Biotech or Supplement Brand? The Strategic Playbook Behind Seed Health’s Massive Growth

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Hey, welcome back to E Commerce on Tap brought to you by Sourceify and Isba. I'm your host Nathan Resnick, joined by my co host Aaron Alpiter. This season on E Commerce on Tap we are covering supplements. Today we're diving into Seed, which is a really high growth probiotic company and it's pretty fascinating to dive in because they're at a much greater scale than I thought they were and just the story behind them is fascinating because it's very research driven. But before we dive in, Aaron, for those that are joining for the first time, you want to give a quick overview of what E Commerce on Tap is?

Yeah. Each episode Nathan and I take a well known, typically venture backed DTC rooted company. We tell their founding story, reverse engineer their supply chain and talk about their expert potential.

We have a lot of fun doing it, man. I think some of my favorite episodes are around like Athleisure, like Vuori. I love that story and I love, I love that brand and you know, it's a great, great business, I guess. Before we dive into the story, were there any tidbits that caught your eye this past week?

Yeah, there was one. We might have to start thinking of Hershey's as a snack brand. So they completed an acquisition of Lesser Evil, which marks the third popcorn related brand that they've bought in the last 10 years. They also own Skinny Pop and Pirate Foodie. And I think this is a, you know, a great acquisition obviously for the Lesser Evil team. But it's also an interesting just note in terms of how Hershey's sees the future and what they're trying to become when they grow up. Kind of hard to, you know, funny to say it for a, you know, over 100-year-old brand but you know, you look at where Coca prices are and just those margins and you know, chocolate consumption's growth is, is slowing down, still growing. But there's just a lot of stuff here where they're saying, hey, we, we feel like we need to be in snacks in a, in a bigger way, especially better for you. Snacks.

Yeah, yeah. I mean I still love chocolate. I eat those like human bars. I don't know if you've seen those. They make me feel like I'm eating a healthier chocolate bar. But you know, still is chocolate. So for me I saw Function Health, which I'm a customer of, which is kind of like this direct to consumer blood testing business, you know, and they're kind of white labeling Quest Labs. So you sign up, you go on a Quest they draw your blood and they give you kind of this whole digital experience to analyze, you know, your, your health and your blood test results. And they've been growing like crazy. So they just raised a $298 million round or $2.5 billion valuation. They say they have hundreds of thousands of members, costs about $500 a year and they have add ons as well. And so I think like their margins probably on top of Quest Labs are relatively thin in, but I think they have a bunch of other kind of add ons and upsells and cross sells that really help them expand their margin. And if you do like a simple, you know, quick calculation, let's say they have 250,000 members, which I actually think they might. I mean, when I went into Quest to do this, there was actually like, I don't know, probably almost 15 people that were also doing this there. I was like, very surprised. But you know, let's say they have a quarter million people doing this at $500 a year, that's like 125 million in ARR. So I think, you know, this is a real business. People want to kind of take more control of their health. And it's a really, you know, high growth, kind of DTC oriented health brand that I think is here to stay.

Is it a subscription and you just get like as many tests as you want or how's it work?

Yeah, it's a subscription. So I think the $500 a year covers two tests per year, you know, every like six months or so. And it's a really clean app and you know, clean design. And it's not like necessarily like you're ch with a doctor per se, but it just enables you to kind of, I think, have more insights in regards to your blood test. And you know, they say they do kind of more testing than like your standard blood test. But you know, who knows? I. There were some technicalities where I was like, I'm not sure about this, you know, and I even asked my doctor at kind of my annual checkup and you know, those little things we don't test because, you know, they don't matter as much, I guess. But you know, who really knows? I sure don't.

That's funny.

So getting into Seed Health here, I mean, Seed is this fascinating story because most probiotic brands start with marketing and work backwards. And Seed really did the opposite here. Right? They began with this kind of scientific question that was hiding in plain sight for decades. If most probiotics never survive the trip through the stomach. Why are we pretending a category works? And I think we've kind of questioned this a lot. I mean, especially with the rise of these kind of probiotic drinks that we've seen. And this question, this key question, pulled these two founders, one coming from the world of storytelling and one that was kind of more deep in microbiome research, into this multi year effort to rebuild probiotics from first principles. Right. And so what followed really isn't like your typical supplement launch. Right. It was more of like a biotech level approach applied to a DTC product, which I was very fascinated by. I mean, they had like strain level validation, real clinical endpoints, and a delivery system engineered around survival and a brand built, you know, on education instead of hype. And so somehow in, you know, one of the most crowded categories in the wellness industry, that level of rigor became their unfair advantage. And so today, Seed really sits at this intersection of science and consumer trust. And it's a 200 plus million dollar business that forces us to rethink kind of how credibility, operations and storytelling can come together in modern cpg. And I think this episode isn't just about probiotics. It's about, I think, when founders really choose a different battlefield and kind of start with those first principles and how the rest of us can learn from it. So I was really just amazed and fascinated how the founders went about starting Seed.

