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Blue Bottle's Chief Discusses His $20 Million Plan

Blue Bottle's Chief Discusses His $20 Million Plan

James Freeman says QC hires, water improvements and more stores all coming in wake of investor partnership
By Dan Leif

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On Oct. 15, blog Tech Crunch broke the news that Blue Bottle, the boundary-pushing roaster-retailer with 11 locations sprinkled around San Francisco and New York City, had acquired nearly $20 million in a venture capital deal. That dollar deluge grabbed the attention of many in specialty coffee and drew comparisons to the investment partnership Stumptown Coffee entered in June of 2011. Fresh Cup caught up with Blue Bottle founder James Freeman to find out more about how the deal came together, how he intends to spend the cash and why investor money is flooding to specialty coffee right now.

Q: When did you first start discussions with Bryan Meehan and the other investors you eventually partnered with?
A: We actually have had an investor since 2008—a company called Kohlberg Ventures. That was really successful. That helped us open the Ferry Building location, the roaster in Oakland and the roastery in Brooklyn. But then the emails always start coming, people saying, “Hey I’d like to help you grow your company.” Every once in a while I meet with somebody if they’re nice enough or persistent enough. I met with Bryan Meehan, maybe over the last eight or 10 months, just sort of getting together and chatting. He was a customer who came to the Ferry Building a lot. He liked his coffee and liked the vibe. Bryan and I got to talking and it was like, “Well what’s the next thing? What sounds like fun and what sounds horrible?” Over the months of talking we realized we were on the same page about a lot of that.

Q: Are you still working with Kohlberg, that original investor?
A: No, some of that $20 million went to them. We came up with a good exit for them.

Q: Do you have any definite plans on how to grow the company with the new resources?
A: Well, the whole point is to get better. Our first hire was bringing on a CFO so now I don’t have to be that person because that’s not something I’m particularly good at. The second hire is going to be someone in the quality control department to roast more samples so Stephen [Vick] doesn’t have to roast all of them. We’re also doing a lot in New York to upgrade water filtration. Water is such an important thing. And I just got back from Brazil where I met a couple of farmers. One, Henrique Sloper from Fazenda Camocim, we’ve been crazy about since lucking into a few hundred pounds in 2008, and then he stopped working with brokers. We’re going to be able to get maybe a container of different lots from him, some for our blends and some to sell as single origins. So hopefully a lot of this investment will be things people can’t see but they can taste.

Q: But do you hope to also open more locations in the next few years?
A: Totally. We haven’t picked any spots, but that’s totally in the plans. We want to open more shops, though not tons of them. I want them to be beautiful and near our roasters and interesting places to go. It’s kind of fun to look at a map of the world and go, “Hmm, where next?”

Q: Do you think it’s fair to compare your deal to the one Stumptown made with TSG Consumer Partners?
A: It’s a little bit different. That was a fund, and I’m primarily dealing with a guy, Bryan, and a few other guys who are part of funds. I’m not saying funds are bad. I’m just saying funds are funds, and in our deal the funds are more in the background. But the cool thing about the Stumptown thing is the world didn’t end. I’ve had a couple different coffees from Stumptown in the last month or so; they were great, and their company is going to still be great.

Q: After the Stumptown deal, there was lots of grumbling about the company selling out. In your case, the reaction has been milder. Why do you think that is?
A: Maybe it’s because we’re in San Francisco and there’s more of a culture of those kinds of investments happening. People understand what an investment is. It’s not like your favorite punk rock group just singed a deal with a major label. But like I said, with Stumptown the coffee still tasted great and people’s favorite baristas are still at the coffee bars. I think people figured it out that everything was going to be just fine.

Q: Why is there suddenly lots of money from outside specialty coffee coming into the business?
A: People in the venture capital world aren’t dummies. They’re seeing a lot of popular shops opening up. Starbucks put specialty coffee on people’s radar, but now people want a different experience and there are those of us giving people a different experience. It’s odd. Basically, a lot of us in specialty coffee were in specialty coffee because we kind of couldn’t do anything else. I was a washed-up clarinet player  and I loved coffee. A lot of people in coffee have that story. They thought it was cool and interesting, and then look what happened.

Q: What’s your advice for other independent roasters who want to team with investors?
A: The best thing is to do good work and don’t try to be a target. Hopefully your work speaks for itself and that gets attention rather than trying to network or hand out business cards or issue a prospectus or whatever. The best way to do it is not to try, and I think that’s true of a lot of things.

 —Dan Leif

 
 

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