SCHEDULE: Activist Investor HumanCo Urges Grove Collaborative Board to Explore Strategic Alternatives, Citing Deep Undervaluation

HumanCo Investments, a significant shareholder in Grove Collaborative Holdings, Inc., has filed a Schedule 13D urging the company's Board of Directors to immediately explore strategic alternatives, including a potential sale or take-private transaction, to unlock substantial shareholder value.

Summary

• HumanCo Investments (HCI) is one of the largest shareholders of Grove Collaborative, owning more than 5% of the company's common shares outstanding since November 2022.
• HCI believes Grove Collaborative is deeply undervalued by the public market, with a current fully diluted enterprise value of approximately $75 million, representing a 0.4x EV / 2025E revenue multiple.
• This current valuation is an over 95% decline from Grove's $1.5 billion valuation when it went public.
• Grove Collaborative was EBITDA positive in FY 2024 and expects to be breakeven in FY 2025, based on the mid-point of company guidance.
• The company has been operating cash flow positive for three of the last four quarters, has minimal debt, no near-term solvency issues, and over $500 million in Net Operating Losses (NOLs).
• HCI attributes the impaired shareholder returns and financial performance to Grove's small market capitalization, limited public float, lack of equity research coverage, and a misguided strategy over the past three years focused solely on cost-cutting rather than balancing growth and profitability.
• HCI estimates Grove could be conservatively valued at approximately 0.70x 0.90x 2025E revenue in a transaction, which translates to a 90% to 140% premium over the current share price of $1.19, or approximately $2.25 $2.90 per share on a fully diluted basis.
• HCI has requested the Board to form a Strategic Review Committee, engage a leading investment bank to assess acquiror interest, commit to a transparent process with regular shareholder updates, and act with urgency.

Sentiment

Score: 4

Explanation: The document expresses strong dissatisfaction with Grove Collaborative's current valuation and strategic direction, highlighting significant underperformance and missed opportunities. However, it also conveys a strong belief in the company's underlying assets and market potential if strategic alternatives are pursued, indicating a negative assessment of the status quo but a positive outlook on potential.

Positives

• Grove Collaborative has a strong competitive moat as the first marketplace dedicated to non-toxic, sustainable, and plastic-free products.
• The company boasts a large base of 700,000 active customers with high retention, with 86% of orders consisting of one or more subscriptions, up from 78% three years ago.
• Grove has an extensive portfolio of, and relationships with, over 200 premium clean brands.
• Substantial investment has been made in brand building, high-value customer acquisition (over $350 million), and supply chain infrastructure and logistics.
• Grove was EBITDA positive in FY 2024 and expects to be breakeven in FY 2025 (mid-point of company guidance).
• The company has been operating cash flow positive for three of the last four quarters, indicating strong operational efficiency.
• Grove has minimal debt, no near-term solvency issues, and over $500 million in Net Operating Losses (NOLs) that could be utilized in a transformative merger.
• The company maintains an industry-leading Net Promoter Score (NPS) of 65, reflecting strong customer trust and satisfaction.
• Grove is positioned at the center of a high-growth, clean-living trend in the CPG category, driven by post-pandemic health consciousness and increasing consumer demand for sustainable and non-toxic products.

Negatives

• Grove Collaborative is deeply undervalued by the public market, with a fully diluted enterprise value of approximately $75 million (0.4x EV / 2025E revenue).
• The company's valuation has declined over 95% from its $1.5 billion IPO valuation.
• Shareholder returns and financial performance have been impaired by a lack of investor relevance due to small market capitalization, limited public float, and lack of equity research coverage.
• A misguided strategy over the past three years focused entirely on cost-cutting and achieving profitability has been pursued, rather than balancing growth and profitability.
• Quarterly revenue has contracted significantly from $90.5 million to $43.5 million while the broader category is expanding.
• Quarterly marketing investment has dropped 91% since Q1 2022, amounting to only approximately $3 million of advertising spend per quarter.
• Customer acquisition has halted, missing opportunities in a growing market.
• The company operates at subscale in what is described as a 'winner-take-all' digital market.
• Operational overhead (SG&A) has remained high at approximately 52% of net revenue since Q1 2023.
• Public company costs are estimated to be between $2.5 million and $4.0 million annually, which could be saved as a private entity.

Risks

• The current conservative strategy focused on cost-cutting risks missing a 'once-in-a-generation opportunity' to define the non-toxic product category.
• Continued independence could lead to 'probable irrelevance' as larger players eventually recognize and capture this market.
• The publicly traded stock may continue to fail in delivering value to its stockholders.
• Consumers face a fragmented and confusing marketplace when seeking safer, cleaner alternatives, which Grove needs to overcome.
• The prevalence of 'greenwashing' and confusing labels in the market can mislead even informed consumers.
• Marketing practices often hide the presence of harmful chemicals, making it difficult for consumers to identify truly safe products.

Future Outlook

HCI believes Grove Collaborative has the potential to become the leading digital marketplace for non-toxic products within the accelerating secular trend toward cleaner living. HCI envisions Grove as the definitive trusted authority, discovery platform, educator, innovation partner, and category leader in non-toxic living. HCI's analysis suggests that pursuing strategic alternatives such as a strategic partnership, transformative merger, or private ownership could unlock Grove's true potential and enable it to achieve its mission at scale.

