Eve Sleep: An inside look at the first retail IPO of 2017

eve Sleep announced its IPO on AIM earlier this month, with a market cap of around £140 million. Luke Hakes, Investment Director at Octopus Ventures, shares an inside look at the first retail IPO of 2017 in the UK.

This week online mattress retailer, eve Sleep, made headlines after successfully raising £35million in an initial public offering on AIM, valuing the business at a market cap of c.£140 million. Having only launched in February 2015, the direct to consumer mattress business has seen phenomenal growth, as well as significant investment. This is however a rarity. According to a London Stock Exchange data, last year the UK saw the slowest rate of UK flotations since 2012, with only 38 companies to float on AIM compared to the 61 admissions the previous year and the 2005 peak of 519 admissions.

This poses the question on how businesses like eve have successfully bucked this downward trend and how can other UK-based companies learn from this success story and grow quickly, and target that elusive IPO?

Defining moments of growth

As an investor you will witness many defining moments with your portfolio businesses that will make you believe in each business even more. In its two years of trading, eve’s sales grew from zero to £12 million last year, growing at an average monthly rate of 35 per cent in year one and 25 per cent in year two. However, one particular defining moment for eve was when it exceeded its first-year numbers five times over what was expected.

This growth can be attributed to a strong marketing strategy and desire to expand to the wider European market. After establishing market share in the UK, eve turned its focus to Europe and introduced a new line of products. Built on a robust consumer-focused model – eve put the work in to keep the brand as simple and focused as possible in order to deliver the best product at the best price.

By focussing on single premium products in each category, from mattresses to sheets, eve outsourced its manufacturing and fulfillment and leaving the team to focus on the design, branding, marketing and sales. This model has enabled the company to scale quickly in the UK and internationally.

How has eve Sleep managed to IPO so quickly?

eve’s achievement is founded on exceptional execution around a product that people actually care about. The founders built a brand that resonated and then brought on board a team that had the skill to accelerate and harness growth.

From the get go it was evident from an investor perspective that we had found an unusually talented group of entrepreneurs with big vision, and ambition. Not only did they already have experience in the mattress sector through their former businesses, but their strategy was also an exciting combination of execution and brand focus. While most entrepreneurs think about brand after the product, eve’s branding strategy was brought to the forefront of its business agenda.

The right team was critical to bringing eve Sleep to IPO in just over two years.  The speed of expansion, growth, and floatation, which is so unusual in the UK market, was built around an American-style funding strategy. To achieve this, Paul Pindar was brought onto the board and drove eve’s IPO strategy off the back of his success at Purple Bricks.

With three rounds of investment in two years – what inspired the investors and how did they contribute?

eve is a great example of a high growth business bringing technology and innovation together to a previously traditional market. eve saw a model that had begun to see increasing success in the US and thought that it could be replicated in Europe. Investment was key to its strategy, given that the founders knew the business model, and product, was profitable and they were able to demonstrate this very early on, eve was in an excellent position to seek out investors. As a result, the team was able to find very specific investment to build the brand, e-commerce expansion, and overseas growth.

As investors who look for disruptive high growth businesses, it was clear that this was a company that was innovating its business model and go-to-market approach. In fact, eve often avoided talking about the usual medical benefits of a mattress and instead focussed on the lifestyle.

It’s important as an investor to work very closely with your portfolio businesses’ management teams to expedite their fundraising strategy and hiring key talents. With eve’s three rounds of investment in short order followed by the float, you can expect that a lot of work had to be done as part of their board.

Where next?

eve is looking to continue to expand into further markets and extend its product range and retail partnerships. The AIM listing means eve will have the financial firepower to own Europe and enable it to take further market share across geographies, positioning eve as the only real pan-European player in the e-commerce sleep market. It is easy to see how eve could soon own the sleep category, be the go-to brand for everything around sleep.

Luke Hakes is an investment director at Octopus Ventures.

Praseeda Nair

Praseeda Nair

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.

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