Yeah, absolutely. And I think before we dive into that, we want to encourage everybody. If you're listening now, thank you. Make sure you leave a comment, like, subscribe, Send this to your friend or someone else who is interested in probiotics. I definitely learned a ton here and Nathan and I enjoy doing this and wouldn't do without you. Well, good. We'll diving in. So I thought it was helpful for us to take a step back and look at the history of probiotics. And it's fascinating because at the turn of the 20th century, pretty much everybody in medicine believed that all germs were bad and that the key thing was to sterilize everything. If it was small and could be seen under a microscope, you should kill it. And that started to change with someone named Elie Mekhanov, who was a Russian fridge biologist at the Pasteur Institute in France. And he started to break the frame a little bit. And in his research, he noticed that there was something strange, that certain Eastern European populations who consumed fermented dairy were living unusually long lives. And he claimed that the bacteria in fermented milk could outcompete the harmful bacteria in a person's gut, and that would slow the aging. And this was a radical departure from what other people had seen. And it was really the first articulation of what we now think of as probiotics. And it's really this idea that if you add certain good bacteria, it crowds out the bad bacteria and you're healthier and happier. Mekhanov ended up winning a Nobel laureate prize because of this. But the idea was really a fringe idea for a long time because modern medicine wasn't really in the mood to accept the idea of good germs and bad germs. And if you look at this kind of more broadly, cultures across Asia and Europe and had been consuming fermented foods for centuries. You know, they didn't really understand why it was, you know, kimchi, sauerkraut, kefir, yogurt, tempeh, miso. All of these foods have live bacteria in them. And even though the mechanisms really weren't that well understood, it was kind of this voodoo quasi science that, you know, hey, eat this kefir and you'll feel better or you'll be better.

Yeah, it's a really interesting idea, right? Because it's almost like science couldn't explain what grandmothers have been telling people for centuries. It's like, when did this change?

Right, Yeah. I think the first big leap forward in probiotics came with commercial yogurt and Dannon, or Danone, which was founded in 1919. They industrialized yogurt and marketed it as digestive health. And again, they didn't use the word probiotic, but the idea was essentially the same. Eat this and feel better. And through the mid century, probiotics lived inside this world of food rather than supplements. And it really wasn't until the 1960s when the term probiotics finally appeared in scientific literature, which would later be defined as live micro microorganisms that, when administered in adequate amounts, confer a health benefit to the host. And so, you know, they had to kind of figure out what this was, realized that they, they were real, and then they, they defined it that way. And once you had a definition of what these things were, the research really started in, in earnest. And there were two main bacterias that all the research focused on, Lactobacillus and bifidobacteria. And these are still the two main workhorses in the probiotic industry. And so think of them as like the apple and Samsung of everything else that goes into yogurts and traditional probiotics. And I think it's Helpful. Just kind of go into them a little bit in detail. So let's start with Lactobacillus. This is a strain that people have consumed the longest because it naturally occurs in fermented foods. And so biologically, it's one of the first colonizers that can survive in low ph environments such as your, your stomach. And what it does is it, it converts sugars into lactic acid, it lowers the PH inside your gut, it crowds out harmful bacteria by doing so, and it really supports digestion, prevents bloating, and will also help with vaginal health. And it, it's kind of considered as this frontline defender. And so when you hear someone talk about a gut barrier function or maintaining digestive comfort, you're usually hearing a claim that is powered by Lactobacillus. And it really is a wonderful, you know, strain to work with because it's tolerant in low oxygen environments and it's tolerant to high temperature swings and it's got a really good shelf life. So that means you can freeze dry it without losing much of the viability. And so this is kind of the main one that they found. The second main one is bifidobacteria. And so if you think of Lactobacillus as the frontline defender, bifidobacteria is the architect. It shapes long term environment of the gut. And what it does is it lives primarily in the colon, not the small intestine. And it breaks down complex carbs, fibers, HMOs and produces short chain fatty acids like acetate and butyrite. And what it does, it helps repair the gut lining, which is important for, for your immune system. And interesting enough, infants are born with a high level of bifidobacteria because breast milk is literally engineered to feed these types of microorganisms. And so, you know, we've done a couple of episodes in the past about Bihart and, and kind of how they're trying to mimic authentic human mother's milk. And this is a big part of that is, is it's literally engineered to grow bifidobacteria. And over time, as, as babies wean off of nursing poor diet, antibiotics stress those sorts of things, they naturally decline the levels of many of these premium probiotics in the bifido species. And bifidobacteria is really helpful because consumers feel the outcome within two to three weeks. And so it's a really like, if you're thinking about a subscription business or something like that, this is really, really good because you want people to feel, you know, that they're getting a benefit pretty quickly. And so it helps reduce bloating. You've got better stool consistency, less GI inflammation. It's a really helpful strain that way.

Yeah. I mean, all this research on these two strains of probiotics is happening in the 60s and 70s, but they really seem to have been confined, you know, the study of yogurt, because today we don't think of Chobani as a supplement. So how did these probiotics make the jump from yogurt to supplements? Right. I mean, it's, you know, pretty big leap.

