In episode 46 of "Acquired," hosts Ben Gilbert and David Rosenthal discuss Nestle's acquisition of Blue Bottle Coffee, a move that perplexed many in Silicon Valley due to Blue Bottle's non-tech nature. Despite its artisanal, third-wave coffee approach, Blue Bottle attracted substantial VC interest, raising funds from the likes of Lowercase Capital and Index Ventures. The acquisition, valued at $425 million for a 68% stake, reflects Nestle's strategic entry into the high-end coffee market and potentially revitalizes its Nespresso brand in the U.S. Despite Blue Bottle's commitment to quality and customer experience, the deal raises questions about the scalability of boutique businesses and the future of coffee retail. Additionally, the episode features a promotion for Pilot, an accounting firm for startups, emphasizing the importance of focusing on core business strengths and outsourcing non-essential tasks.
"Welcome back to episode 46 of acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert." "I'm David Rosenthal, and we are your hosts."
The quotes introduce the podcast and its hosts, setting the stage for the episode's discussion on Nestle's acquisition of Blue Bottle Coffee.
"Today we are covering an acquisition that the tech audience cares a lot about, even though it's not really a tech company. Nestle's acquisition of Blue Bottle." "Shockwaves have gone through Silicon Valley."
These quotes highlight the unexpected interest from the tech community in a non-tech company acquisition, suggesting the cultural and social significance of Blue Bottle in that community.
"Third wave coffee, which really is kind of the reaction to Starbucks, Starbucks being second wave." "Fourth wave of coffee."
The quotes discuss the evolution of coffee culture, with third wave coffee emphasizing quality and artisanal values as a response to the mass-market approach of Starbucks.
"Pilot is the one team for all of your company's accounting, tax, and bookkeeping needs." "Startups should focus on what makes their beer taste better."
The quotes explain the services offered by Pilot and the philosophy of outsourcing non-core functions to focus on product and customer value.
"We talked quite a bit in the Starbucks episode with Dan Levitan about waves of coffee and the parallels between the coffee world and the tech world." "It is very austere. There is very little in the locations except for the coffee."
These quotes draw connections between the evolution of coffee culture and the tech industry, and describe Blue Bottle's minimalist and quality-focused approach to coffee.
"He was a freelance clarinetist, a classical musician who played the clarinet, and he did that until his mid-thirties." "He's actually more influenced by the sort of Japanese style of coffee."
The quotes provide background on Blue Bottle's founder and the cultural influences that shaped the company's approach to coffee.
"They raise a venture round, and they raise $5 million from a firm called Kolberg Ventures and Chris Sacca and lowercase capital." "Coffee is a legal, addictive, unregulated, psychoactive drug with cheap ingredients, premium pricing and a huge worldwide growth market."
The quotes detail the venture capital interest in Blue Bottle and provide insight into why investors saw potential in the coffee company despite it not being a typical tech startup.
"blue bottle was joined at the hip very early and they got a lot of sort of because they were both, at least very early on, incredibly product focused companies with sort of super tasteful, visionary founders."
This quote emphasizes the close relationship between Twitter and Blue Bottle Coffee, highlighting their shared focus on product quality and visionary leadership, which helped them attract a specific, high-value customer and investor base.
"the first sort of canonical blue bottle store, larger than the kiosk that was in Hayes, was in Mint Plaza. And Mint Plaza is like two blocks away from the Twitter building."
This quote explains how Blue Bottle's location near Twitter's headquarters provided easy access for Twitter employees, thereby fostering a customer base through physical proximity.
"in surprise announcement in the middle of September and September 14, 2017, it is reported that Nestle comes in and the large conglomerate and buys out a majority stake in the company for reported $425,000,000."
The quote details the significant financial event where Nestle acquired a majority stake in Blue Bottle, leading to discussions on the implications of such a buyout for the company's future.
"I don't know anybody at Blue know personally, but Freeman and Brian Meehan, who's the CEO, he came in and took over as CEO a number of years ago. But Freeman's still very, very involved. They both were very vocal about saying they never wanted to go public."
The quote highlights the founders' stance against going public, which contrasts with the expectations of investors, especially those looking for liquidity events like Fidelity.
"I don't think they have anything quite like blue bottle, which is like a physical retail experience. So this is something kind of new and different for them."
This quote suggests that Blue Bottle offers a unique business line for Nestle, one that focuses on a high-quality retail experience, which poses both opportunities and challenges for growth and integration.
"they bought brand here. They bought coolness."
