When GV, the corporate venturing unit then known as Google Ventures, took part in upscale coffee brand Blue Bottle Coffee’s $20m series A round in 2012, it was seen by many as a vanity investment, but five years on, after the acquisition of a 68% stake by Nestlé, the deal looks a shrewd bet indeed.
Nestlé paid between $425m and $500m for the stake, and all Blue Bottle’s external investors appear to have exited through the deal, though the company is not as yet listed among GV’s exits on the portfolio page of its website.
GV, overseen by internet and technology conglomerate Alphabet, had participated in all three of Blue Bottle’s rounds, which had netted the company approximately $116m in total.
Blue Bottle was launched in 2002 as a San Francisco Bay Area coffee cart, before founder James Freeman expanded to a café three years later.
Freeman roasted the beans himself at home and built a reputation for high-quality coffee, and the company had locations in San Francisco, Oakland, Manhattan and Brooklyn by the time it closed the series A.
GV subsequently participated in Blue Bottle’s $25.8m series B round in 2014, which included Morgan Stanley Investment Management, series A backers True Ventures and Index Ventures, and assorted angel investors, before GV, Index and True Ventures joined Fidelity Management and Research, and Tetragon Financial Group for a $70m series C in 2015.
Despite the recent high-profile failure of juicer producer Juicero, consumer goods brands have looked a pretty good bet over the past few years, not least because deep-pcoketed incumbents appear more than willing to acquire upcoming online-focused brands.
Dollar Shave Club was bought by Unilever to strengthen its men’s grooming products, Walmart has acquired Bonobos and Modcloth to boost its fashion range, and Target attempted to purchase advanced mattress maker Casper, before having to settle for leading its $170m series C round.
Food and drink brands have not been as successful in terms of exits – and GV has put big money into both Juicero and vegetarian burger developer Impossible Foods – but Blue Bottle may perhaps be the exception because upscale coffee has both the cachet of a luxury brand and a price point low enough to be widely accessible.
The other reason for Nestlé’s interest is potential. Starbucks rose out of Seattle in the late 1980’s to take control of the coffee market first in the US and eventually worldwide, doing so by expanding its offering to include skimmed milk, lattes and Frappucinos – then fringe products which are now safely ensconced in the mainstream.
In 2017 however, Starbucks’ coffee is no longer viewed as high-grade, and there is undoubtedly space in the market for a premium competitor, as is shown by the emergence of local premium chains in cities as far ranging as Chicago (Intelligentsia), Melbourne (Everyday) and Brighton, in the UK (Small Batch).
Much has been made of Blue Bottle’s minimalist aesthetic, long lines and ‘hip’ baristas, but its features are de rigueur in urban coffee shops internationally, all of which have shown consumers are willing to pay for a better product. A brand with the finances for large-scale marketing would find a good deal of traction in urban markets, especially where there is no prominent local coffee ‘scene’.
Blue Bottle is not the only player in this market – Philz Coffee has also raised substantial sums from VC investors in the past few years – but if Nestlé is willing to put its muscle behind it, and Freeman manages to maintain quality and head off comparisons to its new owner’s entry-level coffee as the chain expands, the sky could potentially be the limit.
– Photo courtesy of Blue Bottle Coffee Inc.