Invest in a Fast Growing Return to Cafe Style Coffee Shops

Plus, Initialized Capital on the Podcast and Dave Dobrik (DispoHQ) fall-out.

Heyyyo,

Many of you are undoubtedly following the shitshow that is Dispo, and its now disgraced co-founder David Dobrik (a highly popular YouTuber and Vlog Squad creator). I’ll spare you the nitty gritty, appalling details… And, since then Taylor Lorenz and NYT have covered the massive fallout — lead investor of the recent Dispo A round, Spark Capital, decided to essentially liquidate its investment rights, revoke Board privileges and completely distance itself from the trendy photo sharing app.

If true, David and his collaborators are a bunch of horrible creatures that deserve a lot more than financial loss. And, kudos to Spark for taking immediate action.

Similarly, another prominent investor Alexis Ohanian (Reddit founder) and his firm Seven Seven Six decided to donate any proceeds from their Dispo investment to a charity supporting female victims of sexual abuse — but will continue supporting the Dispo team, sans Dobrik.

Before forming your own conclusions, please read Insider’s story and Taylor’s follow up… I’m not here to report news, but I do want to call attention to how important it is to do the minimalist amount of diligence before anointing the next king — even 30 seconds of scrolling would have shown you what millions already knew; Vlog Squad (and David) creates some dubious and often offensive content, for profit.

Not a good look for a venture backed CEO.

It’s exceedingly easy to rise up the Twitter-sphere, especially if the gatekeepers stand to make a fortune (cough* Clubhouse). And, while I don’t advocate social audits for everyone with a blue check — give me a fucking break.

People are exactly who they say they are. All you have to do is listen!

Shout-out to Founder Institute: the world's largest pre-seed accelerator, is proud to offer the best applicants from the Technori community with the Technori Fellowship to participate in our Chicago Virtual 2021 program for free ($799 USD value). 👉 sign-up now by going to https://fi.co/join/Technori.

For my newbs; every week I breakdown a startup pitch with the added hook that you don’t have to be a rich guy to invest (if you don't know what that means, click here).

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On the pod: Speaking of Alexis Ohanian, he and Garry Tan co-founded Initialized Capital (Alexis has since left to start the above mentioned Seven Seven Six Capital). This week I spoke with Initialized General Partner Alda Leu Dennis about (among many other things) the long overdue rise of women in venture capital and the future of founder-investor connectivity through remote tools like Twitter and Zoom.

Here’s my podcast with Alda Leu Dennis 👉 https://spoti.fi/3rlj7Fm

Follow me on Twitter @kitun.

Scott

#pitchreview time!


Company Bio

Citizens’ mission is to bring wellness to communities around the globe, with a product offering inspired by the growing healthy and lifestyle market — making healthy food & coffee crave-able and cool.

The ethos is to take well sourced ingredients and put an inventive twist on dishes creating something new, exciting and visually beautiful which plays into the growing social media following.

This is like replacing the Starbucks, rat-race aesthetic with the first floor of your city’s SoHo House… and, weirdly, I like it. Not my typical investor space but I think restaurant/cafe experiences are going to see some major innovation post-COVID (thank goodness). By making plates social-friendly, offerings healthy-ish, and focusing on modern dining/to-go habits; Citizens does exactly what SoHo did (w/o the bullshit membership fee) … silence the phones, turn up the convo volume, with a splash of house music and ENJOY YOURSELF!


Meet the Founder

Watch my full interview with Citizens’ CEO Justin Giuffrida, here.

The Citizens founders, Justin Giuffrida & Andrew Geisel, are skilled operators with deep domain experience in the coffee industry, having led some of Australia's premier brands. The pair have been featured in top publications such as Forbes as up and coming entrepreneurs in the wellness & lifestyle hospitality category.

Justin is the Co-Founder & CEO of Citizens. He has a decade of experience building top-tier brands within the specialty coffee, food and wellness industry. 

Andrew Geisel is the Co-Founder and COO. Having spent years working with one of Australia's premier coffee companies, he expanded his professional skillset through his tertiary and professional experience in architecture, build and commercial real estate. 

The business at its root is a brand and food/coffee supply chain equation. The fact that Justin is very brand savvy and Andrew knows his way around beans is about as important as it gets. I’d like to see more operational experience in either franchise building or food/restaurant management 🤷‍♂️ and obviously there’s a lot of risk in any business that is inventory/real estate heavy — but, it’s not rocket science. I once heard an investor [probably retweeted by @vcbrags] say, “the best founders know what drug they sell and they find a way to source it better.”

