Cheers is offering common equity at a pre-money valuation of $49.5 million. While this feels like a steep asking price, it’s appropriate given Cheers’ late stage of development. Cheers took in just over $10.4 million in revenue in 2020, resulting in an attractive revenue multiple. While its rating in this category is moderate, Cheers is being valued quite fairly.

Though it wants its product to be sold alongside all kinds of alcohol products, Cheers is part of the alcohol-adjacent hangover rehydration supplements market. It’s not a large market, coming in at $1.2 billion globally in 2018. And the US market is a fraction of that size. However, it is growing quite rapidly at a CAGR of 15%, driven by younger consumers and greater access to new varieties of drinks.

Depending on how much growth continues, there’s a lucrative market opportunity for Cheers. In 2018, about 16% of the US adult population reported binge drinking over a 30-day period. Assuming each of those binge drinkers used two Cheers doses every week, they would need to purchase nine $30 packs of Restore capsules. Given that there are nearly 260 million adults in the US, that’s approximately $11,2 billion in revenue from the Restore product alone. These kinds of supplements are also fairly popular in other markets like South Korea, so if Cheers expands beyond the US in the future, it’s likely to see further success. Therefore, its market rating is strong.

Cheers Founder Brooks Powell holds a Bachelor of Arts from Princeton University, where he discovered the potential of Cheers’ flagship chemical, DHM. He started Cheers while still in school and has made it his sole priority since graduating. Though Powell didn’t study business at Princeton, his limited experience appears to have served him well in putting together a strong and seasoned team to expand Cheers’ reach.

One notable member of leadership is Director Melody Koh, who works with Cheers through her role of partner at NextView Ventures. As an entrepreneur and investor, she lends considerable expertise to Cheers. Her years as head of product at Blue Apron (a breakout startup employing the same business model as Cheers) while it was in its early months are a boon to Cheers. Overall, its team rating is strong.

Though Cheers hasn’t yet fully established its product defensibility, it has taken steps in that direction, resulting in a strong rating. It has cleared some of the barriers to entry, creating an FDA-registered facility. The Cheers Restore formula using DHM is patent-protected, though the patent for its DHM permeabilizer technology is still pending. The price point is reasonable, and the blends are not proprietary, so consumers know exactly what they’re ingesting. Cheers offers a “feel 50% better” guarantee as well. If its product ratings are any indication, these measures have garnered goodwill among its customers. It is also shifting into the lifestyle space with a liver health-scoring app, marketing itself as a way to improve everyday health.

It’s worth noting that Cheers is facing some competition in this space as well. One example is Blowfish, a startup with an FDA-approved hangover cure combining aspirin, caffeine, and a stomach-soothing agent. Other offerings are comparably priced, and some, such as Flyby and No Days Wasted, even employ DHM Detox, though not in the same quantities as Cheers. Overall, Cheers’ differentiator score is one of its highest.

In its early stages, Cheers has performed remarkably well using a direct-to-consumer (D2C) model, selling through its own website and Amazon. Cheers took in $10.4 million last year during the pandemic, up from $8.2 million the year before — slow but steady growth. After years of negative profits, as is usual for startups, Cheers went into the black last year with $1.7 million in net income. The business has sold more than 13 million doses to date, earning $25 million in revenue over its lifetime, and now holds less than $1 million in liabilities. It has nailed the search engine optimization game and has garnered more than 8,000 Amazon reviews, rated overall at around 4.5 stars. Its impressive performance thus far gives it one of the highest ratings on this metric.

As with any product that purports to provide medical benefits, regulation is a significant concern for Cheers. While the facility is FDA-registered, it has not gotten FDA approval as some competitors have. Additionally, Powell’s lack of experience is cause for caution from investors, though it certainly hasn’t hurt Cheers’ prospects thus far.

Cheers’ future is uncertain as the brand attempts to expand with a new product and branch out into the retail market. While retail is certainly the way to significantly expand its reach, there’s no evidence that Cheers’ D2C model will translate well into retail, where pricing is key. Finally, the business is launching a new product just as it attempts to expand into retail markets, and that product is not guaranteed to repeat the previous product’s success.

Cheers’ competitors are likely to present significant challenges as the company attempts to grow. Industry leader AfterDrink in particular has proven spectacularly effective with its all-natural ingredients — including DHM. Cheers is still missing comprehensive patent protection to capitalize on its DHM permeabilizer tech. Cheers is also introducing a new product, Lightspeed, at the same time as it encroaches on the new retail market. Cheers hasn’t done enough to mitigate these risks.

Despite potential obstacles, it’s impossible to dispute that Cheers has shown great traction so far, a trend that is unlikely to reverse. The business is profitable and holds a large cash reserve, significantly growing its revenue even as COVID-19 shuttered businesses across the country. It has a strong team with significant startup experience, and its market is likely to continue growing at a rapid pace. While challenges lie ahead, Cheers is over the hump of early-stage startup struggles and now needs only to continue its pattern of growth. If it clears its defensibility hurdles and lands securely in the retail market, its competitors might have simply cleared the way for its continuous rise to the top tier of alcohol-related health products.

Cheers is using science and natural ingredients to take the edge off hangovers. These products enable consumers to enjoy the benefits of a night of drinking without suffering as much the next morning. The company’s products support the liver and rehydrate the body and come with a “feel 50% better” guarantee.

Cheers has sold 13 million doses of its patent-protected formula and managed to reach profitability during the COVID-19 pandemic. It is in excellent financial health and has proven quite reputable and popular in its early direct-to-consumer stage. However, significant market competitors with comparable or cheaper prices threaten Cheers as it wades into the untested retail space. The product line has some defensibility issues even as it expands, and the market isn’t particularly large. That said, reaching profitability is a huge deal, and Cheers’ steady rise shows no signs of reversing. Therefore, Cheers is a Deal to Watch.

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Analysis written by Benjamin Potts.