Why is venture capital being deployed to niche, artisan coffee chains in the Bay Area? In 2012, a group of celebrity investors pooled capital to buy equity in Blue Bottle, and in mid-2013, Philz Coffee received venture capital investment as well. What could be driving such investment? Briefly, here are some possibilities — but tell me about others below:
- Anticipation of beverage M&A, consolidation: Starbucks bought La Boulange for $100m. Not bad. Perhaps there will be more, either by Starbucks or other groups who want to enter this space. Additionally, on a global scale, the large beverage distributors (see: beer!) are fighting to consolidate and gain market share in emerging markets. Alternative drinks (sodas, coffees, teas) could be part of their product mix plans.
- Online brands for e-commerce: Craft coffee sources and mails subscribers beans from around the world every month. There’s room for more in this space and Blue Bottle and Philz have big brands already. Folks say they want a “Blue Bottle” or they want a “Philz,” not just a coffee. It can be like “Kleenex.”
- Portfolio diversification in bricks & mortar consumer retail: Individual and/or venture investors have experience in consumer retail and there are still are opportunities. Back in the day, Trinity Ventures, for instance, funded Starbucks and PF Changs. Today, those may not sound like “venture-scale” spaces, but new franchise chains can be created every year. And, if firms are spreading their bets across consumer (web/mobile), enterprise, and others, consumer-offline may be part of their strategy.