There is a growing trend of consumer brand founders buying back their companies after selling a stake to an outside investor.
There have been periodic examples of this over the years, mostly in instances where a founder sought to regain more control over his or her business. In 2018, Chobani’s founder, Hamdi Ulyukaya, regained majority control over his business four years after private equity firm TPG lent the yogurt brand $750 million. “We’re trying to protect what we’ve built, and make sure we’re going in the right direction,” Ulukaya told the New York Times at the time.
Today’s founders have a similar motivation — they want to protect the businesses that they’ve built. But they are operating in a much different environment compared to five years ago. It’s been a challenging few years for startups, as they have had to adjust to higher customer acquisition costs, inflation and venture capital funding drying up. In turn, some founders are buying back their startups not only to ensure the long-term future of their companies but also to help them adjust to new operating environments. In some cases, like that of Chobani, the founder has always had control over the company as the CEO. However, he or she bought back a majority or minority stake that had previously been sold to another investor to ensure they had greater control over the business.
In the most drastic scenarios, some founders are buying back their companies right before or after they file for bankruptcy. Foxtrot founder Mike LaVitola, for example is helping to relaunch Foxtrot after the modern convenience store chain abruptly shut down in April. And in April, Gregg Renfrew, founder and CEO of Beautycounter, bought back the line from the investment firm Carlyle Group. Under the Carlyle Group’s ownership, Beautycounter’s sales had fallen, and it had gone into foreclosure by the time Renfrew bought it back, according to the New York Times. Renfrew reportedly bought back the Beautycounter name and other assets from its lenders for several million dollars and plans to relaunch it.
“A different kind of pressure”
Last October, DTC startup Rhone, which describes itself as a men’s performance activewear brand, announced that co-founders and brothers Nate and Ben Checketts, backed by a group of investors, bought back a stake previously owned by private equity firm L Catterton. In early 2022, the founders approached L Catterton about buying back the minority stake the firm took when it invested in Rhone in 2017. To execute the buyback transaction, Rhone’s founders created a special purpose vehicle (SPV) and raised a Series D funding round.
Rhone co-founder Nate Checketts told Modern Retail that buying back the stake has created a “mindset shift” and also helped the company bring in “some really talented leaders [that have] been transformational for the business and led to substantial growth.” The ownership also allowed the founders to make long-term decisions like how to invest in talent, deepen relationships with suppliers, and grow a business with longevity in mind.
“When we started, it was the golden era of DTC brands. But we saw some founders exit then watched the brand they care about ultimately not succeed,” Checketts said. When trying to reach an outcome quickly, Checketts said companies face pressure to take shortcuts. “It’s another line on the P&L as opposed to something that has a soul to it,” he said.
The current direct-to-consumer climate is also vastly different from when Rhone launched in 2014, Checketts said. For example, customer acquisition costs today are higher as there is more competition on digital advertising platforms. “But we believe in the model and having a direct conversation with the customer,” he said.
There is still pressure to grow the company, Checketts said, but now there is an emphasis on growing revenue more sustainably and maintaining profitability. It’s no longer about hitting a weekly or quarterly goal in time to present to investors.
At the same time, he said, “There’s no one covering our backs anymore, so we’ll have no one to blame but ourselves if we can’t get it done.”
A few changes have gone into effect in the year since Rhone bought back the stake it sold to L Catterton. Earlier this year, the company announced two new board of directors appointments: Tess Roering, who previously held executive roles at CorePower Yoga and Athleta, and ESPN chairman Jimmy Pitaro.
“It’s much easier to attract talent now that people can see what we’re doing long-term,” Checketts said. In the last two years, Rhone also hired its first-ever CFO, as well as a chief revenue officer and chief growth officer.
Rhone had back-to-back revenue growth for the past two years. In 2023, Bloomberg reported that the company hit $100 million in annual sales and became profitable in the last three years. Rhone also launched a women’s brand earlier this year. The next challenge is to grow the women’s business by attracting a new customer base and scaling up stores.
“In 2022, we had four retail stores and by the end of this year we’ll be at 18,” he said. The approach to brick-and-mortar stores is also shifting this time around, Checketts said. “We thought it would be easy, but it’s so different from selling clothes online.”
As it opens more stores, Checketts said Rhone wants to nail down operations like employee training and efficiently restocking products. For example, it wants to use retail stores as mini-distribution centers and for buy online, pick-up in-store.
“The biggest mistake we made was only opening a small number of stores,” Checketts said. This slow start ended up taking up a lot of the leadership team’s time, he said, but only generated a small percentage of the overall revenue. Now, the company is committing long-term to brick-and-mortar by opening a number of stores in quick succession, which Checketts says is more efficient from a cost perspective. “We want to build enough stores to justify the corporate overhead.”
“A courtesy to the founder”
Mike Duda, partner at Bullish, said it used to be considered a rare and exciting move when the original owner came back to take the reins. Now, the trend is becoming increasingly common with upstarts, Duda said as the fundraising and M&A landscapes remain in flux. The exact circumstances, however, typically vary for each company.
“Allowing founders to buy back their company is more of a courtesy thing in this realm of brands,” Duda said, “but not all founders have the means to be able to do that.”
Duda said this strategy is also good PR for the brand if the founder believes wholeheartedly in the business and wants to steer it in a specific direction. “We saw it with MoviePass where the founder was fired, had a nice exit then came back to revive the company,” he said.
“I also expect this move to be an out for the celebrity brands,” he said, rather than having the brand die out entirely. Most recently, actress Naomi Watts bought back her menopause-focused beauty brand Stripes after its incubator Amyris filed for bankruptcy. In June, Stripes was acquired by L Catterton for an undisclosed figure. Last year, Ariana Grande bought back the assets of her brand, R.E.M Beauty, for $15 million following the bankruptcy of its incubator Forma Brands.
Duda said that investment firms “are under pressure to make returns to their LPs — [they] want to close out a fund appropriately.” Offloading an acquisition by selling it back to its founder can help streamline the portfolio.
For some founders, buying the business back is a way to avert the constantly rising pressure from PE firms.
Rhone’s Checketts said the goal now is to build a multi-generational business without worrying about exiting in a few years. “The experience itself is the payout, not some pot of gold at the end,” Checketts said. “We want to build a great long-term business that people are excited to come work for and our customers love and respect.”
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