Meet Juul, the $15 Billion E-Cig Startup with an Identity Crisis

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In a recent fundraising round, e-cigarette maker Juul Labs Inc. raised $650 million, which values the rapidly-growing, yet still-controversial startup around $15 billion. Formerly part of PAX Labs, Juul became its own independent company in 2017 and has exploded in popularity recently.

Success of Juul

Although the concept and product were launched in 2015, the Juul has only recently become popular amongst the younger crowd. The main idea behind this product was to provide an alternative to an actual cigarette.

According to Market Watch , Juul has become the sixth-most valuable U.S. startup and sits alongside companies like Uber and Airbnb. Currently, one of the top firms financing Juul is called Tiger Global Management, which has made over 200 investments in 30 countries.

The price per share in Juul's current fundraising round is 56% higher than the price in 2015, and the company has grown to take over at least 70% of the U.S. e-cigarette market.

Hemant Taneja a top investor at General Catalyst told Recode that the company has done exceptionally well and has become a consumer phenomenon. However, investors and companies are worried whether or not Juul is helping people decrease their smoking addiction or just creating a new one for them.

The Controversy

The Juul was created with an older demographic in mind, being targeted at those adults trying to quit smoking. However, it's become too popular with the wrong age group. Since the launch of this product, it has been easily available to a very young crowd. Although it is meant to be an alternative 'vape' product as opposed to smoking, it still contains 60% nicotine, which many young users don't know about.

That brings us to the question as to why investors are hesitant to invest in a startup which is worth around $15 billion and growing rapidly.

In April 2018, the FDA demanded that Juul had to hand over any documents regarding the company's marketing strategy, including who they market to and any research they had on the product. Certain concerns arise when dealing with an issue like this. For example, since this startup essentially thrives on vice, companies could be concerned as to how it will return money to its investors or what company would even want to invest in the first place.

But there still is a large market for sin stocks and people wanting to be a part of that industry. However, investing in Juul seems to be more of an ethical issue, seeing as this product can be bought by a younger demographic, even though their website says you have to be 21.

Tobacco Industry vs. Juul

Big Tobacco, aka "The Big Five," are known to be the largest tobacco industry companies, including Phillip Morris International PM and British American Tobacco BTI . Larger companies like these are also trying to make their mark in the e-cig market.

For example, PM came out with its own version of a vape called IQOS. It has been selling these products in Japan and Korea as well as other countries since 2014. If the company gets the FDA's approval to start selling in the United States, it is just a matter of time before PM and Juul's products become rivals.

Bottom Line

Juul is a startup which is doing extremely well. However, it needs to find a way to lure in the right customers-ones that the company initially had in mind when creating the product. Juul's funding has certainly increased since its product first launched, and we can only look to see what the company decides next in terms of marketing and selling to the right demographic. In return, this could potentially land confidence amongst investors who are hesitant about Juul right now.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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