Yeah, it's a really interesting question. And I think if you think about how supplements came about, you had this Whole Foods movement that was happening in the 80s and 90s, and it collided with the, the 1994 DSHEA regulation in the U.S. which we've talked about quite a bit. And this started to shift probiotics from yogurt into capsules. And you start to see this really taking off in the 2000s, where the modern probiotic market begins to explode. You get this whole host of brands from both startups and Fortune 500 companies, so brands like Cultural Align, Renew Life, etc. And you know, as we, as I just mentioned, like, all probiotics basically come from the same two families of strains, Lactobacillus and Bifidobacteria. And these, these products that were coming out rarely differentiated beyond claims like 30 billion CFU or 10 strains or supports digestive health. And this early 2000s period is. Looking back, you would define this as an era of commodity bacteria and heavy marketing. There's very little standardization in the industry, and people were chasing CFU counts like megapixels. And the first question that I had was, what's the CFU? And we're just kind of saying, oh, 10 million. Is that good or not? And it stands for colony forming unit. And the idea here is that the higher the number, the higher the number of live microbes that are making into it. And so you, you would kind of just see that, you know, we've got a lot of stuff. Your, your gut's going to kill a lot of these things. And so if we've got a lot of these, maybe a couple will survive and then they'll actually do the, the outcome that you're looking for. And so, as you can expect in the supplement industry, all this rampant marketing and explosive growth led to a lot of consumer backlash around inconsistent quality, exaggerated claims, weak clinical evidence that really made people distrust things in a way that you know you could imagine would happen here.

Yeah, I mean, it seems like this is kind of like a recurring theme where, you know, the lack of regulation fosters enormous growth in an industry and enormous adoption. And people, you know, in general like to try new things, but it really leads to bad actors, shortcuts and things like that, which, you know, kind of kill the industry. And it's almost as if everyone starts acting in their own interests, ends up hurting the entire ecosystem. And so I think today, I think that probiotics are definitely more widely accepted compared to what it was in the past. I mean, that's what it seems to me. But you know, what does kind of the facts say?

Yeah, you're right. I think they are more widely accepted. Really the change starts in the mid-2000s with genomic sequencing and then when it really gets cheap. And so starting in 2007, NIH launches the Human microme project. And for the first time, scientists began to map out microbial colonies across the human body. And this was like the major unlock that science had been waiting for for 30 or 40 years. Some key steps that that were unlocked with these discoveries was just the realization that gut bacteria did so much more than preventing bloating. They learned that gut bacteria was influencing immunity, metabolic function, skin, even mood and cognition. And so this started to reframe probiotics from digestion health to more of a whole body system. And so the industry interest really just absolutely explodes during this time. And you've got hundreds of millions of dollars in R and D going in to identify and target specific strains and wanting to make strain specific claims. You know, you focused on like a multi kingdom focus that's the difference between bacteria and fungi as well as delivery systems. So how do you get these microbes into your body? And this is really kind of the backdrop for where the founders of seed step into where probiotics are starting to look less like grocery store vitamins and starting to look more like a biotech product.

Yeah, I mean, I think we see this pattern playing out more and more in different supplement industries, but more specifically in probiotics, where there's kind of a flurry of activity that comes after a major scientific breakthrough. It kind of almost seems like you're trying to find the next new trend and you should look at where investment is being spent today and these kind of true R D spheres. I mean, like, how important is it for you to be cutting edge like grunds versus a fast follower here? And you know, I don't even know if cutting edge cuts it with gruns. Right. I mean, they basically took AG1 and put it in a gummy. I mean, I guess that's kind of just a new method of delivery. But I don't know what's kind of your take on that.

I think you, I think you have to choose one and stick with it. Like, I mean, if we just stick with that example. AG1s focus has really been on, you know, scientific and wanting to lead from a scientific edge. And so they are constantly trying to innovate. They're updating their formulation. They've still got one product, but that, that version 15 is better than version one. That was, you know, 15 years ago. And so I think that if you're going to commit to being science led, you have to be science led forever. Grunts is interesting. I'd say they, you know, they innovated from a manufacturing point of view and you know, they were the first ones to put in there. Maybe bloom nutrition is a better part here where they're like, hey, you know what? We don't need to be completely science led. We're okay having something that is better than what was out there, but maybe not at the, at the caliber of what AG1 is, at least today. But we're going to make it super accessible, we're going to make it cheaper, we're going to make it available in lots of different places. And so I think you kind of have to look at this and say, you know, we're either going to optimize for, for science or we're going to optimize for kind of experience and brand and cost and things like that. I think bad things happen when you try to do both.

