Sugarfina is offering a Crowd SPA (stock purchase agreement) at a $125 million valuation. That’s a huge valuation compared to the average equity crowdfunding opportunity. More importantly, it’s a very high valuation relative to the price of the business just two years ago. Sugarfina was acquired by a holding company for just $15.1 million in September 2019. Admittedly, the company has rebuilt since then and saw revenue of just under $25 million last year. Nonetheless, this $125 million valuation seems too high for the company’s recent struggles and current level of revenue. That’s why Sugarfina’s price rating is its lowest. 

The US confectionery market was valued at $36.4 billion in 2016 and likely totals about $40 billion now in 2021, given estimated growth rates. Market growth is relatively slow due to the macro trends pushing consumers toward healthy snacks instead of candy. 

Sugarfina is unlikely to ever capture a huge portion of this market because its products are expensive compared to typical candies. In addition, the chocolate segment of the confectionary market is the largest (over 50% of total market share in 2016). Sugarfina mostly sells gummy bears and other gummy or fruity candies. This focus further limits the company’s ability to secure a large market niche.

However, Sugarfina is a well-established company in a decent-sized market. It has already secured brand recognition from a large portion of the American population. International expansion opportunities only increase Sugarfina’s revenue opportunities. All in all, Sugarfina’s market rating is a bit higher than average. 

Sugarfina was founded by Rosie O’Neill and Josh Resnick, a couple who realized in 2012 that typical candy brands didn’t appeal to adults. O’Neill has a strong background in brand marketing. Before founding Sugarfina and serving as its chief creative officer, O’Neill spent seven years as a marketing director for the Barbie brand at Mattel. O’Neill’s partner, Josh Resnick, was an experienced entrepreneur when the couple founded Sugarfina. He had recently sold a game development company to Electronic Arts for $860 million. His company, Pandemic Studios, sold more than 25 million games worldwide. 

The KingsCrowd team rating for Sugarfina is based on O’Neill and Resnick, but it’s important to note that they no longer lead the company. After Sugarfina filed for bankruptcy and was bought by Bristol Luxury Group, the original founders moved on to advisory roles. Day-to-day operations were given to CEO Scott LaPorta. LaPorta is an experienced executive with more than 40 years of experience in progressive finance and operations roles. He previously served as the COO for both Bolthouse Farms and Neurobrands, both large food and beverage companies comparable to Sugarfina. 

Beyond LaPorta, Sugarfina employs more than 100 full-time employees and many more part-time team members, including an in-house creative and design team to carefully protect the company’s distinctive brand. With all of this combined experience, Sugarfina earns a very high team score.

Sugarfina has developed strong brand recognition and a large line of recognizable products that few other companies can compete with. Sugarfina’s champagne gummy bears are particularly well-known, and other gummy bear launches in collaboration with brands like Truly Hard Seltzer and The Simpsons are constantly generating press. Sugarfina has been extremely successful at defining its core brand identity: high-end, unique candies made for (mostly female, high-income) customers that value aesthetics. In fact, Sugarfina’s distinctive baby-blue candy boxes and customizable candy bento box designs are patent-protected, adding an additional layer of defensibility. 

Sugarfina is not the only high-end, adult-oriented candy company, and there’s no reason why a new or incumbent brand couldn’t eat into Sugarfina’s market share with similarly aesthetic, distinctive products. All in all, Sugarfina is one of the better-known boutique candy companies in the US, so the company’s differentiation rating is quite strong. 

Sugarfina is a much more mature business than most companies raising crowdfunding, so its performance is quite strong. In 2020, the company generated just under $25 million in revenue. All of its sales channels are mature and performing well. E-commerce is Sugarfina’s fastest-growing channel, driving 34.1% of revenue last year, but retail channels are also primed for expansion with additional stores opening around the world. Sugarfina is able to consistently pull in revenue thanks to a steady stream of new, exciting brand partnerships, such as a recent launch with Truly Hard Seltzer. All of these launches result in high-quality publicity in leading press outlets, furthering Sugarfina’s brand recognition and revenue potential. 