Management Comments

• We believe Grove is deeply undervalued by the public market.
• In the hands of someone else, with the right M&A or as a private company, we believe Grove is worth substantially more.
• We believe Grove must find a partner who has the necessary capital and operational infrastructure for the Company to properly invest in a long-term, growth-oriented strategy.
• We believe Grove could be conservatively valued at ~0.70x 0.90x 2025E revenue (analyst estimates) in such a transaction, which equates to a ~90 140% premium to the Company’s current share price of $1.19 or ~$2.25 $2.90 per share on a fully diluted basis.
• We believe the Board is obligated to undertake a comprehensive review of strategic alternatives, including a potential sale to a larger strategic buyer, a take-private transaction with a financial sponsor, or a transformative merger with a profitable company, which could allow Grove to utilize its $500 million+ of NOLs.
• This is not failure. It is untapped potential that can easily be unlocked. Grove has built the foundation; now it needs the resources and strategic vision to achieve its full potential.
• My life's work has been making healthy living accessible to all Americans. We invested in Grove because we believed it could become the foundation of the non-toxic movement. That belief remains stronger than ever. (Jason H. Karp)
• This is not about financial engineering. It's about giving Grove the resources and platform to fulfill its destiny as the Amazon of clean living. (Jason H. Karp)

Industry Context

The document highlights a significant inflection point in consumer behavior, with millions of families actively seeking safer, cleaner alternatives to everyday products. This trend is fueled by post-pandemic health consciousness, with 69% of consumers more likely to buy from companies with strong health and wellness portfolios (Nielsen 2025). Nearly 50% of consumers seek products with safety precautions like less plastic and non-toxic ingredients, and 73% of millennials are willing to pay more for sustainable products (Nielsen 2024). Sustainable products drove approximately 33% of all CPG growth despite representing less than 20% of market share. The market is currently fragmented, with major players like Amazon, Walmart, and Target failing to provide the specialized curation and trust that consumers demand in the clean living space. Grove is positioned to become the definitive digital marketplace, but operates at subscale in a 'winner-take-all' digital market, risking irrelevance if it does not capitalize on the accelerating regulatory momentum against harmful chemicals and the societal imperative for trusted guidance.

Comparison to Industry Standards

• The valuation analysis for Grove Collaborative is centered around comparable M&A transactions and publicly traded companies focused on digital marketplaces within the health and wellness sector.
• The document does not list specific comparable companies or projects for direct comparison of financial performance or operational metrics.
• It contrasts Grove's curated approach with the broad, less specialized offerings of major retailers like Amazon (overwhelms with choice, no curation), Walmart (convenience, lacks credibility in clean living), and Target (touches the surface, misses the depth), positioning Grove as uniquely capable of becoming the definitive digital marketplace for trusted non-toxic living.

Corporate Governance

Related Party Transactions

• On November 10, 2022, HCI Grove acquired 1,984,126 shares of Grove Collaborative's Class A Common Stock for $2.5 million from the Issuer via a Subscription Agreement.
• Concurrently on November 10, 2022, the Issuer entered into a consulting services agreement with HCI Grove Management, which included an upfront fee of $150,000 and the issuance of a warrant to purchase 905,000 shares (adjusted basis) of Class A Common Stock at an exercise price of $6.30 per share. The warrant is currently exercisable for 362,000 shares.

Stakeholder Impact

• Shareholders: Potential for significant value appreciation (90-140% premium) if strategic alternatives are successfully pursued, or continued underperformance if the current strategy persists.
• Customers: Potential for enhanced product curation, innovation, and accessibility if Grove achieves greater scale and market leadership as the 'Trusted Authority' in non-toxic living.
• Brands (Suppliers): Emerging clean brands could benefit from Grove becoming a 'kingmaker' platform, providing a trusted channel to reach conscious consumers.
• Employees: While not explicitly detailed, a strategic transaction (sale, merger, or take-private) could lead to changes in organizational structure or operations, potentially impacting employees.
• Creditors: The company's minimal debt and positive operating cash flow in recent quarters suggest a stable position for creditors, but any future capital structure changes from strategic alternatives could alter this.

Next Steps

• The Board is requested to undertake a comprehensive review of strategic alternatives.
• The Board is requested to form a Strategic Review Committee.
• The Board is requested to engage a leading investment bank to assess acquiror interest.
• The Board is requested to commit to a transparent process with regular shareholder updates.
• The Board is requested to act with urgency to avoid further market share loss.
• Potential strategic partnership or acquisition with a larger organization.
• Potential transformative merger with a complementary, profitable business.
• Potential private ownership for long-term building, removing quarterly pressures and public company costs.
• HCI intends to review its investment in the Issuer on a continuing basis and may increase or decrease its holdings.
• HCI may engage in discussions with the Issuer's management, Board, or other stockholders regarding potential business combinations, dispositions, or changes to capitalization, ownership, or Board structure.

Key Dates

Recommendation

Keywords

Grove Collaborative, HumanCo Investments, Shareholder Activism, Strategic Alternatives, Undervaluation, Clean Living, Non-Toxic Products, E-commerce, Marketplace, Corporate Governance, Shareholder Value, M&A, Take-Private, Net Operating Losses, NOLs, Consumer Trends, Sustainability, CPG, ESG