Yeah, definitely. And I think it depends on, you know, kind of the founder's passion and interests, right? Are they more marketing led or, you know, research led? And you know, it's interesting because as I was, you know, really looking at the manufacturing process of probiotics, it's a lot different than other supplements that we've covered on tap. So I learned a lot going through this. I mean, so number one, most supplements are obviously made from powders, extracts or isolates, and those are stable. Right? Versus a probiotic is vastly different because it's really live organisms that grow at different speeds need to be quote, unquote, fed, they produce waste, they're sensitive to oxygen, sensitive to moisture and heat, and they interact with each other in the environment and eventually die over time. And so the supply chain here is actually built on biology, not chemistry. And I think that's why you see kind of this massive quality variable variability in the category. And so kind of digging further, there were kind of six interesting operational realities behind probiotics. So if you're ever interested in producing probiotics, you know, this is really what you're going to need to know. So number one, you're managing a fermentation process, not a batch blend. And so probiotic production looks a lot more like brewing beer than pressing tablets. So basically, you select a single strain from a master bank, grow it into a, you know, in a sterile bioreactor by feeding it and track the ph, temperature, oxygen levels, growth rate and a whole bunch of other variabilities. And so you can imagine like, you know, kind of how complex and how hard this can be. And if anything is off chain, bacteria can die, mutate or lose, know, its functional activity. So I mean, that's, you know, first and foremost, this is the whole fermentation process. I'm sure a lot of listeners have been to a brewery before and seen, you know, those big tanks. I mean, you can imagine that process and you talk to the brewmaster and that whole process of brewing beer, you know, kind of similar in terms of how probiotics are made. And there's also kind of viability is in the product, not the potency. So in most supplements, potency is measured at the factory, but in probiotics, potency must exist at the expiration date, which means you're essentially forecasting kind of death rates of these probiotics. And this is why manufacturers will overfill by 2x to 10x the label claim to compensate for shelf life, heat, et cetera. And, you know, I think this is why commodity probiotics that we talk about in CFUs instead of clinical endpoints, it's kind of easier to talk about 50 billion CFUs and talk about their survivability. I think it's also a little bit of a marketing thing in terms of talking about, you know, 50 billion CFUs just sounds more attractive. But most strains and probiotics are oxygen sensitive. So a lot of the bacteria use in probiotics are anaerobic, which means they die when exposed to oxygen. And this is why many probiotics are, you know, cold chain shipped, short shelf lives and their stuff with stabilizers. So it also explains why many formulations kind of break down during transit. And I mean, you can just imagine too, the cost of having to ship a cold chain supply chain.

Yeah, you know, it's really interesting because one of the things I'm learning from what you're saying is that the shelf life matters. Right. If I have probiotics that have been in my shelf for two years, probably not as effective as something that we get just from the store. And a lot of ways it sounds like growing produce is probably a good, a good analogy. I just finished a book on bananas, whatever it was on Spotify as an audiobook. It was fun. But one of the interesting things about bananas is you have to pick them. And there's seven different types or shades of bananas and they've got different costs and things like that. And you have to harvest them at a particular point. Not so when they're ready to ship, but for when you think they're going to be ready for consumption. And so I have to imagine this is incredibly complex because you typically don't see bananas and tomatoes shipped in the same box. Is, is this manufacturing and distribution piece the same like when it comes to different strains in a probiotic?

Yeah, I mean, I think first off, blending strains is a nightmare because each strain grows differently, stabilizes differently and just dies at different speeds. Right. So when you see a probiotic that says they have 12 strains, it's almost from, you know, a few strong strains plus a long tail of low quality or low quantity strains added for label appeal. And from a manufacturing standpoint, you know, multi strain blends are extremely hard and the encapsulation process is actually a choke point. So even if you produce perfect bacteria, you can still destroy them during the drying, milling, compression part of, you know, basically packaging this product to be ready to ship. And so this is by. Probiotics generally do not come in tablets because compression can kill them or in gummy format unless the, you know, strains are extremely hardy. And I think the kind of capsulation technology matters more here than in any other supplement category. And you know, the other thing that I think all consumers should be aware of is that label claim fraud is rampant because viability is hard to measure and strains are different to kind of differentiate the categories full of mislabeled strains. So, you know, just if someone's compared to, you know, claiming 50 billion CFU's, you know, be mindful of what that actually means. And you know, independent audits of these brands and products, you know, routinely show that like 30 to 50% of probiotics in the market do not actually, do not actually match their label. So, you know, just be aware of what you're buying if you're buying a probiotic.

Yeah, that, that is, that's shocking. 30 to 50% don't match the Label. I mean, one of the things that's really interesting is that this is not a commodity product. This isn't, you know, whey protein or creatine or something like that. That's been around for a while. It really sounds like producing stable living organisms at scale is unbelievably hard. And I think that most brands end up cutting corners not because they intend to, but because it just happens. Right? Maybe they don't have the controls, the right measuring steps. And what's interesting about this is that Seed leaned into doing completely the opposite. They had much tighter controls, they looked at stricter strain selection, better delivery systems, all sorts of things. So what do we know about the, the founders?

