next several years. 

It helps that Pit Liquor is planning ahead for this potential exit, having reportedly begun engaging with an investment bank to lay the groundwork for acquisition relationships. Schmidt’s Naturals is a proven success story to emulate. That company was also started as a home-based natural deodorant brand before being ultimately acquired by Unilever in a nine-figure deal in 2017. Pit Liquor’s founders are positioning the company for exit, which could signal a great opportunity for investors to get in at this reasonable price.

Pit Liquor offers innovative products well-suited for consumers’ growing interest in all-natural deodorants. The founding teams’ story aligns well with the company’s bespoke brand, and a set of loyal (and subscribing) customers proves that Pit Liquor has found a way to resonate in this niche market. With 3x year-over-year growth and a reasonable valuation, this might be the moment to invest in Pit Liquor as the company prepares for eventual exit. 

However, the market for all-natural deodorant is just that: niche. Even with an impressive projected CAGR, only some tens of thousands of consumers are currently interested in all-natural deodorants. Combine that pessimism about market size with questions about Pit Liquor’s profitability, and investors have some reason to doubt that this investment will be a lucrative one. Therefore, Pit Liquor has been rated a Neutral Deal.

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

Analysis written by Katy Dolan.