Billion Dollar Shave Club: L.A. start-up is purchased by Unilever for a staggering sum

Mike Dubin, Dollar Shave Club's founder, will remain as the company's chief executive.

By Shan Li, David Pierson

July 20, 2016 4:30 PM PT

One of the darlings of the Los Angeles’ start-up scene is cashing in on a $1-billion payday — a rise fueled by a disruptive business model and a series of offbeat viral ads.

But this company does not traffic in virtual reality headsets, video games or disappearing messages. Its business, instead, focuses on one of mankind’s oldest gadgets: razors.

Dollar Shave Club’s sale to consumer products titan Unilever, announced Tuesday, is the biggest acquisition ever of a venture-backed start-up in Los Angeles. And it’s a vote of confidence in the city’s start-up scene — one that has quietly emerged as a hub for e-commerce.

Neither Dollar Shave Club nor Unilever disclosed terms of the deal, but two sources familiar with the matter, who were not authorized to discuss it publicly, said the privately held start-up’s shareholders will divvy up the sum in cash.

Born out of a holiday party conversation in 2010, founder Mike Dubin launched Dollar Shave Club a year later. Since then, the subscription razor service has amassed 3.2 million customers and expanded with a line of men’s hair and skin products as well as wet wipes.

Backed by more than $160 million in venture capital funding, Dollar Shave Club had been valued at about $630 million prior to the sale.

Dubin, who is to remain at Dollar Shave Club as chief executive, said the two sides had been talking for months about an investment. Those talks evolved into discussions about an acquisition after Dubin acknowledged how Unilever could help Dollar Shave Club grow into a global brand, beyond its current operations in U.S., Canada and Australia.

“It was a flight we didn’t want to miss,” Dubin said.

Dollar Shave Club will remain largely independent to build its brand, which was made famous by a series of tongue-in-cheek viral videos starring Dubin. The company also will get to retain all 190 of its employees, Dubin said.

Though Dollar Shave Club has yet to turn a profit, the company had revenue of $152 million last year and was on track to exceed $200 million this year. It invests heavily in marketing, including paying for a commercial during the Super Bowl this year.

Unilever had nearly $60 billion in sales last year in 190 countries. Among its best known stable of brands are Dove, Axe, Lipton and Ben & Jerry’s.

“Dollar Shave Club is an innovative and disruptive male grooming brand with incredibly deep connections to its diverse and highly engaged consumers,” Kees Kruythoff, president of Unilever North America, said in a statement. “We plan to leverage the global strength of Unilever to support Dollar Shave Club in achieving its full potential in terms of offering and reach.”

The massive deal helps bolster Southern California’s reputation as a rising hub for venture-backed companies, with Silicon Beach home to hundreds of start-ups.

“It’s a bit of a wake-up call for what’s happening in L.A.,” said Jim Mills, a Deloitte partner who leads the consumer business practice in Los Angeles. “Silicon Valley obviously gets a lot of attention, but this highlights the fact that L.A. can hold its own.”

Although tech firms such as Snapchat get most of the buzz, analysts said there is huge potential in firms such as Dollar Shave Club, which have stripped much of the hassle — and a chunk of the costs — by selling consumer products online.

Los Angeles has carved out a niche for companies injecting technology into shopping, said Greg Bettinelli, a partner at Upfront Ventures, which has invested in local e-commerce companies such as Loot Crate, trading in collectibles, and Combatant Gentlemen, selling menswear.

“L.A. is arguably at the center of retail innovation,” Bettinelli said. The region “has built out unique skill sets in marketing, technology and product design for next-generation commerce.”

Dollar Shave Club is one of the most prominent subscription-based start-ups, in which members receive a box of products every month. Hundreds have popped up in recent years, but many are now struggling amid a downturn in venture capital investment. Makeup service Birchbox has gone through two rounds of layoffs this year.

But Dollar Shave Club has thrived by solving an especially bothersome shopping experience. Traditional grooming brands like Gillette operate by giving away razor handles, sometimes for free, but charging high markups for the blades themselves. At many drug and grocery stores, razor blades are kept under lock and key.

By mailing razors directly to consumers at a lower cost, Dollar Shave Club managed to capture more than 10% of the razor market in just a short time, said Sucharita Mulpuru, a retail analyst at Forrester.

“When you sell directly to consumers, you get much better margins,” she said. “It’s appealing but hard to do.”

David Pakman, a partner at Venrock Partners, which led several early fundraising rounds, said Dollar Shave Club has "been a company of fascination” for many in the consumer products industry.

