Personalized skin-care brand Proven plans to go public through mini-IPO

According to the filing, Proven (under the name Life Spectacular Inc.) expects to raise approximately $42 million from the sale of nearly 9 million shares of stock. Over the next 12 months, Proven plans to expand into new markets (it expanded to Canada in June), employ traditional offline marketing and add a traditional marketing manager to the team. It is also expanding to more fulfillment centers and introducing new products like personalized supplements, baby care and body care. Proven has 21 full-time employees — including its first COO, Luke Weston, who was hired in January — and 15 part-time employees.

Ming Zhao, Proven co-founder and CEO, said the decision to pursue a Reg A+ IPO was influenced by her professional history of working in private equity, which is an industry that helps “the richest people [become even] richer,” in her words.

“Our customers have helped build Proven, and it’s our customers that believe in us. As Proven experiences rocketship growth, I want our customers and our community to be able to join in and to benefit from the value that they’re [helping us] create,” she said. “Why should only venture capitalists [access] the value of Proven prior to an IPO?”

Zhao’s stance on democratizing access to investments is reminiscent of Katherine Power’s stance when announcing Powered Brands’ SPAC: Power said she was hoping to increase women’s presence within the publicly traded sphere. Additionally, Zhao’s emphasis on fostering opportunities for everyday investors follows a monumental shift in the stock market between main street investors and institutional investors, where terms like “retail investor,” “meme stock” and “stonk” have become everyday parlance. Previously, crowdsourcing became a common tactic for beauty brands to raise early-stage funds outside the traditional venture capital bounds.

Manhattan Street Capital, a firm specializing in Reg A+, estimated that $1.48 billion was raised for Reg A+ in 2020 and predicts that 2021 will see more than $2 billion raised via Reg A+ offerings.

“This level of growth is impressive, but it’s slow compared to what it can be,” said Rod Turner, CEO and founder of Manhattan Street Capital, which did not advise Proven on its Reg A+ filing.

Turner doesn’t expect public offerings via Reg A+ to catch on like SPAC fever. “[The popularity of] SPACs is a phenomenon, and I don’t think that will happen for Reg A+,” he said.

Though Reg A+ may not become as commonplace as SPACs, the two approaches do share some similarities. Both SPACs and Reg A+ have faced concerns from the SEC in recent years over the potential for fraud. In 2019, Nasdaq toughened requirements for Reg A+ to prevent companies from listing on the exchange under Reg A+ unless they had been in business for at least two years. No such requirement existed before then. Questions were also raised in 2018 about whether Reg A+ companies were sound investments due to poor financial performance.

Proven’s gross profit in 2020 was $6.4 million, though the company has operated at a loss since its launch in Oct. 2019; its filing states that these losses are likely to continue. The net loss for 2019 was $2.1 million, and the net loss for 2020 was $2.9 million. Zhao said the company’s year-over-year sales are expected to grow more than 100% in 2021. Zhao declined to share the number of Proven subscribers or its average customer lifetime value, however, the subscription retention rate is 70%.

“[Going public via] Reg A+ is not about the age or the scale of a company,” said Turner. “It’s about the appeal, the potential, and the demand for the product and services, more than it is about how many years [a company is in business] or how many people [it has] on its team.”

Proven is offering eight tiers of “perks” to potential investors, a common tactic for Reg A+, according to Turner. Level 1 investors who invest $2,500-$4,999 are included within Proven’s beta product distribution and receive a 20% discount on Proven’s bundle of three products. The bundle retails for $189.97 without a subscription or $129.99 with a subscription. Meanwhile, the highest tier (called “Diamond”) is for people who invest $500,00 or more. Those individuals will be invited on a free trip to Bologna, Italy for the Cosmoprof beauty conference, among other perks.

“[Reg A] is attractive because you don’t have nearly [the same limits as other public companies]; it’s almost like an introduction to SEC disclosures,” said Jeanne Campanelli, COO of CrowdCheck, Inc. and a partner at CrowdCheck Law LLC, which advised Proven on its Reg A+.

Aside from being able to offer perks to potential investors, Reg A+ also allows a company to promote its investment opportunity to the public. Traditional IPOs, on the other hand, require a quiet period. The Proven team will appear on the web docuseries “Going Public,” which premieres October 19 and covers Proven’s fundraising activities, hiring and recent rebrand. This is not Proven’s first time on television, as the brand was featured on “Shark Tank” in 2020. Additionally, an official investment campaign from Proven began on Friday, September 10. It includes a landing page on the brand’s website, plus a newsletter was sent out to its subscribers.

“TV has been good to us. When people hear our story and see two minority women founders, who also have skin and product frustrations and wanted to solve this for ourselves, that resonates,” said Zhao.

A statement regarding this offering has been filed with the SEC. The SEC has qualified that offering statement, which only means that the company may make sales of the securities described by the offering statement. It does not mean that the SEC has approved, passed upon the merits, or passed upon the accuracy or completeness of the information in the offering statement. The offering circular that is part of that offering statement is here. You should read the offering circular before making any investment.