Yeah, I mean, so Seed was founded by Ara Katz and Raja Durr, and they first met in 2015 and they kind of bonded over the science of microbiomes and the kind of dissatisfaction with the status quo of probiotics. So, you know, they both were pretty into probiotics, just, you know, kind of taking a research forward approach. Like in the early 2010s, Ara was on this kind of personal mission to find high quality probiotics and kind of kept coming up short as, as, you know, they say. And so this personal frustration led her to this microbiome research where, where she met Raja. And, you know, they deeply engage in discussion and with academic advisors on, you know, scientific literature around, you know, what's going to be kind of the best probiotic here. And so they together shared intellectual skeptic skepticism around the sense that commercial probiotics bore little resemblance to the strains, doses or endpoints, you know, described in scientific research. And they really kind of identified these four key issues with the industry. Number one, most probiotics didn't use clinically validated strain specific organisms. And so they usually use kind of generic species problem2, most didn't survive digestion. So imagine you're kind of, you know, taking this capsule or taking this probiotic and, you know, it's kind of just like vaporware or something, right? So Ara was shocked to discover that many probiotics die in the stomach and never actually reach the colon, which makes the CFU claims, you know, basically meaningless. And then, you know, as we said, labels were just, you know, misleading all over the board. And the category in general lack transparency around, you know, dose, clinical endpoints, survivability. And there was, you know, kind of last problem that they, that they uncovered is that there was no scientific governance for products. And so unlike skincare, where you had dermatologists who were advising or creating brands. You didn't really have these like microbiome experts who were involved in the actual product or claims in this industry yet.

Yeah, I think when you, when you put it in the context in terms of like skin care brands and there are other supplements, having dermatologists or weightlifters and things like that, it's really makes sense we're talking about the microbiome, that you would have some sort of microbiome export associated with these products. But in the 2010s, this was really a brand new, wide open field and experts were mainly academic. So how did they go about trying to solve this particular problem when it came to having microbiome experts who were leading edge, who, you know, weren't business people being involved in shaping what would become seed?

Yeah, I mean it's kind of like just the structure reminds me more of almost a biotech company than a, than a CPG brand. Right. So Raja kind of just started out by building what they called the supernova of All Star Advisory board. And so this included researchers who were part of some major microbiome initiatives around the world. And they included experts across kind of all these different microbiome development pieces and you know, HMO research just from mit, Harvard, Caltech, nih and you know, really just trying to pull together the smartest people around the world. And so, you know, I think they were clear. These are clearly some very smart people. But unlike finding an influencer who's going to kind of lend their name and help you sell the product, this panel actually helped them, you know, develop these strains and verify these strains and you know, really dive into, you know, dose response endpoints and delivery survivability testing and just kind of really starting with a research focused point versus a kind of, you know, marketing or, or industry gap type of approach.

Yeah, when you kind of put it like that, it sounds pretty self evident, like of course, if I want to be a cutting edge microbiome product, I should have some experts involved. But I think it's, it's one thing from recognizing that and it's another one from actually assembling the group. So how did they do that? Did they just start like cold calling and sending emails?

Yeah, I mean, you know, kind of. But they didn't, they didn't start by asking scientists to build a probiotic brand. They really started more so from kind of the fundamentals of what would a consumer probiotic brand look like if it was built specifically around scientific standards. Right. And so I think this kind of reframes the approach Here and led them to, you know, number one, conduct literature reviews of the last decade of microbiome science and identify high signal strains with repeatable outcomes and just approach scientists tied to those strains or fields to, you know, learn what, what's the best approach here. Right. And actually ask them to vet their formulation and delivery and claims and you know, build ongoing governance around, around their brand. So you know, this trial and error took a couple of years before launch but they really identified some key insights here that shaped the launch of Seed. Right. And so insight number one was that strain level matters more than species level. And I think that was a huge unlock for them. You know, single letter strain differences can produce entirely different outcomes here. You know, if you want to dive into the specific strains, they've got, you know, long names that I'm going to mispronounce. But it's, you know, pretty interesting just to see how many microbiomes, you know, and different strains there are. And number two is survival over CFU count. So Seed's team saw that a billion CFU strain that reaches the colon alive is more meaningful than 60 billion CFU strain that that's killed in the stomach. Right. And so I think the number is quite a bit misleading, especially if you were to look at brands on the market, you know, claiming 60 billion CFUs. You know, a lot of those are not even going to make it to where it counts. Right. And then synergy, their insight, last insight is that synergy isn't random. Right. So when pairing strains you can't simply add more. You have to ensure that they're combat compatible, that you know, there's no kind of overlapping endpoints and that they have kind of shared stability windows to really, you know, meet to really reach the colon alive. So you know, really just, really just taking a very research led approach here. And I guess last but not least, probiotics that touch the whole body. So they identified probiotics that weren't just kind of quote unquote gut health, but you know, they influence the gut barrier function, skin, immune signaling and just metabolic markers. So I mean really you can see this is a research driven, you know, company here. It's not like your traditional CPG brand that's you know, focused on marketing.

So it looks like they were able to take 15 years worth of cutting edge microbiome research and condense it down into these four core principles. I like how bite size and self evident they are. I mean as a non scientist it makes it easier for me to understand. But was was really interesting is despite these core principles, really the, the main innovation was in their delivery system and how they came about improving the survivability. And I think that piece where you Talked about how 1 billion that reaches the colon is better than 30 billion that die really struck me. And so, you know, their main piece of IP ended up not being the actual strains themselves. It was more how they kept them alive longer and therefore made the product more potent. Can you walk us through how they went about developing their delivery system?

