Why We Invested

In April 2023, Fernbrook invested in BrewBird’s Series A financing round, which was led by Sequoia. Maveron and Modern Venture Partners (MVP) also participated in the round. We were introduced to the BrewBird management team by MVP and invited into the round because of our consumer industry expertise.

 

What BrewBird Does

Based in San Mateo, CA, BrewBird has a strong first-mover advantage in the global coffee industry’s 4th wave of innovation. The BrewBird technology platform provides custom, barista-quality brewed coffee based on each roasters’ recipes (using discrete QR codes on each pod). BrewBird’s system is a huge leap forward in overall sustainability as compared to the incumbent players in the one-touch, single-serve coffee industry.

The platform, premised on the “razor-blades” model, includes:

• A high margin, one-touch, single-serve drip coffee brewer;
• The world’s first fully-recyclable, zero-plastic, backyard-compostable pods made of sugar cane fiber;
• The pods contain whole roasted coffee beans, instead of ground coffee;
• Its own proprietary, state-of-the-art pod manufacturing facility;
• A whole coffee bean pod marketplace comprised of specialty/artisanal coffee roaster brands carefully curated by the BrewBird team; and
• A data platform driven by pod-specific QR codes and machine usage that will provide valuable insights to growers, roasters, cafe owners, BrewBird customers, and other global coffee industry participants.

BrewBird’s next-generation single-serve coffee brewing platform is centered around:

• Quality – BrewBird provides the best coffee and roasts, curated from the best local roasters. All of its coffee is farmed fairly, packaged sustainably, and brewed precisely.
• User Experience – Brewbird believes that the best technology is invisible. BrewBird’s intuitive design and user-friendly interfaces take all of the guesswork out of the brewing. Everyone can be a champion barista with a BrewBird.
• Sustainability – BrewBird believes in conscious consumption. Its fully compostable and on-demand solution eliminates both coffee waste and wasted coffee.

 

Why We Invested

The investment thesis for our BrewBird investment was premised on the following:

 

Large, Global, Growing Addressable Market

In 2023, global coffee industry revenue is estimated to be US$495.5 billion.

• It is expected to grow at a 4.5% CAGR from 2023 to 2025.

In 2023, the United States is estimated to account for approximately 19% or $95.6 billion of the global market.

• Americans drink just over 3 cups of coffee per day on average
• 49% of people drink 3 to 5 cups of coffee a day
• 68% of Americans make coffee at home every day
• 56% of Americans at least somewhat agree that drinking coffee benefits their health

Since the first single-serve, one-button coffee machines were introduced 35 years ago, the coffee industry has not made substantial innovations on those systems.

Based on its early signals of product-market fit, we expect BrewBird can take significant market share in the one-touch, single-serve coffee market.

 

Attractive Business Model

BrewBird is focused on disrupting both the in-office and at-home coffee market. This dual B2B and B2C structure is premised upon the attractive “razor & blade” business model. BrewBird will lease or sell the brewer, and then operate a subscription marketplace for the premium roasted coffee pods. The company projects that over 70% of its revenue will be recurring in nature once it is closer to scaled up distribution.

BrewBird’s growth will be driven by two high-margin products:

• One-time hardware sale (or lease) of the BrewBird brewing machine; and
• Recurring revenue from coffee pod sales on the BrewBird marketplace.

Through its strong IP portfolio, BrewBird has ensured that its backyard-compostable pods can only be used with a BrewBird brewer. Each pod has a unique QR code imprinted on it which ensures that only BrewBird pods can be used in its system. The QR codes also contain roaster-specific recipes for how the machine should grind the coffee, how long to brew it, and at what temperature.

Additionally, the QR codes allow BrewBird to collect valuable data on usage, consumption, and demand forecasting that can be mined and repackaged for sale to growers, roasters, cafe owners, and other players in the global coffee industry.

BrewBird has also built a state-of-the-art pod manufacturing plant that will be scalable as it increases distribution up and down the West Coast of the U.S. It will build additional plants as it expands its regional B2B distribution of its brewing system. These facilities based on the Amazon fulfillment center model will be low CapEx facilities with short payback periods.

