CAPVEE Equity Crowdfunding Pick: Son of a Barista
This SOB aims to open the at-home specialty coffee market to all.
Summary:
Company: Son of a Barista
Sector: Consumer Goods (Food & Beverage)
Platform: Start Engine
Minimum Investment: $250
Investment Structure: Equity ($10 million)
Funding Status: >$0.1 million ($1.0 million target)
CAPVEE Call: Buy (>6x Return Potential, Moderate-High Risk)
Son of a Barista is looking to disrupt the gourmet coffee market by offering a value-priced pod espresso maker without compromising on quality. The machine, which is thrown in for free as part of a $98 starter kit that includes 150 pods, is infinitely cheaper than its competitors. Comparable to Nespresso features, Son of a Barista gives users the option to make a single or double shot of espresso, and then customize it to their preference with milk pods. Other pods include tea and the company has plans to offer 16 new pod options soon.
Son of a Barista was founded by Luca Capula and Albert Dahan, LA-based Italian serial entrepreneurs with IT and marketing backgrounds. The company also has the support of Swedish fitness influencer Magnus Lygdback, who often receives celebrity shout outs from the likes of Ben Affleck and Alicia Vikander.
The Problem Son of a Barista Solves
Espresso machines are pricey. A decent pod espresso machine starts at around $150. A legit espresso machine starts at around $400 and continues well into the thousands of dollars. The pods are often average quality and they present a real environmental problem as they are made out of aluminum, paper and plastic. According to Eco & Beyond, Nespresso has sold over 28 billion pods, enough to wrap the globe in an environmentally-sad ring 26 times over.
Son of a Barista offers a hard-to-beat starter kit - one coffee machine and 150 green coffee pods - at $98. Compare that to competitors’ machine costs: Nespresso (~$149+), Lavazza (~$199) and Vergnano (~$499). If the quality of the machine and the coffee holds up to the competition, Son of a Barista is a no-brainer for cost-conscious coffee lovers.
The company also differentiates itself from the competition by using 7.5 grams of coffee per serving - 50% more than normally used - which the company says allows for a much richer, flavorful brew.
One of our favorite parts of the business is its sustainability commitment. Son of a Barista uses recyclable pods and is working on naturally biodegradable materials so that the whole pod - coffee and packaging - can be disposed of as compost.
The Team
Luca Capula, Co-Founder & CEO: Luca is an Italian tech entrepreneur. Luca built ALYT, an IoT solution that integrates thousands of connected home devices through an app which he sold in 2018. Prior to founding ALYT, Luca held a variety of senior management positions at GPS Standard, a leading European security firm focused on integrated technology solutions for military and industrial customers.
Luca holds a degree in Computer Engineering from Politecnico di Torino and a degree in Marketing and Communication from Univesità degli Studi di Torino.
Albert Dahan, Co-Founder & CSO: Albert is an Italian serial entrepreneur with a background in the clothing industry. Albert founded Joe's Jeans, which he led as CEO to over $120 million in sales. Previously, he founded Da-Nang Clothing, which reached $40 million in sales.
Magnus Lygdback, Brand Ambassador: Magnus is a world-renowned Swedish health & wellness expert who has worked with a lot of famous people (cool.)
It’s a solid group! The founders have a proven ability to build and sell businesses with three successful exits between them. We like the mix of IT and marketing in addition to Magnus’ social media reach and wide network of A-list celebrities (check out #magnuslygdback on Twitter).
What We Like
- Son of a Barista addresses a huge and growing market. The U.S. coffee industry is worth $48 billion and the market is expected to grow at a 4% CAGR until 2025. The specialty coffee market - the company’s serviceable market (SAM) - generates $26 billion and is expected to outperform the greater category as convenient forms of coffee continue to increase share.
- The company entered the highly-competitive gourmet coffee market with a promising value proposition: 1) give away the machine for free to open the market to first-time buyers; 2) more coffee per pod; and 3) a guilt-free solution to the pod-problem for the eco-conscious. As a result, we believe Son of a Barista can carve out a niche with its Millenial and Generation Z target group and that its playful brand messaging will resonate well.
- The coffee machine and pods business model oozes potential. Gillette popularized the concept of selling hardware at or below cost and then raking in spectacular margins on its consumables once customers are locked-in. Son of a Barista still makes money on its starter kit, earning a 32% margin. It makes a whopping 86% on pod re-orders. Each customer that Son of a Barista brings in via its aggressive intro pricing is worth an estimated $350 in lifetime value.
- The founders are a five-star team! The founders have a proven ability to build and sell businesses. We like the mix of IT, marketing and health & wellness.
What Makes Us Nervous
- The market for gourmet coffee is highly competitive, and Son of a Barista is going up against giants. Nespresso, with revenues of over $4 billion, is one of Nestlé’s most profitable products with margins above 85%. It also has the infinitely-valuable endorsement of George Clooney (swoon). The world’s largest food & beverage company won’t just let Son of a Barista drink its milkshake.
- The company generated $300,000 in sales in 2020 after reaching $50,000 in sales in October (five months post-launch). We would have liked to see a steeper sales curve in November and December, especially considering the holiday timing.
- The company has had problems with its supply chain. It went out of stock in November after selling more than 400,000 pods in six months. While we understand the challenges of running a start-up, the company needs stable operations in order to keep customers on the wheel.
The Investment
The investment is structured as equity (also known as common shares) at a valuation of $10 million. For those new to private market investing, equity represents ownership in a corporation. Equity holders generally elect the board of directors and vote on corporate policies, though in this case each subscriber is giving a proxy vote to the company’s CEO. In other words, the equity holders will have no voting rights here. Also, in the event of liquidation, equity holders are generally last in line for proceeds, after debt and preferred equity holders.
All in all, equity is an investor-friendly way - and our preferred way - to invest in start-ups!
Son of a Barista’s $10 million valuation means you are betting that the company will be worth more than $10 million in the future.
We arrive at a max valuation of $12.3 million, suggesting the company is decently valued today. Assuming that Son of a Barista reaches $40 million in sales in year 5 (equates to a 0.15% market share of SAM) and an EBITDA margin of 22% (in-line with Nestlé's (owner of Nespresso) long-term average), a >6x return is possible.
Please refer to our valuation model for a more in-depth explanation.
If you have any questions or comments regarding the valuation model, please feel free to directly contact our valuation guru Olof on Twitter. He is more than happy to talk shop about exit multiples and discount rates.
The CAPVEE Call
We believe that Son of a Barista will be able to carve out a niche with its Millenial and Gen Z target group. We feel confident that the team will be able to fix the operational issues and make good progress on its goal of entering 1 million households.
We view Son of a Barista as a buy with >6x Return Potential, with a moderate to high risk.
Further Reading:
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Disclosure: The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
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