PayPal's Latest Deal Could Yield a Bonanza for Small Investors
November 20 2019 - 8:35PM
Dow Jones News
By Katie Roof and Yuliya Chernova
Several small Los Angeles area investors are set to make a
bounty if payment company PayPal Holdings Inc.'s $4 billion
purchase of local startup Honey Science Corp. goes through.
Before its most recent round last year, the startup that finds
discount coupons for online shoppers collected capital mostly from
smaller local investors. Honey raised $49 million in venture
capital in total, a Honey company spokesperson said.
Citi Ventures led the most recent investment in Honey last year,
valuing the company at around $700 million, according to a person
familiar with the deal. Ramneek Gupta, managing director and
co-head of venture investing at Citi Ventures, confirmed it backed
Honey last year but declined to disclose the company's valuation at
the time.
The size of PayPal's acquisition is unusually large for a
company emerging from the growing but still nascent Los Angeles
startup ecosystem. Other regional acquisitions have included video
doorbell system Santa Monica, Calif.-based Ring Inc., which sold to
Amazon.com Inc. for more than $1 billion last year. Venice,
Calif.-based Dollar Shave Club Inc. was bought by Unilever PLC for
about $1 billion in 2016.
Santa Monica-based seed-stage firm Mucker Capital, for example,
is expected to receive proceeds of $280 million from the $3 million
it invested in Honey, according to the person familiar with the
investment. Erik Rannala, co-founder and managing partner at
Mucker, declined to provide specifics, but said the deal would
return several multiples on Mucker's second fund, which was below
$20 million in size and began investing in 2013.
Honey was founded in 2012 and helps consumers save money on
e-commerce transactions. Honey has a suite of money-saving
services, including a price-tracking tool and a rewards program.
Honey has approximately 17 million monthly active users, PayPal
said in a release.
"From the beginning, what they were focused on was building
better shopping experiences for consumers," Mr. Rannala said.
Mr. Gupta of Citi Venture added that Honey has been in the
process of setting up financial products, such as a credit service
whereby consumers could borrow money at the time of purchase.
The high price PayPal is paying may speak to the discounts Honey
Science can bring to PayPal's payments customers and the potential
for businesses to feature promotions.
Honey had over $100 million in revenue last year, said PayPal
Chief Executive Dan Schulman on an investor call Wednesday. Honey
expects to generate $250 million to $300 million in revenue in
2019, according to another person familiar with the matter. PayPal
declined to comment.
PayPal said that Honey was profitable last year, on a net income
basis. The deal is expected to close in the first quarter of next
year.
Dustin Rosen, a managing partner at Wonder Ventures, said that
the return on his firm's investment will exceed the size of his $4
million debut fund. Mr. Rosen invested $150,000 in Honey in
2016.
"It shows the massive scale and potential of companies not built
in Silicon Valley," he said. He said that a lot of prominent
investors passed on the deal because they didn't recognize the
value of Honey's data.
Honey's other investors include Detroit-based Ludlow Ventures,
and Los Angeles-based Bam Ventures, founded by prominent Los
Angeles entrepreneurs Brian Lee and Richard Jun, who were
co-founders of LegalZoom.com Inc., ShoeDazzle and The Honest Co.
Anthos Capital, of Santa Monica, is also a Honey investor.
PayPal says that Honey will remain a separate brand after the
acquisition. Co-founders George Ruan and Ryan Hudson will continue
to lead Honey's team.
Write to Katie Roof at katie.roof@wsj.com and Yuliya Chernova at
yuliya.chernova@wsj.com
(END) Dow Jones Newswires
November 20, 2019 21:20 ET (02:20 GMT)
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