What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing in the past, we've covered a lot of corporate declines and failures from general electric to sears to deutsche bank. For these large publicly traded companies. It's pretty easy to see their epic rise and falls graphically just by looking at their share prices, but a lot of the biggest corporate disasters happen to private companies in silicon valley. Venture capitalists create and destroy hundreds of billions of dollars every year as they invest in speculative technology startups, but because these startups are not traded on the stock market, the media pays significantly less attention to them.

Today, we're looking at one of the most rapid and dramatic venture capital disasters, which saw 30 billion dollars of shareholder value, wiped out in a matter of just a couple years. We're talking about the rise and fall of the vaping company. Joule electronic cigarettes have been a huge growth industry in the us in recent years. As smokers look for alternatives in the early days, joule was the biggest beneficiary of this.

Their sleek design and incredibly successful marketing campaigns allowed them to surpass their traditional tobacco peers by 2018. They had a greater market share than all their competitors combined. Their rapid rise was an emergency signal to the established tobacco giants who feared their dominance in the nicotine market was being disrupted. They eventually decide that if you can't beat them, you have to join them.

In 2018, the u.s cigarette giant ultria acquired jewel at a staggering valuation of 38 billion dollars. This made the company more valuable than twitter. It also made jules silicon valley based founders, james monsis and adam bowen, both billionaires. Unfortunately, this turned out to be one of the worst acquisitions in business history, pretty much as soon as they closed the acquisition jules started facing numerous lawsuits, alleging that their marketing practices illegally targeted children.

This caused their sales and valuation to be crushed like a souffle under a sledgehammer by the end of 2020, altria was forced to write down the value of their drill investment by 88 for an almost total loss. More than 30 billion dollars of value was wiped out. In less than two years in this, video we'll go over how monsis and bowen built their 38 billion jewel empire and how it all came crumbling down. But first a quick word from our sponsors.

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One of their members was inspired by their research and started his own third party logistics service, which has since grown to doing over one hundred thousand dollars in annual revenue. And finally, they have virtual business training events and interactive q. A sessions of similar quality to mba lectures, but instead of paying six figures for an mba program, trends.co is partnering with us to offer a special seven day trial for just one dollar with zero commitment, and you can cancel at any time just go to trends.co. Wsm link in the description below the idea of an electronic cigarette goes all the way back to the 1920s when electricity was first becoming mainstream, but they never really went anywhere because they were expensive, clunky and couldn't replicate the experience of a real tobacco product.

What we now know of as modern e-cigarettes was invented in the early 2000s by a chinese pharmacist by the name of han lick. He was a heavy smoker and wanted to make an alternative to combustible cigarettes. The e-cigarette heats up a nicotine-containing liquid to create an inhalable smoke. Thus the user can inhale nicotine without any tobacco being combusted.

In the early days, e-cigarettes were designed to look like traditional cigarettes. They were marketed towards adult smokers as a way to help them quit smoking. While the long-term health benefits are still subject of scientific debate, many experts believe that it is safer than traditional cigarettes as it avoids many of the chemicals created in the combustion process. The national health service in the uk says vaping is far less dangerous than cigarettes and actively encourages smokers to switch.

The centers for disease control in the us is far more ambivalent. They say it has the potential to benefit adult smokers, but are unsure about its effectiveness. As a smoking cessation tool, but almost all health experts agree that vaping should not be used by children or adults who are not already smokers throughout the 2000s and early 2010s e-cigarettes never really caught on. They are widely viewed as a medical device similar to nicotine patches in the late 2000s.

Two graduate students at stanford university started thinking of ideas to make vaping mainstream. They realized that if they wanted to launch a successful mass-market vaping product they'd have to completely rethink the marketing strategy and from a marketing perspective. Vaping had a huge advantage over traditional cigarettes that the industry was largely ignoring at the time. In the 1950s and 60s big tobacco successfully got 40 percent of the us population addicted to cigarettes.

A large part of the success was due to aggressive marketing campaigns. They painted cigarettes as cool with mascots such as the marlboro man. They were also forward-looking enough to sponsor kids cartoons such as the flintstones. This helped them curate the next generation of loyal customers.

After the links between smoking and virus cancers were established in the 1990s. The tobacco companies were forced to pay hundreds of billions of dollars in damages and barred from almost all advertising. These restrictions have been incredibly successful. The rate of smoking in the us has dropped from roughly 40 in the 1980s to just 16 in 2018, while the traditional tobacco industry has been heavily regulated.

Since the 90s, the vaping industry was like the wild west. James monsis and adam bowen wanted something that looked new and innovative. Unlike the cigarette-shaped e-cigarettes of the past, they even named their company jewel labs to support their branding as an innovative tech company, and to this end they were highly successful in 2015 they unveiled their slick. Looking device that can discreetly fit into a pocket, it resembled a long, usb flash drive and can be charged by plugging into a laptop's usb port.