Of course, Sugarfina is in a turnaround, so not every aspect of its performance is positive. Its 2020 revenues were down compared to 2019 ($25 million versus $40 million) as Sugarfina navigated the COVID-19 pandemic while trying to cut costs and rework its business model. Sugarfina’s 2020 net loss was more than $4.7 million. The company is also carrying more than $10 million in debt, not an excellent sign as the company continues to work on improving revenue. 

By most measures, Sugarfina is a high-performing business with very strong revenue traction, established distribution channels, and a large amount of prior funding ($39 million according to Crunchbase). As a result, Sugarfina’s performance rating is very strong. However, prospective investors should keep Sugarfina’s recent bankruptcy and related struggles in mind when evaluating performance.

All in all, Sugarfina isn’t a particularly risky investment. Based on the company’s long operating history, current revenue trends, and strong turnaround team, it seems likely that Sugarfina will continue to grow. However, prospective investors should note that Sugarfina is carrying a large amount of debt (more than $10 million) and may need more funding than crowdfunding can provide to continue restructuring its business. Thus, the primary sources of risk for this investment opportunity are related to financials and funding. 

Sugarfina is an extremely well-established brand with a long operating history. Revenue is strong, and customers continue to be enticed by marquee brand partnerships. The main reason why prospective investors might be bearish about Sugarfina is the company’s recent bankruptcy struggles. As recently as 2019, Sugarfina was bleeding cash with no clear path to profitability. The company was struggling to achieve cost-efficient results from its retail channel and was encountering difficulties with international expansion.

After filing bankruptcy, Sugarfina was acquired by Bristol Luxury Group for the low price of $15.1 million. Ever since, Sugarfina has been in turnaround, removing its founding team and installing a new CEO with significant experience restructuring struggling food and beverage brands. Still, Sugarfina probably isn’t out of the woods yet. Embarking on a turnaround just months before the COVID-19 pandemic was extremely bad luck, and 2020 revenues weren’t able to rebound from 2019 highs. Sugarfina has a good chance to turn its fortunes around, continue expanding worldwide, and generating solid returns for investors. At this point, though, less than two years post-bankruptcy, it’s too soon to say for sure.

Sugarfina is still emerging from bankruptcy, but there are many reasons to believe that the company has what it takes to turnaround and achieve success. Sugarfina’s brand is incredibly strong. The company has a huge base of loyal customers and impressive lifetime revenues. Few other companies can compete with Sugarfina’s ability to win major brand partnerships with the likes of The Simpsons, and Sugarfina continues to be a press darling. Plus, Sugarfina’s signature candy boxes are protected by a number of patents, further widening its competitive moat. 

There are a number of issues that Sugarfina needs to address in moving toward a more sustainable business model. Cutting costs and growing the company’s higher-margin e-commerce channel would help achieve this end. Putting inventory systems in place and assessing wholesale contracts for maximum cost efficiency could also help Sugarfina reach further stability. The company needs to continue launching new products, likely including more chocolate options to benefit from growth in that market segment. Sugarfina would likely benefit tremendously from measured international expansion. High-end products are very popular in Asia and the Middle East, so those markets seem like major opportunities. All of these initiatives seem achievable, though, particularly under the leadership of such an experienced food and beverage turnaround CEO. Prospective investors have many reasons to believe that Sugarfina is moving quickly in the right direction. 

Sugarfina is a high-end candy brand selling gummy bears, chocolates, and other treats in distinctive bento box formats. The company has generated massive revenues over the last decade. In the last two years alone, Sugarfina has made roughly $65 million. The company’s ability to generate publicity, forge major brand partnerships, and market effectively to its target audience is nearly unmatched in the confectionery industry. 

On the other hand, Sugarfina filed for bankruptcy in 2019 after years of poor cost controls, sluggish retail expansion, failed international launches, and other issues. Its 2020 revenues were significantly less than 2019, and the company is still carrying more than $10 million in debt. It’s not clear that this small crowdfunding raise will be enough to sustain the business during the current turnaround. Therefore, Sugarfina has been rated a Neutral Deal. 

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to [email protected].