Yeah, I mean, so, you know, in probiotic or microbiome science, you're really not making any new strains, you're just finding new ways to use them. And so the hardest point is always how do you get them into kind of the colon or small intestine alive? And your stomach in general does a really good job of killing all those things, because your stomach, I didn't know this, but your stomach has a PH of less than 2, 2, which is basically like battery acid. So it's hard for anything to really survive there. And so traditional probiotics, regardless of if they were a capsule, tablet or gummy, basically try to dump 50 billion microbes into your stomach and hope that 1 to 2 billion would survive. And seed really took the perspective that if the bacteria doesn't survive to colonize, the gut product is meaningless. And so, you know, they, they kind of took this approach that in order to really use the strains that they had identified to have a meaningful impact on health, they needed something that would be viable at room temperature, that wasn't, you know, cold chain, and that would preserve, you know, scientific strain ratios throughout the body. And so their solution was a unique capsule in capsule technology they call the viacap, which became their critical ip. And so this allowed them to basically have kind of two separate ecosystems inside a capsule. Number one, the outer prebiotic, which would be consumed first, and number two, the inner probiotic, which would be consumed later, typically when it's in the gut. And so they obviously didn't invent the capsule in capsule. It's used in a ton of other pharma applications, but they adapted and engineered it specifically for this kind of microbiome approach. And, you know, there was definitely some trade offs. Right. So first, double capsule Systems typically cost 5 to 10x more than standard capital capsules. And secondly, it's extremely difficult to manufacture because you got to kind of fill the initial capsule and then insert it into another capsule and then seal it all without killing, you know, the bacteria inside. And so stability is a huge, huge point of question here. You Know, moisture travels between the capsules that can kill, you know, a live organism unless it's tightly controlled. So, you know, you can see just the amount of research and kind of critical IP they had to utilize here to bring this to market.

Yeah, I mean, so we have the science. We've, you know, they've decided to take on a very technical manufacturing process like you outlined, but they still have to merge everything together. So what was the final product that ended up taking to market?

Yeah, so the final product was called DS01, which combines this strain level formulation, tight oxygen and moisture controls and room temperature shelf stability that they realized they had something kind of really, really special on their hands. You know, most probiotic brands start with the marketing and work backwards to a product. And so Steve, you know, they started with the hardest part here and how do you keep a living organism alive long enough to matter? And Biocap is where they stopped being a DDC supplement brand and really kind of became a biotech operator. Right. I don't think there was really any mainstream brands that had this viacap technology being utilized.

No, absolutely not. I think, you know, much like this episode, there was enormous amount of time and energy spent getting to the point where they actually started to sell this to consumers. And so I think their launch is really interesting as well because it happens differently than you might expect. So they, they go to, they start the company in 2016 and in 2016, 2017, they're spending about two years on the brand, on the product development before fundraising. In 2017, fundraising kicks off. This is angels and early VCs. And when they did start raising, they went straight for strategic and signaling capital. So they have a couple celebrity backers, Cameron Diaz, Jessica Biel, Carly Kloss, Founders Fund. So they kind of got this cachet of saying, hey, yeah, we're this new microbiome piece. Like we're going to, you know, own that part of the market in terms of being well regarded by who we took money from. Finally, in 2018, they launched their first commercial product, which was DS01, the Daily Symbiotic. And it was a seed branded consumer product. They launched direct to consumer on their own site, no retail. And DSO1 was sold via subscription for about 50 bucks a month. And the first order included a reusable glass canister and a travel vial. And so subsequent orders arrived with compostable biofilm refills. And there was like a nice assembly angle there. But unlike something you'd expect to see backed by celebrities, this was not something that was blitzscaled to sell out in 24 hours. Instead, they took a very highly controlled single SKU premium DTC approach to their acquisition and really diverged from a lot of traditional D2C playbooks. And you know, first and foremost they leaned in on education driven D2C work. And so they, they're, they created a cultured content hub and a sidecare Q and A where they basically were teaching the public about microbiome science. Again, if, if you were someone who just knew about probiotics and you know, you know, I like 30 billion CFU versus a 50 billion CFU and this one says it's got 1 billion CFU, this can be pretty confusing. And so they, they tried to do everything they could to be a micro biosciences company that happened to have consumer products as an application layer. And so they, they really focused on strategic messaging and audience engagement and content creation that talked about this microbiome science. And they, they did something interesting with influencers. Where I think most brands are, they think that, you know, more is better and I'll get, you know, the more followers or the more influencers out there to pitch my product, the better. But they took an accountable influence approach is what they called it. So instead of spray and pray, starting in 2019, they had prospective influencers go through what they called Seed University. And it was a 59 minute course on Instagram stories on microbiome basics. And they wanted people to really understand probiotics and seed science and the FTC disclosure rules. And these creators had to pass an exam before they were even allowed to partner with seed, which is interesting. I mean think about putting an extra barrier here for people to say, oh no, I don't want you to sell my product. And they were honestly encouraged to use the hashtags accountable and hashtags ad to really lean in on this transparency piece. And so instead of paying everyone with a pulse and an affiliate link, they gate kept who could promote them and they required a scientific literacy. And this really turned the creators that did partner with them into teachers, not just billboards. And so, you know, through this, this, this effort, Instagram really became their microbiology classroom. And they talked about how this was their primary top of funnel education channel and they were able to translate science into accessible language for over 7 million followers. And, and the pattern was really to, to teach first, sell second and then to use design and rigor to justify a premium price point.

