NatureBox raises $18M on 2,000% revenue growth, proves that listening to your customer is always a good policy

By Michael Carney , written on April 14, 2014

From The News Desk

Box-of-the-month ecommerce startups are so 2012, right? Every category from cosmetics to dog toys had its version, but none really amounted to anything – right? Wrong. The conversation around discovery-based subscription etailers is far more nuanced than the conventional wisdom would suggest.

Everyone knows about Birchbox, the one clear breakout amid an otherwise overhyped category. But it’s easy to (wrongly) attribute its success to being among the first companies in the category and breaking out before the business model grew stale. Or maybe it’s that it’s in the rare category that there is near unlimited products to sample and healthy consumer demand. Both conclusions are short sighted. In reality, there’s something to a discovery and replenishment oriented business model, but only when implemented in the right category and executed with the consumers’ needs as the focus.

Today, it’s become clear that the cosmetics discovery etailer isn’t the only breakout box-of-the-month game in town. Healthy foods startup NatureBox today announced an $18 million Series B round of funding and some pretty serious performance metrics. Specifically, the two-year-old company grew revenue 20-times year-over-year (that’s 2,000 percent), shipping a total of 1 million orders for the year.

The latest financing was led by Canaan Partners with participation from existing investors General Catalyst Partners and Softbank Capital. The round brings NatureBox’s total funding to $28.5 million, making it the among the most well-funded companies in the category.

“It’s rare to see a new food service company grow as rapidly and fervently as NatureBox,” says Canaan Partners general partner Warren Lee.

While it may be easy to lump NatureBox in with Birchbox and the dozens upon dozens of other startups delivering monthly shipments of product samples, the company has taken a dramatically different approach to building its business and developing a loyal customer base, the fruits of which are now becoming clear.

Most uniquely, NatureBox doesn’t sell any third-party products. Rather it develops and manufactures all of its own food products internally and delivers them under its own brand. The company has more than 130 SKUs today – a number that continues to grow – and invites customers to order foods according to specific dietary needs such as vegan, gluten free, or no sugar added.

“We’ve really committed to building a brand and creating things that consumers can’t find elsewhere,” says NatureBox co-founder and CEO Gautam Gupta. “We think we offer a really differentiated experience.”

More recently, the company has added a second type of flexibility to its ordering model. Unlike most of its competitors which build their business around discovery, surprising their members with new products monthly, NatureBox now invites its customers to choose some or all of the items are included in their shipments. This was a change implemented by popular demand and makes the business somewhat of a combination between a traditional ecommerce merchant and a box-of-the-month startup.

“It was a big change, so we started testing it slowly by allowing only some users to choose what snacks they received,” Gupta says. “But people loved the experience of getting what they want, so we opened the option up to everyone. It’s been a massive success.”

By choosing to customize only a portion of the 5, 10, or 20 individually wrapped snack bags contained within each order, customers can ensure themselves of still trying new things each month and NatureBox gets the benefit of exposing its customers to more of their catalog. But for those who have particular dietary needs, or simply preferences, the flexibility is a welcome option.

Another benefit of NatureBox’s vertical integration is that it knows more about its end consumers than most food companies, and has more of an ability to develop products based on their preferences than most discovery-based subscription etailers. It’s a best of both worlds scenario that allows NatureBox to make product creation decisions and drive discovery based on customers’ ordering patterns, ratings, and personal profiles.

The company also avoids many of the perverse incentives confronting its competitors whose objective is simply to drive get third-party brands in front of consumers, rather than to build loyal and enduring customers. For example, many of NatureBox’s discovery-driven counterparts end up selling consumer data to their CPG partners, something that Gupta says his company has no reason to do.

“We have really strong direct relationships with our consumers, something that is fairly unique in the CPG space,” he says. “People really overlook the power of the data.”

Given the company’s phenomenal growth rate, it’s not surprising that it was able to pull together this funding round. But it happened far sooner that anyone planned, according to Gupta.

“We weren’t actively out there raising capital,” he says. “But we felt strongly about investors that approached us and the value that they could bring to table. Our growth has been so rapid that we saw an opportunity to bring in capital sooner than planned and accelerate even further.”

In addition to the new cash, Gupta has beefed up NatureBox’s senior management team, adding both a new Head of Product and a new VP of Marketing to the team. Over the coming year, he expects the remaining team to scale across engineering and supply chain operations. The company currently utilizes a combination of in-house and outsourced fulfillment and will need to further grow its supply chain if it wants this year's grow to resemble anywhere near last year's phenomenal rate.

NatureBox continues to add new products to its catalog and is also exploring additional new revenue channels as well, according Gupta. This will almost surely mean offering a traditional ecommerce store and may eventually mean selling its products through brick-and-mortar grocers.

“We have a lot of work to do in building our direct channel, but we believe that there’s a huge opportunity to be in other outlets,” he says. “We think we can use that as a way of creating trial and brand awareness. Ultimately, we’re big believers in building multi-channel brand.”

Health-consciousness is becoming mainstream, as indicated by the recent success of companies like Method, The Honest Company, and Whole Foods. NatureBox still has plenty of growing up to do, including scaling from tens of thousands to millions of customers without being crushed by the scale of such an operation. But the one thing that's clear, is that it couldn’t ask for a better market opportunity.

“Healthy eating is really a rising tide,” Gupta says. “The American consumer is thinking more about what they’re consuming and what putting in bodies than ever before. Multiple companies are going to be started and be successful in this space, and we think we’re positioned to be one of them.”