PittMoss

PittMoss is raising a Crowd SAFE at a valuation cap of $7.5 million with no discount. The company has not provided updated financials for 2020, but going by the company’s 2019 revenue, this represents a multiple of around 20x, which is much too high. However, the company is seeing solid revenue growth and is in good financial health, so the valuation on its own is somewhat reasonable. The valuation has increased by $500,000 since PittMoss’s previous raise last year.

PittMoss’s products do provide a substitute for general soil products, not just the peat moss additions to soil, which means PittMoss does enjoy access to the manufactured soil market. The global size of the manufactured soil market was projected to reach $7.8 billion by 2021, growing at a CAGR of 6.7%. North America (mostly the U.S. and Canada), PittMoss’s current geographic reach, makes up about 30% of that market, or around $2.34 billion. With its animal bedding products, PittMoss is also delving into the organic bedding market size, which is fairly modest and expected to reach $1.1 billion by 2025.

While both of these markets are moderately sized, PittMoss has access to each. The markets are growing at a respectable pace, though as with many markets, growth has slowed in the COVID-19 pandemic. It doesn’t seem inconceivable that PittMoss could eventually reach its revenue goal of $24 million given a decade or two, but it’s highly unlikely that it could do so by its projected 2025 date.

PittMoss’s founder, Mont Handley, developed its manufacturing process and presented it on ABC’s Shark Tank, but since getting the business started he has largely handed it off to President and CEO Brian Scott. Handley served in the U.S. Army, and spent five years after graduating college managing landscape departments for a retail nursery in Chicago. Over time, he grew into a National Sales Director role for VisitPittsburgh, a tourism site, and has been involved in both politics and other startups. 

CEO Brian Scott, who took the reins in 2016, is responsible for pushing the company’s early business success. Scott, who holds a Master’s Degree in Computer and Information Science from Gannon University in Pennsylvania, has past experience working in education and IT services. He is a board member of a brewing company, and his longest commitment was as President & CEO of Express Management Group, which ran several loan stores and rent-to-own stores, and kept PittMoss under its umbrella for several years. Scott doesn’t necessarily bring much experience in horticulture to the table, but makes up for this with his business management expertise.

That specific horticultural experience is brought by those under Scott, such as Director of Technical Sales, Mark Goldman. Goldman, who holds a Bachelor’s Degree from Penn State, has spent several decades working in the industry: nine years as Vice President of Soilless Mix Manufacturing & Sales at Therm-O-Rock East, a small toll manufacturer and horticultural mixer, and nineteen years as VP for Marketing & Sales at a small greenhouse supplier, Brighton By-Products. 

On the marketing side, the team is bolstered by Director of Business Development Ashley Mariani. Mariani holds an MA & MBA in Mass Communication from Point Park University, and has spent a couple of years working for the City of Pittsburgh—possibly her connection to founder Mont Handley—and almost four years working in sales and marketing for Industry Weapon, which makes digital signage.

All in all, the team brings in relevant experience from non-founders and is adequately served by its leadership.

If investors were hoping for a revolutionary product to set PittMoss apart from its competition, there isn’t much cause for hope here. The manufactured soil market is intensely competitive for its relatively small size, and though many of those manufacturers provide the peat moss-based products PittMoss decries, a number of them provide “organic” and eco-friendly products like PittMoss, such as Organic Mechanics Soil. The company holds no patents for its “secret” manufacturing process, and should public opinion turn more significantly against peat moss, there is no reason more traditional soil providers couldn’t duplicate PittMoss’s process.

The margins in the business are also fairly narrow. PittMoss estimates its margins to have reached 45%, but those numbers are based on internal data we can’t verify—going by numbers provided from 2019, we estimate the company’s margins to come in at around 25%. The company does have a strong and visible mission of environmentalism, which is a plus considering its target markets. PittMoss also has prominent investor Mark Cuban serving as an advisor.

In the years since its founding, PittMoss’s performance has been good, but not stellar. Its revenue growth has been positive each year, and its customers are increasing as well. In 2019, the company saw its revenue come in at $408,222, a marked increase from $296.267 the year before; its COGS did increase from $232,913 to $311,366, however. While the business has yet to turn a profit, it has kept in excellent financial health, taking on only $80,000 in debt while holding $858,237 in total assets.

The company’s revenue projections for the next several years are wildly ambitious and likely inflated to appeal to potential investors, but it is highly likely that revenue will continue to grow slowly.

All startup investments entail certain levels of risk. In the case of PittMoss, a lack of engagement on the part of its founder represents a notable red flag. Mont Handley, however, does remain on the company’s board. The high valuation also presents poor terms for a startup investor, and its slow-but-steady growth rate means that should the company reach profitability, it is likely to take a number of years at the least before investors see significant returns.

For its addressable market, PittMoss is operating with very little room for error. Not only are its margins relatively narrow, but competition is found in abundance across the United States, and could duplicate PittMoss’s eco-friendly product marketing with relative ease. Despite being in operation for half a decade and existing in over a hundred locations, the company has yet to break even or reach a million dollars in revenue, and its growth seems likely to continue to be slow; farmers and gardeners who know about peat moss know that it works dependably, and are likely to have high levels of trust in the products they are currently using.

Investors considering PittMoss should be aware that it is likely to take a number of years for the company to reach the market dominance it hopes for, if it can do so at all. With very little in the way of product defensibility, PittMoss is likely to struggle for a long while before it can reach the levels of revenue it promises.

It’s difficult to see how PittMoss could reach its ambitious revenue goals for 2025; for this startup, “slow and steady” seems to be the order of the day. We should note, however, that assuming its margins have increased as it claims on the raise page, we should expect to see net income beginning to rise in the coming years.

As with many startups, much of the business’s success will depend on cultural trends. If European awareness of and regulation around peat moss use for soil products comes to match that of the U.S., PittMoss could see its business boom as environmentally-conscious gardeners and farmers migrate from their traditional providers worldwide.

PittMoss is a next-generation soil manufacturer. The company provides its soil products as ecologically-friendly alternatives to traditional peat moss products, the mining of which is causing high levels of carbon dioxide emissions and damage to valuable peat bogs. PittMoss products are made from upcycled materials like landfilled paper products, and can enable more water and nutrients to reach plants.

The company has seen slow but steady revenue growth since its founding in 2015, expanding to 150 locations across the United States. It is yet to be profitable, but stands on a firm financial footing, and has done well to raise the funds so far. A lack of engagement on the part of Founder Mont Handley, low gross margins for its products, and a market stuffed full of competing soil providers present significant obstacles to PittMoss achieving its ambitious revenue goals, but significant growth over time means the company is likely to continue in achieving moderate success for the next several years.

As a result, PittMoss is a Neutral Deal.

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Analysis written by Benjamin Potts.