Yeah, I mean this definitely seems different than traditional kind of DTC players we look at. I mean especially the idea of Gatekeeping influencers. Right. You don't hear that much. And I mean, I kind of wonder like, do you think most, do you think more brands should adopt this? Right. Because it's a unique approach. Obviously Seed is more scientific and research driven than probably any other supplement company we've covered this season. But if you look at where Seed was coming from, it seems to make sense for them because you really need to educate the market on why they're different and why they're better. Really?

Yeah, I think it's interesting. I think the key principle here is that the influencers that you partner with need to be authentic. And I think that they recognize that the authentic people who are going to be naturally able to promote Seed probably don't have Instagram accounts. These would be the microbiome scientists. And you know, I'm just making a generalization. Maybe there's a couple million followers with some scientists out there, but they felt that in order to have a stable of authentic influencers, they had to educate them. They had to make them have an authentic experience and understand more about the science versus hey, I take this thing, it makes my stomach feel good and you should take it too. And so I think that's really the lesson is I think every brand should find influencers that are authentic to their mission and what they're doing. And, and if that authenticity is pretty rare, go out and create it, I think is the lesson that's there.

Yeah, yeah. And I mean the early traction, you know, does show and prove this. This education was, was fruitful for them. So by 2020, Behrens is kind of profiling them as this new approach to digestive health still with the DS01 product as their flagship and their, you know, science first positioning. And this is kind of where their education has acquisition playbook. And Seed University for influencers really kind of gets legs here. So there was no big retail push, just one hero SKU EDC subscription, high AOV with strong retention. And I think their kind of bigger coming out party was in April 2021 when they announced their $40 million Series A led by the Craft 3, with Founders Fund, 8VC and a lot of others in the mix. And a leaked kind of pitch deck pegs the implied valuation around 200 million. And the company publicly told the press that sales had grown 20x in two years and they were on track for almost 9,000% of three year growth. And so they raised this $40 million to launch into new categories, expand their clinical research and accelerate distribution channels. And I think this is Kind of, you know, where this is really becoming a platform, not just a probiotic brand. In 2022 they launched a kids product, PDS08. And this was kind of a powder symbiotic for ages 3 through 7 and had 9 probiotic strains plus fiber based prebiotic. And kind of it opened up this teens and kids market at a slightly lower price point of $39 a month versus their, you know, main product DS01, that was 49amonth. And so by 2023, new shime studies, the simulator of human interest microbial ecosystem and clinical data on DS01's impact on gut barrier response to alcohol antibiotics are presented and covered in trade press which kind of helps dig into the scientific moat that Seed has created here. And so kind of from a storyline standpoint from 2018 to 2023, see is building on these three pillars of adult gut, you know, kind of children's gut and kind of a product for teens and a reputation for actually running trials.

Yeah, you know, one of the things that strike me as you're going through this is how intentionally it seems that they built this business. They laid a very deep scientific foundation and then worked on educating the market in terms of how know their, their influencers they work with and only being D2C so that can control that messaging. And and now they were appear to be ready to lean into more channels. When did they start making that change?

Yeah, I mean 2024 was a huge commercial breakout year. So it was reported that Seed was profitable with revenue of 140 million in 2023 and they projected over 200 million in 2024. And they were at the time fueling discussion discussions of acquisition for more than a billion dollars. So by late 24, you know, the DS01 product could be bought via their own website, Amazon Erwan, and as of 2024, target nationwide. And so Target was their first major, you know, mass retail Launch, included their three products. They also had a Target exclusive DS01 14 day gut reset for 29.99, which, you know, I thought it was a pretty, pretty good product to launch in Target. And In May of 24 it launched into a new category with a kind of vaginal symbiotic. And so the VS01 is a tablet with three proprietary blends to kind of push participants into an optimal microbiome in 21 days. And so this was a big strategic signal that they're not just around gut health. And then in June 25th their DS01 product and DS0114 gut reset rolls out to all 450 Sprout stores in 24 states plus sprouts.com and then in August it became a top 10 product in Target's VSM category. And so they beat longstanding brands and ranked them on among Amazon's top five probiotic supplements. So really they just kind of hit this pretty rapid growth trajectory. Pretty quickly.

Yeah. And they're really on their way to 300 million in revenue. And they, I think they fashion themselves as one of the only profitable consumer facing biotech companies. And I think it's interesting because there's this element of, you know, do they want to be a biotech company? Are they a supplement brand? You know, why would they lean into one versus the other? I mean, do you, do you have any initial thoughts?

Yeah, I mean I think in general they kind of are blending this kind of this fundamental research that they've had from the early stages and now, you know, kind of becoming this darling of a probiotic brand that, you know, is able to expand across other categories just based on their, you know, research and capabilities. So you know, I'm curious, what does their exit potential look like here? I mean it seems like they're really pushing some, some big revenue numbers.