The quote captures the essence of Nestle's acquisition of Blue Bottle, emphasizing the value of the brand's image and reputation in the market, which Nestle aims to capitalize on while navigating the complexities of growth and brand integrity.
"Nestle had to do something in coffee because they have dominance in Europe with Nespressos... they tried to penetrate in the US and completely lost to Keurig and Tacimo, and they have less than 5% penetration in the US on those single serves."
This quote highlights Nestle's need to innovate in the US coffee market due to its poor performance against competitors like Keurig and Tassimo.
"Across Nestle's businesses, their margins are about 15%, and in their beverages, it's about 25%."
This quote emphasizes the importance of the beverage sector for Nestle's profitability, suggesting a strategic focus on this area could be beneficial.
"If it is a separate business line, like, this is a totally new thing that may or may not work, which is a leveraging of the brand into something that the brand may not be able to be leveraged into."
This quote discusses the strategic considerations Nestle must weigh when deciding how to leverage the Blue Bottle brand for single-serve coffee products.
"The typical life of a venture capital fund partnership, limited partnership, is ten years... from the time the fund was raised until whatever that date is again, typically ten years, you're supposed to wind up the whole fund and give all the money back to investors at that point."
This quote explains the expected duration and end-of-life process for VC funds, highlighting the pressure to provide returns within a set timeframe.
"What would happen then is those shares would get distributed out to the investors in the VC fund, the limited partners, and that would be really bad for the company too."
This quote outlines the negative consequences for a company when a VC fund's shares are distributed to individual investors due to a lack of liquidity options.
"You saw this with SurveyMonkey... several times the various private equity firms came in and bought out the existing investors in SurveyMonkey."
This quote illustrates how private equity can serve as a solution for VC investors seeking exits from their positions in private companies.
"Some VCs do. So like Sutter Hill is an evergreen fund."
This quote introduces the concept of evergreen funds in the VC industry and mentions an example of a firm that operates such a fund.
"The return of brick and mortar in a different way than it was used before is really interesting to me."
This quote reflects on the changing landscape of retail, where online brands are establishing physical presences to enhance customer experience and brand visibility.
"You can have a much better, purer experience of that thing in that store."
This quote suggests that focused, high-quality customer experiences in boutique stores can be a winning strategy in the retail sector.
"Coffee stores are not actually winner take all, despite the fact that Starbucks, it's not just the Internet that allows you to quickly saturate a global market."
This quote highlights the differences between internet and physical businesses in terms of market dominance and growth potential.
"It's kind of like if you go back to a traditional version of marketplace. Like before, it was this category of vc investable businesses. It was large square footage areas where multiple merchants were in a single place."
The quote discusses the nature of traditional marketplaces and their contrast with the desire of premium brands to maintain a distinct, separate presence.
"Starbucks is killing it. They're doing great. But are they the answer for everyone?"
This quote questions whether a single coffee brand, even a successful one like Starbucks, can meet the diverse preferences of all coffee drinkers.
"Could blue bottle move down market at some point and open Starbucks competitors? And there's blue bottle classics, and then there's like, blue bottle something new."
This quote speculates on Blue Bottle's potential strategy to expand its market by introducing a lower-priced product line.
"I just don't think you can do a winner take all business and create a product for everyone when you have to think about cramming in the physical experience of it, too."
This quote reflects skepticism about the feasibility of applying winner-take-all business models to sectors that involve physical experiences.
"I think I give it a b right now because this certainly was a good outcome for everyone. But I just wonder if it was the right path and what would have happened if maybe Blue Bottle had made some different decisions along the way."
This quote presents an evaluation of the acquisition, acknowledging its success but questioning if alternative strategies could have led to a better fit or outcome.
"It was super interesting. Like this thing that's gotten quoted and quoted and quoted and referenced over and over again."
This quote introduces the topic of Tulip Mania and its significance in the context of historical and modern economic bubbles.
"I'm always like, all my whole life I've been a bleeding edge adopter, but the form factor I just kind of realized again, maybe I'll probably change in a couple of years. But I was like, it's just nice to be back to being able to have my phone in my pocket."
This quote reflects a personal decision to prioritize the convenience of a smaller phone over the latest technology, despite a history of adopting new tech early on.
"Because Crusoe's cloud is purpose built for AI and run on wasted, stranded, or clean energy, they can provide significantly better performance per dollar than traditional cloud providers."
This quote explains the unique value proposition of Crusoe in the cloud computing market, emphasizing its focus on AI and energy efficiency.