That applies here. Drug? Coffee. Can anyone honestly say they’re not into a Aussie Cafe style experience??? Just ask Ryan Bonnici or Domm Holland.


Traction

  • Featured in Forbes, The New York Times, and Vogue

  • Lifetime revenue of $10M, ~ YoY growth $3M expected

  • Average revenue YoY increase 87%, ~average EBITDA YoY increase 84%

  • Closing $5M in Series A funding to 10x store count into a national brand

  • Launched 4 profitable locations & corporate HQ in under 4 years

  • Best in class profit margins exceeding public listed coffee & food brands

  • Resilient during COVID, increasing profitability up to 6% YoY

Listen, for me all the press is meh… I know people that write too. It’s the customer reviews, repeat foot-traffic and ability to grow profitability during a global pandemic — actions speak louder than words! New York is also a notoriously difficult place to launch an eatery/cafe without getting crushed by judge-y patrons with Woody Allen glasses (okkkk now I’m the judge-y one). Citizens is clearly growing quickly, winning over customers and proving profitable.


Market Opportunity

Subway & Starbucks are the largest QSRs (Quick Serve Restaurant) in the world, with 42,000 & 30,626 store units respectively — with more than twice that number of small franchise and ma & pa shops to contend with. To say there’s competition is a massive understatement. Additionally, there’s nothing particularly proprietary from the layout to the coffee bean. That said, you could argue the same for just about any other restaurant in the world (not created by Nick Kokonas).

Despite the resistance, the rise of specialty coffee is still an incredibly fast growing category as U.S. consumers begin the shift away from Starbucks to a more premium product. According to National Coffee Association (NCA), specialty coffee has increased to 60% market share, up from only 9% in 1991. Which suggests there’s either a shit-ton of green field or the trend has nearly saturated (depending on how you read).

That is what makes Citizens unique. It’s not just a coffee shop, they are selling an experience with better food, beverage and ambiance — suggesting the market size is potentially even bigger than advertised.

Regardless, the uphill battle is real but the combo is certainly on-trend.


Terms & Takeaway

Invest in Citizens Coffee here 👉 https://bit.ly/3cYGoYC

Security Type: Crowd Safe
Valuation Cap: $20,000,000
Discount: 20%
Investment Goal: $1,070,000
Raised (as of publishing): $937,181
Minimum Investment: $100

Here's what I like: Have you even been to Cafe Du Monde? Or any cafe-style shop?? If you didn’t enjoy it more than Starbucks you’re dead inside. I’ll be the first to admit the whole barista playing Picasso in my whippy dippy is a waste of my time… But, I do like a more personalized, community-driven local spot — which Citizens does as well as anybody! And, I absolutely love the Euro-style neighborhood naming of each location, Citizens of Chelsea, for example.

Integrating local food/beverage favorites on the menu is a nice touch, too.

Overall, the price (including 20% discount) at $16m is steep but not totally unreasonable.

Here's what I don't love: It’s a coffee shop. When you strip away all the fixings (which is obviously part of the success) they don’t own their beans, nor have special access. Great branding, social buzz and a nostalgic feeling of simpler times will get you only so far!

For me, I’d like to see a little more moat than this. But, there’s still plenty of time to figure all that out — so let’s not throw the challenge flag just yet. The product, experience and concept feels very fresh and I see no reason it cannot become a huge success; just hard to predict winners and losers in this space and that sucks.

Who should invest and why: Here’s the fun part, if you live in NYC or wherever they launch next (Chicago is on the expansion list), why not invest and be a part of the story? In a lot of ways that’s what makes this campaign so smart — what better way to build community than literally give the customers ownership? As far as exits go… I’ve seen Matt Matros build and sell Protein Bar and Limitless coffee and make a fortune for investors — so, it can be done.

Restaurant groups like Darden are constantly hunting for new trendy spots to scoop up and there’s always the IPO route. The real question is how long will that take and how does it happen? Is it a PE firm that sees the growth early and jumps in? If so, likely ROI is lesser then say if they take it public or build up 1,000+ franchises and sell.

What I do know is there’s a lot of change coming in the food/beverage space and my guess is M&A activity will be prolific.

As always, startup investing is super high-risk, anything can happen. So, don't invest money you can’t afford to spend on a bag of beans ☕️ 💸

Invest in Citizens here 👉 https://bit.ly/3cYGoYC

Questions? DM me on Twitter @kitun


Disclaimer: It goes without saying, but this information should not be constituted as financial advice, my investing opinions are my own and all diligence is the responsibility of each individual investor. Privacy Policy.