A few big wins are helping FilterEasy hit an ambitious goal of 500 percent revenue growth in 2016.
April 29, 2016
New Investors Bet On 5x Sales Growth For FilterEasy in 2016
Raleigh air filter subscription service lands a $3M round led by IDEA Fund Partners to boost B2B sales, marketing.
There’s the $3 million Series A from IDEA Fund Partners, Fidelis Capital and existing investors funding a new website and branding effort along with 20 new hires. A pair of acquisitions gave the Raleigh-based air filter subscription service market share in Colorado and Mississippi. A newly-inked partnership with Just Energy, a natural gas and electricity company based in Canada, gives the startup access to its two million residential and commercial customers throughout North America.
Starting this week, their energy bills give the option to opt-in to receive air filter deliveries for an added fee.
And a two-page spread in the May issue of American Airlines’ American Way Magazine gets the startup in front of five million travelers, each of whom will be offered a 40 percent discount on their first filter shipment.
“It’s pretty tough to figure out marketing channels because the nature of the product is not very sexy,” co-founder Thad Tarkington told me late last year. “But once we figured them out, they’ve worked really well.”
FilterEasy has grown fast since its public launch in early 2014. Consumers bought into the idea of subscribing to a filter delivery service—most admitted that filters were an after thought. But nearly everyone recognized the importance of filters to good air quality and home maintenance.
But achieving the kind of growth that secures a market leadership position in an $80 billion industry requires a more strategic effort, and many more funds. Successful pilots with energy companies and plans to target apartment property managers and other corporations drew the attention of investors like IDEA Fund, Triangle Angel Partners and Fidelis Capital, based in Birmingham, Ala.
“When we first met them, they were a couple of kids in college and doing a B2C effort, which was interesting to me but not exciting enough,” says Lister Delgado of IDEA Fund Partners, who now sits on the FilterEasy board. “Now they’re working with big companies. You’re talking about deals worth millions of dollars and in churn, that’s basically zero. Churn for consumers is high.”
Tarkington and his co-founder Kevin Barry started work on the concept in November 2012 while they were students and entrepreneurship club members at NC State University. They were inspired by subscription businesses like Birchbox for makeup and Netflix for television and movies. They also saw the damage caused by dirty air filters firsthand—Tarkington’s mom had to replace her entire HVAC system after she forgot to change filters for two years.
After dozens of homeowner interviews, they found most everyone either forgot to change their filters or struggled to remember what size to buy every time they went to a store. Most would pay for a service to ensure they wouldn’t have to think about it. Filters of the perfect size (there are at least 40 sizes and three quality levels) would be delivered to their door every time they needed to change them.
Tarkington and Barry put $8,000 into the company and were accepted into The Iron Yard in Greenville, S.C. The only problem was its March 11, 2013 start date. They decided to take a risk and leave school midway through the second semester of their junior and sophomore years. A beta version of the site launched as they finished the program and they quickly secured a few hundred customers, shipping filters out of their garage.
That early traction attracted the attention of their first investors, angel investor David Gardner and Canvas On Demand founders Tom Lotrecchiano and Joe Schmidt. With an initial $310,000, the founders rebuilt the site and relaunched in March 2014.
Part of the secret sauce became a partnership with Flanders, the largest manufacturer of air filters in the U.S., which happens to be located just south of Raleigh in Washington, N.C. FilterEasy doesn’t have to own any inventory—it simply manages the marketing, sales and technology and employs a team that handles shipments at Flanders’ facility.
By the end of that year, they also had a marketing funnel that was successful in generating leads. They just needed money to scale it up.
Lead investor for an early 2015 round, totaling $1.2 million, was San Francisco-based Azure Capital Partners, which the men met at the CED Tech Venture Conference in 2014. The company’s portfolio includes modern technology solutions to a lot of outdated industries, so an online subscription service for filters made good sense. The funds helped the founders bring on Adam Tury, an experienced startup sales leader, as chief growth officer in charge of B2B relationships.
Lotrecchiano came on as a part-time chief marketing officer last year as the men looked for a permanent one. They eventually hired James Fredly, former software engineer and e-commerce product owner at eTix, as chief marketing technology officer.
He’s overseeing the branding effort which includes a new logo and mascot—an elephant with a string around its trunk. Elephants have good memory, Tury says. And tradition is to tie a string around your finger so you don’t forget something. A new mobile-friendly website will streamline the order process, improve the user experience and create custom pages for partners.
Additional hires in marketing, customer support and engineering will help double the size of the team this year.
“We really want to make our operations process a lot smarter so we have a foundation in place to allow for the growth,” Tury says.
More acquisitions could happen—the partners say new competitors pop up all the time. It made sense to acquire On Time Air Filters of Boulder, a six-year-old company, and startup FilterFiller of Mississippi because both were profitable and had good followings. More volume cuts down on costs.
But white labeling filter subscriptions for major companies like Just Energy will be the key opportunity. Tury says his team was introduced to a Just Energy exec at a UNC-NC State basketball game in Chapel Hill last year. A week later, they were on a plane to the U.S. headquarters in Houston. In a news release, Just Energy co-CEO James Lewis says the partnership is another way to “enhance customer experiences”, “save them time and money” and give them “one less thing to worry about.”
Just Energy has skin in the game too. If certain sales milestones are achieved, it has the opportunity to take an ownership interest in FilterEasy.
Though the deal keeps FilterEasy from working with Just Energy’s top four competitors through the end of the year, there are dozens of other smaller deregulated energy companies. And Tury expects to eventually partner with energy companies in regulated states and regions too.
“We’re having really good discussions with energy companies all over the world,” he says.