Three former executives from Valley mattress maker Tuft and Needle recently left the company to start their own business, called Neighbor, and the fledgling company announced on Tuesday that it had raised private capital from Strand Equity. Financial terms of the deal were not immediately disclosed.
Chris Lee, Mike Fretto and Nick Arambula left their jobs at Tuft and Needle in the summer of 2020 to start Neighbor, a direct-to-consumer outdoor furniture business inspired, in part, by the fact the trio was spending time together outdoors during the Covid-19 pandemic. The company was founded in October 2020.
Los Angeles-based Strand Equity invests in consumer brands, including Oatly, Vita Coco and Scottsdale-based Modern Acupuncture. The firm has also previously invested alongside celebrities including Cameron Diaz and Leonardo DiCaprio.
Arambula, former COO and later Interim CEO at Tuft and Needle, is now the CEO of Neighbor. He said that Tuft and Needle had an entrepreneurial spirit among its employees, a sentiment echoed by Piet Jan de Bruin, another former executive who left the company to create a separate startup.
“When you do something another time you try to learn from your mistakes,” Arambula said. “When we departed Tuft and Needle, we took things that we've loved and then we wanted to replicate and things that we wanted to improve upon.”
Neighbor is a direct to consumer e-commerce business, as is Tuft and Needle. Neighbor makes chairs, sofas, tables, full dining sets and rugs to spruce up patios and other outdoor spaces.
The pandemic has been a mixed bag for Neighbor; At first it was a boon as people stayed home and spent money beautifying their outdoor spaces. More recently, though, supply chains issues have been a problem.
Surge in shipping costs
Neighbor’s revenue increased 11 times from 2020 to 2021, but Arambula said that figure would have been even higher if they had not encountered problems like a drastic uptick in shipping prices between last year and this year.
“When we shipped our first 40 foot container, the biggest container that you can ship on ocean freight, it cost us $4,000. The one I paid for last month was $22,000.”
Neighbor makes the hard parts of its furniture, like the teak frames, in Vietnam, which then have to be shipped stateside. The soft parts, like the cushions and fabric, are mostly made in the United States.
Neighbor is based out of the Lawrence Building in downtown Phoenix, which it shares with the building's largest tenant, Galvanize.
The company also has a showroom on site, in a detached building called the icebox, which was the structure’s former purpose when the Lawerence Building was a grocery distribution warehouse.
Arambula said that they debated whether they needed to raise capital at all, but part of the reason they did was to bring in outside board members.
“[We] saw value in having a more formal board with governance,” he said. “Helping to hold us accountable, helping to provide outside perspective, helping by giving us insight on what the rest of their portfolio is experiencing, connecting us with other founders that are doing similar things because that can be immensely valuable.”
Though he didn't divulge specific numbers, Arambula said Neighbor was profitable in 2021, so funding was not a business imperative, but the company jumped at the chance to work with Strand in particular. He said the investment will help the company scale quicker, expand its marketing efforts and add people to its team, which currently has nine employees.