It came across as more like a consumer electronics product than a cigarette replacement. People quickly started calling it the iphone of e-cigarettes and instead of just having the boring tobacco and menthol flavors of earlier vaping products, they introduced innovative flavors, including mango cucumber cream and fruit. Its 5 nicotine concentration was also much higher than most other offerings on the market. So now they had a cool looking product.

The last element they needed was a marketing campaign to convince people that jewels are cool. They made extensive use of both social media and television advertising to promote the product. Their ads generally displayed bright colors in young, attractive models. They apparently took the playbook from the successful tobacco ads of the 20th century, with many of their ads bearing a striking resemblance.

In fact, the maker of marlboro filed a lawsuit against jewel for copyright infringement saying that jules packaging looked too similar to mariboro one of their most successful marketing gimmicks was to give away thousands or even tens of thousands of free dual devices. This was a genius move. The vast majority of the company's profits came not from selling the device itself, but instead by selling the consumable pods, which contain the e-liquid. These pods retail in the us for more than five dollars.

Each and a heavy jeweler can easily go through one per day for open tank vapes. You can refill them with liquid from any manufacturer. Thus the liquid becomes a commodity, and prices are driven down very low. They sell the device for cheap, but the customer has to continually go back to buy five dollar pods, which ends up being way more expensive in the long run, and because of the powerful brand image that joule created, people were willing to pay up for their cool Trendy devices, but perhaps their most egregious violation, was their apparent targeting of kids in almost the exact same manner.

The tobacco industry had done in the past. An investigation by the massachusetts attorney general's office found that jewel purchased advertising slots on cartoon network in nickelodeon. They also rejected marketing proposals which explicitly targeted adult smokers. They preferred the strategy of targeting what they called quote: the cool crowd.

Unquote, jules market share exploded from zero percent when it was launched in 2015 to 24 in 2017 and, finally, to a staggering 75 of all u.s vape sales in 2018.. To my knowledge, there isn't a single other industry where a new product took so much market share. So quickly and despite what the company would want, you to believe the majority of their meteoric success can be attributed to youth vapers. The truth initiative is a quasi-government-run non-profit organization which aims to deter youth from smoking and vaping in a 2018 survey.

They found that 15 to 17 year olds were 16 times more likely to use drool as compared to 25 to 34 year olds. The lack of popularity amongst adult smokers runs counter to the company's claims of helping adults quit. Furthermore, 56 percent of youth and young adult jewel users, something they started using when they are below the age of 18.. If you went to high school in the us between 2015 and 2018 or know, anybody who has these numbers probably don't come as a surprise to you.

The rise of joule from 2015 to 2018 also coincides with a massive increase in underage vaping. In 2015, only 16.3 percent of 12th graders vaped by 2018. This had increased to 27 in late 2018. Altria agreed to acquire 35 state control for about 13 billion dollars.

This valued the company at an eye-popping 38 billion dollars, making it more valuable than twitter altria is a massive tobacco conglomerate which owns the marlboro brand in the us. Vaping was taking market share from traditional cigarettes. Altria feared that, at the current rate, their business would eventually decline to only a shadow of its former glory by acquiring jewel. They could defend against this competitive threat, but even before altria made the investment in jewel, the fda was already investigating the e-cigarette maker for their alleged marketing to children under intense regulatory pressure, jewel announced in 2019 that they would stop selling all fruity flavors such as mango And cucumber, as these were the flavors that were most popular with kids, if they hadn't stopped voluntarily, the fda almost certainly would have sued them to stop this in the near future.

They also stopped all advertising in the u.s. This was a major problem for jewel their fruity flavors, and their advertising campaigns were their key competitive advantages. With these advantages gone, the company started losing market share rapidly. They were also hit badly by the pandemic, as schools went, virtual kids had far less peer pressure and access to joule products.

This was a big problem for the company, as school-aged kids were one of their biggest customer. Demographics by the end of 2020, altria was forced to write down the value of their drill investment by 88 for an almost total loss that gave the company a valuation of just 1.6 billion dollars compared to 38 billion dollars when they acquired their stake just two years. Prior joule claims to target adult smokers who want to switch to vaping, but the fact that their sales and valuation plummeted so dramatically after they were forced to stop their advertising campaigns, paint a different picture, but all is not over for the company as of 2020. They still had 42 u.s market share by dollar value.

Part of this is because their pods are more expensive than a lot of their competitors, while the restrictions on their marketing will make it more difficult for them to acquire new customers going forward. A lot of people who started drooling as teens in the early days are already addicted and will likely be loyal customers for many years. Their questionable marketing campaigns were what eventually caught the attention of the regulators and did them in, but even today the company is still worth 1.6 billion dollars. Had it not been for their apparent targeting of children.

Their product may never have amounted to anything. In the first place, so despite the controversies in wild ride, the company's valuation founders, james, monsis and adam bowen - may still actually come out on top alright guys that wraps it up for this video. What do you think about jewel? Do you think they intentionally targeted? Kids? Let us know in the comments section below, as always. Thank you so much for watching and we'll see in the next one wall, street millennial signing out.