EarthWise’s raise is a common equity offering with a $33 million pre-money valuation. While the company has begun taking in some (extremely limited) revenue and secured a partnership with a prominent sorbent manufacturer, this valuation is simply far too high. Thus, EarthWise’s price score is very low.

Oil manufacture is among the largest industries in the world, and oil and chemical cleanup is correspondingly large. The oil spill management market was valued at $100.66 billion in 2015, and — not accounting for a slowdown in oil production due to the COVID-19 pandemic — the market is expected to reach $177.63 billion by 2025.

The numbers are slightly more sobering looking at the sorbent market in particular. The Industrial Absorbents market accounted for $3.7 billion in 2018, a size projected to reach $5.42 billion by 2026 at a CAGR of 5.1%. That market size is still respectable, but not particularly large for a startup looking to break into a very crowded space by underselling its products. While the industry continues to grow, it is not immediately evident how severely the impact of the COVID-19 pandemic will affect it in the long term. In the short term, supply problems have led to EarthWise’s product lines running completely out of stock.

Due to the niche nature of the sorbent market and its low growth rate, the market score for EarthWise is below average.

EarthWise’s team is primarily built from the surfboard company that birthed its concept. Jim Mullen is the CEO of Free Foam Inc., parent company of Arctic Foam and EarthWise. Mullen spent nearly two decades working on business development and luxury resort construction across Costa Rica and California. He also spent two years as president of the Vision of Children foundation, which is devoted to curing blindness in children. Mullen was CEO at Santosha Development Incorporated, which developed the Santosha luxury resort on Anguilla. He then was a partner at Mullen Communications, a small PR and business development firm. He is passionate about sustainability and has spoken at a number of engagements in San Diego and at several U.S. embassies. Mullen took over Free Foam in 2016.

Co-founder, CEO, and COO of EarthWise Andrew Jakubowski is a full on “surfer dude.” Jakubowski got his start with Rip Curl, a surfwear designer and retailer that is known as one of the “Big Three” companies in the surfing industry (the others are Quiksilver and Billabong). In 2006, Jakubowski left his role as a sales rep for Rip Curl and founded the small surfboard blank maker and distributor Arctic Foam, where he still holds the role of president.

Secretary and Director Marty Gilchrist is a longtime partner of Jakubowski. He worked with him at Rip Curl and co-founded Arctic Foam with him, where he currently serves as CEO. Gilchrist steered Arctic Foam towards algae-based surfboard production, resulting in the first ever algae-based surfboard in 2015. Finally, Captain (Ret.) Kirk McKinzie serves as a sales liaison and subject matter expert. McKinzie brings 31 years of experience in fire protection and is considered EarthWise’s subject matter expert. It is not clear just how much involvement McKinzie has with EarthWise nor how his various experiences make him an expert in sorbent production.

Overall, the team is distinctly lacking in qualifications and has no prominent sales or technical members. As a result, EarthWise scores poorly in the team metric.

EarthWise is perhaps less strongly differentiated than its rating would suggest. The technology of its products are not significantly better than those of its competitors in the space, which include 3M Company, Kimberly-Clark Professional, and New Pig Corporation, among others. It does have the selling point of being significantly more eco-friendly than those competitors, however. Its largest competitor in the recyclable sorbent market has up to 25% of its product recycled. Margin levels are not overly impressive, and its process is not patent-protected in any way.

Perhaps its most significant advantages in the market are its partnership with Michigan-based NPS and the fact that it has cut the cost of its products so that it is cheaper than those of better-known competitors. These factors combined with the eco-friendly nature of its sorbents do set it apart enough to earn a high differentiators score. However, investors should note that there is little preventing a competitor from recreating EarthWise’s products within their own brand.

EarthWise is in a pre-profit stage but has a number of products in its lineup, all of which have sold. The lack of any stock in its inventory, while due to COVID-19 supply problems, point to potential supply chain issues down the line as EarthWise attempts to scale up manufacturing. The company has operated smartly on a financial level, however, and has limited its debts despite negative net incomes so far. Last year, EarthWise took in $11,250 in revenue, with $11,372 in cost of goods sold — so margins so far are pretty tight. However, EarthWise has not received any previous rounds of funding, meaning that it’s unclear how well the company will perform with the capital raised at this time. Combining this uncertainty with its early revenue, EarthWise received middle of the road performance score.

If the limitations of supply are any indication, EarthWise faces significant supply chain problems as it attempts to break into the by no means massive sorbent product market. The company has not yet invested in hiring highly-qualified sales and technical members, so its growth potential is similarly limited. While its product carries a highly green-friendly brand, that alone cannot manufacture and sell products. This is especially since the company’s products are primarily sold for industrial purposes, not to consumers that could be morally incentivized to purchase green products.

If it fails to meet these challenges, EarthWise will find it impossible to meet its goals or see significant returns for investors. The latter is especially likely given EarthWise’s improbably high valuation. While the company is correct that petroleum production is likely to be around for a while yet and petroleum cleanup products will be necessary during that time, EarthWise doesn’t seem particularly well-suited to become a premier provider.

Make no mistake about it: EarthWise is a long-term investment. This isn’t just in terms of the company’s growth but its mission. Reducing petroleum manufacture while mitigating its damages is a mission likely to last for decades, if not longer. 

Still, when it comes to industrial processes like chemical cleanup, cheap and effective are both premium qualities. Providing EarthWise can build on its partnership with NPS to secure new customers across the industrial sector and solve its supply-chain problems as it begins to scale up, it is positioned to take up a considerable share of the sorbent manufacturing space. This will probably not be the hundreds of millions it aims for in the next decade but perhaps enough to start turning a respectable profit.

EarthWise is a California-based sorbents manufacturer, born from a chemical spill at a surfboard warehouse. EarthWise uses recycled plastics and fabrics as well as materials from surfboards to produce cheap sorbents that can soak up oil and chemical spills, thus saving money and preserving the environment.

The startup’s manufacturing partnership with NPS is a good step, but its team is lacking in strong credentials. The company is also likely to face supply chain issues as they grow. Its recycling technology is not particularly distinct from its competitors apart from being eco-friendly. Therefore, EarthWise is a Neutral Deal.

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Analysis written by Benjamin Potts.