Term Sheet

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

Is Blue Bottle a 'dumb' investment?

January 29, 2014: 5:06 PM ET

Hipster coffee chain raises $26 million from tech-focused VCs. Is it a mistake?

140129155637-blue-bottle-coffee-co-620xaFORTUNE -- Blue Bottle Coffee today announced that it had raised nearly $26 million in new funding from tech-focused venture capital firms like Google Ventures, Index Ventures and True Ventures. Not to mention Morgan Stanley Investment Management and skateboarder Tony Hawk.

Almost immediately, a Twitter discussion broke out about the propriety/intelligence of such a deal:


To be clear, I do not understand the Blue Bottle allure. I want good coffee, but I also want it fast. Blue Bottle's stores use a drip-brewing process that is slow enough to make me long for a rush-hour Starbucks (SBUX) line.

That said, it is not completely out of character for tech-focused VCs to back non-tech startups. For example, Benchmark once invested in Chicago-based sandwich shop Potbelly (PBPB), which last year went public in a very successful IPO.  Moreover, a number of today's e-commerce plays are really more about the commerce than the "e" -- making their own consumer goods rather than just serving as a middle-man (think Warby Parker, Harry's, etc.).

Moreover, venture capitalists constantly talk about how they're investing in the entrepreneur more than in the product. In this case, that entrepreneur is an old business school buddy of a True Ventures partner, and also previously sold a pair of specialty retail chains: Fresh & Wild to Whole Foods (WFM) in 2004 and Nude Skincare to LVMH in 2011. In other words, the VCs have reason to believe in the guy (and most VC fund docs give firms leeway to do a couple 'off strategy' deals).

Blue Bottle is never going to be the type of company that produces a 100x return. And it may eventually succumb to an incumbent like Starbucks choosing to enter the high-end niche market (either organically or via acquisition).

But Blue Bottle could easily produce a decent multiple in the end, particularly given how the company's wholesale business complements its retail stores. The kind of multiple that serves as a VC fund backstop, helping to establish a sturdy floor for future profits.

Yeah, I think it's dumb. But only because of the long waits. Not because tech investors are ill-equipped to do the occasional brick-and-mortar deal.

Sign up for Dan Primack's daily email newsletter on deals and deal-makers: GetTermSheet.com

Join the Conversation
About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

Email a Tip | @danprimack | RSS
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.