Venture capital is not always silicon and biotech. Occasionally VC groups will make a bet on something so simple, it can’t fail.
The LoveSac Corporation was hatched in 1995 when its founder Shawn Nelson – according to the story told on the company’s Web site – thought to himself, “I want to take a beanbag and oversize it”.
From his “oversize theory”, Nelson went on to create what is basically a high-end, enlarged, bean-bag chair. Despite the obvious comparisons to its bean-filled forebear, Nelson shies away from the comparisons, and refers to his business as “the greatest not-a-beanbag company in the world”.
LoveSac got its first break when energy drink maker Red Bull placed an order with the fledgling business in the late nineties and in 2001 it opened its first retail location in Utah.
By 2003, LoveSac started gaining traction. Better Homes & Garden featured the product in a section about seats, and in that same year Maxim Magazine promoted it as “a drunk’s best friend”.
But it wasn’t until company founder Shawn Nelson joined the cast of The Rebel Billionaire (Richard Branson’s juiced-up version of The Apprentice) that LoveSac started to really take off. Nelson walked away as the winner of the show, receiving a $1 million check and a foot in the door at Branson’s Virgin conglomerate.
More important to LoveSac, though, was that just prior to Nelson’s becoming the Rebel Millionaire, institutional money had already come calling. Connecticut-based Brand Equity Ventures (BEV) and The Walnut Group out of Cincinnati were in negotiations to lead an $11 million Series-A round in the company.
“What got us interested in LoveSac, was Shawn’s ability to create a brand,” BEV’s David Yarnell, a managing general partner at the firm, tells PEO. “He’s really creative and a very good marketer. What’s most impressive is that he was able to turn LoveSac into an actual lifestyle brand.”
While the investment seemed obvious, there was the chance that it could get tripped up by Nelson’s participation in Branson’s show. No firm wants to back the next reality show has-been, and what if Branson was able to poach the star marketer away from LoveSac?
Despite the large bet that was about to placed on Nelson, the VC groups weren’t even privy to the show’s outcome. “We had to watch the program like everyone else,” Yarnell discloses.
As it turned out, BEV and Walnut followed through with the investment, and Nelson did end up putting in a three month stint at Virgin after he was named the winner of the show.
Nelson has since returned to LoveSac, though, and the relationship with Branson has proved fruitful for the company, which now even has a retail presence in the Virgin Megastore in New York City’s Times Square.
The early returns on the investment appear to be strong for BEV and Walnut. LoveSac has already opened around 15 stores since the groups invested, and the company recently unveiled its new “sactional” product line of couches.
BEV and Walnut also just made another $2 million bridge-financing investment to prepare the company for the holiday season.
The investors aren’t satisfied yet and Yarnell believes the company is actually just getting started. He compares the LoveSac brand to that of the iPod in that it infers a certain coolness to the owner. It remains to be seen, though, if the bulky bean-bag chairs will be as common on subways.