After seeding consumer demand (each office user is a potential at-home BrewBird purchaser) through its B2B distribution, BrewBird expects to launch distribution of its at-home system by 2026.

 

Scalable with Early Signals of Product Market Fit

At the end of 2023, management expects to have 72 revenue-generating units installed across the Bay Area, supported by the Q2’23 Meta phase 1 deal for 40 new units (approximately $1 million revenue opportunity).

As an additional signal of product-market fit, Meta and BrewBird noted that they saw a 250% greater consumption rate of BrewBird coffee than Meta originally projected. Meta’s head of global facilities management remarked that they got better feedback on the BrewBird machine than any other employee perk that Meta has launched in the past.

The management team foresees using its enterprise distribution to seed consumer demand, since all of those corporate employees are consumers as well. BrewBird’s product-market fit is evidenced by over 65% of surveyed office users of its platform asked on an unsolicited basis when the at-home BrewBird product would be available.

With the success of its early direct sales efforts, BrewBird has attracted a high degree of interest from OCS, that will super-charge BrewBird’s distribution pace. The plan is to focus on the West Coast initially and then expand eastward.

 

Top Tier Investors

Sequoia led the company’s last round and owns a significant portion of its equity and has a board seat. Maveron joined in the round. Founded in 1998, Maveron was initially an investment vehicle founded by Howard Schultz (Starbucks founder) and Dan Levitan. Over the ensuing decades, Maveron became a successful early-stage consumer investor. Notably, BrewBird is its only investment in the coffee sector, because the founding team did not want to be seen as competing with Starbucks through Maveron’s investment portfolio.

 

Multidisciplinary Management Team

Along with a top tier group of investors, BrewBird is led by CEO, Mickey Du, and a multidisciplinary team including engineering, coffee industry, and channel expertise.

BrewBird was founded by Erik Plfeiderer in 2012. Erik has a Master’s degree in Mechanical Engineering from Stanford University and led the Company through its research & development efforts. Mickey Du, a personal investor in and advisor to BrewBird, joined the Company as CEO in April 2021 to develop and execute the go-to-market strategy and scale the business.

Mickey’s background includes:

• Previously an investor at Atypical Ventures and Product Manager at NerdWallet. Prior experiences at a16z, Sinovation Ventures, Diageo, and Morgan Stanley
• Bachelor’s degree in Economics and Psychology from New York University
• MBA from Stanford Graduate School of Business

 

Compelling Environmental Advantage

BrewBird’s pods are 100% backyard decomposable and landfill biodegradable. This is achieved through the company’s proprietary cane sugar fiber-based material. The lid, grounds, and pod structure fully decompose in 60-90 days. For perspective, K-cups are estimated to take up to 500 years to decompose. Commentators estimate that over 44 billion pods end up in landfills every year.

Consumers are increasingly aware of their environmental footprint – BrewBird is well-positioned as sustainability continues to drive more and more consumer decision-making.

 

Fernbrook Value Add

Fernbrook’s consumer and retail operating expertise will be applied to helping the BrewBird management team position its B2C offering for success and scalability. We have the necessary retail and wholesale distribution relationships and experience in marketing, branding, and product development.

To accelerate BrewBird’s eventual International distribution, Fernbrook structured a significant co-investment in the Series A round from our LP, Woori Venture Partners (Korea).

• Woori is an affiliate of the 4th largest Korean commercial bank and its predecessor firm, KTB Network, was one of Korea’s original venture capital firms.
• Woori is an important strategic partner for BrewBird in connection with its eventual international growth. Woori will be a local strategic partner that will assist BrewBird in accessing the Korean coffee market, which is the world’s densest on a per capita basis.
• Korea will likely be one of the first international markets that BrewBird will enter and Korea will likely serve as the launchpad for access to the broader Asian market region.

 

Conclusion

Fernbrook strives to invest in fast-growing and innovative B2B and B2C businesses with large addressable markets, alignment with powerful underlying trends, large market cap potential, and business models with inherent network effects. Fernbrook is a proud partner of the BrewBird team, and we believe that BrewBird is a perfect fit for our investment strategy.