Traditional consumer-products companies and retailers are hungry to get into the direct-to-consumer business. Acquiring a company that already has proved successful, Mulpuru said, allows a business like Unilever, which has no major razor brand, to skip over years of product development and marketing costs.

“It would take a billion dollars for them to get to a 10% share anyway,” she said. “They are essentially buying it.”

Dollar Share Club remains enmeshed in a lawsuit with rival Gillette, which started its own online subscription service in 2014. Gillette, which is owned by Procter & Gamble, alleges Dollar Shave Club stole one of its patents to reduce wear and tear on its razor blades.

Dubin declined to comment on the lawsuit and whether it had an effect on the sale to Unilever. Investors in Dollar Shave Club said the sale would help in the fight with Procter & Gamble.

Dubin started his business after complaining about the hassles of shaving with eventual co-founder Mark Levine, father of a friend’s fiancee, at a holiday party. The two later partnered with Santa Monica start-up accelerator Science Inc.

During those early days, Dubin would staff the printers at Science, printing postage labels and affixing them to boxes filled with blades.

“He's humble and just gets it done,” Peter Pham, co-founder of Science, said of Dubin. “He had a vision, he executed it and he won .… It shows L.A. can compete and build great companies.”

Dubin has hopped around in his career, starting his career as a page at NBC, before eventually moving into marketing for publications such as Life and Sports Illustrated. In the mid-2000s, he founded a start-up that was a social network for travelers.

In 2012, Dubin started making a name for himself — and Dollar Shave Club — with YouTube videos that gained an audience thanks to oddball humor and the co-founder’s off-kilter charm.

The first video featured Dubin wielding a machete and a toddler shaving a man's head.

“Do you think your razor needs a vibrating handle, a flashlight, a back-scratcher and 10 blades,” Dubin demanded at one point. “Your handsome … grandfather had one blade – and polio.”

Largest mergers and acquisitions of L.A. County start-ups

Dollar Shave Club’s acquisition is topped in Southern California by Facebook’s $2-billion purchase of then-Irvine-based virtual reality company Oculus in 2014, but it’s the largest deal ever in Los Angeles.

Men’s grooming brand Dollar Shave Club; $1 billion by Unilever in 2016
Social network Bebo; $850 million by Aol in 2008
Online video company Maker Studios; $675 million by Walt Disney in 2014
Social network MySpace; $580 million by News Corp. in 2005
Computer game developer Riot Games; $400 million by Tencent in 2011 (for a majority stake)
Content delivery network EdgeCast Networks; $390 million by Verizon in 2013
Ad technology maker AdColony; $350 million by Opera in 2013
IT software vendor ServiceMesh; $300 million by CSC in 2013
Ad technology maker Adconion Media Group; $209 million by Amobee in 2014
Manufacturing software maker Apriso; $205 million by Dassault Systèmes in 2013

Source: PitchBook

Top mergers and acquisitions of venture capital-backed e-commerce companies worldwide

Online classifieds service Avito; $2.7 billion by Naspers in 2015
Online retailer Lazada; $1.5 billion by Alibaba Group in 2016
Shoe-shopping service Zappos; $1.2 billion by Amazon in 2009
Online loyalty program Ebates; $1 billion by Rakuten in 2014
Men’s grooming brand Dollar Shave Club; $1 billion by Unilever in 2016
Online retail operator Bluestem Brands; $565 million by Capmark Financial Group in 2014
Online fashion outlet Privalia $560 million; by Vente Privee in 2016
Online clothing shop Net-A-Porter; $530 million by Richemont in 2010
Quidsi (Soap.com, Diapers.com); $500 million by Amazon in 2011
Comparison service Buscape; $376 million by Naspers in 2009
Online retailer Netretail Holdings; $360 million by Naspers in 2012
Styling service Trunk Club; $350 million by Nordstrom in 2014
Online fashion shop RueLaLa.com; $350 million by GSI Commerce in 2009
Online clothing retailer Myntra; $343 million by Flipkart in 2014
Online stationery service Tiny Prints; $333 million by Shutterfly in 2011

Note: Only includes deals since 2009 with a disclosed valuation

Source: CB Insights

Times staff writer Paresh Dave contributed to this report.

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UPDATES:

July 20, 4:30 p.m.: This article was updated to add charts.

July 20, 3:20 p.m.: This article was updated to include additional context and reporting.

July 20, 1:15 p.m.: This article was updated to include additional context and reporting.

July 20, 9:40 a.m.: This article was updated to add a graphic.