Yeah, I mean the revenue is certainly there and I think this question of am I a biotech company or am I a supplement brand really comes down to where they want to be from an exit point of view. And, and the first thing to point out is there's massive differences between supplement and biotech valuations. And so valuations for supplement brands are typically driven by revenue margin, churn, channel mix, things like that. And the acquirers look like Unilever Health and well Being, Nestle Health Science, church and Dwight, etc. And a supplement brand is typically going to get offered 2 to 4x revenue or 10 to 15x EBIT. And they really don't assign a premium for biotech IP because it's really about brand distribution and cash flow. Biotech on the other hand is completely different and those acquirers are much more focused on proprietary ip, a scientific moat and it just manufacturing know how acquirers typically will look like Pfizer, Merck J and J, GSK, Novartis and these valuations are typically 10 to 20x forward revenue. And you've got some biotech companies that before they even have any sort of revenue are selling for 300 to $1 billion because they're just, there's this promise of a potential future monopoly. And so with biotech you really don't need to be profitable, you don't need to have these sorts of things. It's just really the acquirer has to believe that your tech is so good that, that it's going to be better than anything else out there. And you're the, you're the only thing that they, that they can go for seeds. Really interesting because they're fundamentally a hybrid. It's a profitable consumer business that sits on a scientific chassis. And so really who the acquirer is has an enormous impact on how they're perceived. And so a buyer who sees them as a supplement brand is probably willing to pay 400 to 800 million dollars on 200 million of revenue. Whereas a buyer who sees them as a biotech platform is likely to pay $1 billion to $2 billion on that same 200 of ARR.

Yeah, I mean, it seems like there's, you know, a billion or so reasons why they'd prefer to be seen as a biotech company here versus supplement company. I mean, how do you think these acquirers were actually, will actually view them when they, when they go to market?

I think it's a good question. I mean, on the one hand they do do a lot of clinical trials and they have a proprietary delivery technology and they've done a lot with specific strain selection. And so they're doing a lot of things that a biotech company would, would do. However, are these things truly proprietary? Is, is it a future monopoly potential or is it something that a really well capitalized challenger could do themselves? And given how quickly microbiome space is changing, could they be outflanked in the future by new strains or new uses for strains as the science unfolds?

Yeah, I mean, you know, I think including them in our supplement season is probably not doing them any favors. So, you know, Aaron and I are both going to order a bunch of seed probiotics after this. But regardless of how acquirers value them, they represent, you know, definitely this powerful example of how far you can push science and you know, kind of see where a category is heading. I mean, it's just been fascinating for me to kind of, kind of see this playbook and understand like, hey, if you take a research first approach, you know, there's even more viability to go to market here. I mean, what have been some of your, you know, interesting takeaways this episode?

I think there's a couple. The, the first one I'd point to is that category creation is much better than category competition if, if you can do it. And so you Know, Seed has, has won in one of the most crowded supplement categories by redefining the rules. They didn't try to compete on CFUs, flavors or influencers. They really reframed probiotics as a scientifically engineered, clinically validated, survivability driven product. And everybody else is now trying to react to that. They've changed the game. I think the second piece is that scientific rigor really has a compounding effect. And you know, Seeds mode really wasn't to be a big marketing, you know, engine. It was all science. It was all of these clinical trials, the strain level specificity, the main factory controls, all of these delivery technology influences they made. And they used that to justify their pricing power and they were able to tap into things that most DTC brands never reach. And so I think the key takeaway for me is if you want to be a science LED brand, you have to operationalize and internalize the science that allows you to be that. What about you?

Yeah, I mean, I think number one, subscription is not dead, right? It's, it's a privilege, not a tactic. I think retention is built and earned through outcomes and consumers really only stay subscribed with a product that's worth coming back to. Right. And so Seed built the subscription around a product that, you know, actually works and has, you know, clinical research here. And so, you know, I think that's a very clear takeaway in terms of understanding. Like, hey, you know, retention can stem from actual outcomes. And then again, number two, your story determines your valuation. Right. I mean, supplements obviously trade at a lower multiple than biotech platforms. But you know, Seed has engineered every part of its business to kind of be a bit of both. Right. So we'll see what their, their outcome looks like. But you know, I think if you would ask them, it's probably unclear if they were building a consumer business or biotech business, but they are certainly laying this foundation of having conversations as if they are a biotech company, which would definitely have a bigger impact on their exit. So I mean, I thought this, this story and just Seed is just that incredible, incredible company. I mean, I think it's one of the kind of most research driven, kind of CPG brands that I've ever heard of. And it's, it's been pretty incredible to cover and research.

Yeah, the intentionality that, that they've done is interesting because I think a lot of times, you know, when we do these episodes will profile the really interesting marketing plays that they did or you know, the growth hacks that they had there and these guys were just very deliberate. And really, the story of Seed is the story of the science microbiome and how they went through and said, okay, let's actually fix the problem versus, you know, figuring out what we can sell. And I think that's just been a great takeaway.

Totally. Totally. Well, thank you, everyone, for listening in to this episode of E Commerce on Tap, brought to you by Sourcefy. And Isba. And please, like, subscribe, leave a review and share this with a friend. We greatly appreciate it, and we will see you next time.