- Venture capital-backed coffee startups like Blank Street and Black Sheep are chasing scale – but is the model built to last?
- Some brands are selling equity fast, hoping hype will outpace cash burn – yet many lack a clear path to profitability
- Coffee startups secured $600 million in funding within the first seven months of 2018, but VC funding now is slowing down
THE venture‑capital playbook has, for a long time, looked like this: target millennials, engineer new consumption moments, and tell a story so compelling even EBITDA looks like an afterthought.
Among coffee startups, this has given rise to a romantic mythology of garage startups scaling overnight. Think of Blank Street’s sky‑high $500 million valuation – reportedly up by $400,000 since 2023 – or the rapid rise of Black Sheep Coffee in the UK, whose aggressive expansion has been earning headlines.
Coffee startups secured $600 million in funding within the first seven months of 2018 – over four times the total raised in 2017, according to CB Insights. By the end of 2018, that number was projected to exceed $1 billion. Much of this momentum could be traced back to Nestlé’s acquisition of Blue Bottle in 2017, which marked a turning point for investor interest in the sector.
The VC model has been a go-to, promising solution for coffee brands – specialty or other – to scale their operations and their profit margins, and investors have been there to oblige. Why have venture capitalists been so willing to take a bet on coffee brands, specifically, over the last few years?
“I see a few things that make coffee attractive for venture capital and private equity investors,” says Ritesh Dishi, Owner & CEO of Spring Valley Coffee. “For most investors, it isn’t about the beverage – it’s about the brand, its potential, and cashing in on a fast-growing, high-margin business. And for some, it’s bragging rights – it’s fun to be associated with a great brand that is growing rapidly and making waves in a trendy sector similar to micro breweries and independent distillers.”
“The cash-flow nature of the business is another attractive point: generating cash from day one while having payment terms with a number of suppliers. Recurring purchases also often translate into high cash flow potential.”
The model follows a familiar path. Start with youth‑driven branding. Create a “third space” that feels Instagram‑ready. Launch a new drink category – not just coffee, but a social signal. Then, funnel in VC cash to open stores, flood social feeds, and milk hype.
Some wager that investments have been flowing in because coffee is such an established product, and that demand for it will always remain.
“Coffee makes an attractive category for VC investment mainly because it isn’t just a trend – it’s a product that will arguably last forever,” says Carlos Eduardo Bitencourt, Founder and CEO of Cafezal.
“We have seen many new product trends like bubble tea, poke, smash burgers, matcha, and countless others in the F&B sector. But most of them are, in my view, passing trends that don’t belong to our traditions in Italy or Europe, for example. Coffee has been a daily essential product for over 100 years, and I’m sure it will remain that way for many decades to come – and I believe that specialty coffee is the entry door for the future of coffee.”
Recent developments, however, have been testing this theory. Coffee demand is reportedly slowing down or stagnating at best, and even big coffee faces a new reality when it comes to future growth and consumption.
Venture capital is slowing down too. In the first half of 2023, 85 food and beverage companies filed for bankruptcy in the US, prompting a wave of caution among venture capitalists. As a result, total investment in agrifood tech fell by 44% between 2021 and 2022. In Q1 2024, food tech startup funding fell by 50%, while AI startups captured 70% of venture capital investments.
Built on hype
It’s never been harder to make it in venture capital, and it still remains unclear whether VC-funded coffee brand models can endure, or if many are, in reality, hanging by a thread.
Valuations seem untethered from fundamentals; traditional banking would balk at such risk. Yet the VC path thrives on that very audacity. It’s less about making good coffee than about selling a dream and pricing it accordingly.
Revenue growth seems to become the headline, while profit margins become footnotes. Revenue projections can get inflated, expenses ignored, and capital burn neatly brushed under the carpet.
Brand stories then become substitutes for substance. Blank Street’s “from coffee cart to global success” story has become industry lore, and has people focus more on the company’s spectacular growth than the numbers and realities underpinning it. Cometeer attracted $100 million in VC funding not because of its value or long-term potential, but because it had a product – frozen coffee pods – with star qualities that held the promise of market disruption. That promise didn’t hold true for long though. Having a shot at icon status, even for a short while, is what matters most to venture capital investors.
“I think some of the coffee brands taking on venture capital aren’t yet profitable — and some don’t even have a path to profitability,” says Ritesh. “Some have a great story and lots of potential with barista champions at the helm, but limited access to capital, while others appear to be chasing growth at any expense – with the hope to be acquired by larger groups, given the amount of consolidation in the industry in the last few years.”
Often, smaller players try to emulate the VC script by selling sizable equity stakes, hoping bold valuations will follow. Yet without the infrastructure, disciplined execution, or clear path to profitability, they can often risk diluting their vision for short-term influx of capital, with long-term strings attached.
“I believe most young coffee companies don’t yet have a clear vision of what they want to become, which often leads to growing pains in the early years,” says Carlos.
“Many start from the passion of skilled baristas, but overlook some of the fundamental business requirements once they begin to scale. That might be why, in the early days of specialty coffee, VCs were hesitant to make major moves into the sector.”
Why not simply take a bank loan instead of forfeiting future upside? VC wants upside, the flashy growth story, over stability. Banks want cash flow, while VCs chase disruption. This mismatch often forces early-stage coffee brands into a risky choice of either preparing for the exit, or buckling under the speed.
Five minutes of fame or happily ever after?
Coffee brands don’t necessarily have to play by VC rules to scale. Many are doing the slow‑build: investing in roasting capacity, nurturing barista talent, and embedding deep relationships in origin communities.
Companies taking this approach often raise sufficient capital – sometimes bank debt or small equity – while growing methodically.
“Focusing on quality and being patient can go a long way,” says Carlos. “Once the business starts generating stronger results, it’s crucial to focus them on hiring a stronger admin, finance and operations team.”
“Cafezal is the largest independent specialty coffee chain in Italy, and we built our operations organically since 2017. Once the business was sound, in 2024, we raised €850,000 through equity crowdfunding, backed by 150 investors in order to scale further.”
Crowdfunding is reshaping investment in coffee. The strategy appears grounded in discipline, offering a clear valuation, incremental expansion, and mission alignment – arguably a lot more tethered than the VC model.
For many coffee companies, crowdfunding presents an appealing alternative to the constraints of traditional bank loans or venture capital. It allows access to funding without demanding hefty collateral, while also creating a unique opportunity to engage directly with consumers and cultivate long-term brand loyalty.
The VC-funded model offers one path, but it’s far from the only viable route – and often not the most stable. Venture-backed startups tend to raise aggressively, spend fast, and grow even faster. They focus on creating a compelling narrative, often romanticising the founder journey or presenting a brand myth that captures investor imagination.
Their aim is to scale quickly, dominate market share, and prepare for a lucrative exit, whether through acquisition or IPO. Profitability is secondary – sometimes even irrelevant – so long as the top line impresses.
By contrast, many boutique coffee businesses choose a slower, more pragmatic route. These operators build their companies through incremental investment, favouring bank loans or measured equity rounds over large-scale venture capital. They prioritise long-term viability, often with a focus on community, quality, and team stability. Their growth is less explosive, but more grounded in fundamentals like cash flow, margin control, and customer loyalty.
“In my opinion, the most realistic strategy to scale a coffee business sustainably today has to be a combination of a number of things,” says Ritesh.
“Focusing on quality and provenance by investing in long-term relationships to guarantee a consistent supply of high quality coffee is the most important strategy. Maintaining quality and remaining at the forefront of developments in the specialty coffee sector more widely, and specifically for us in the African specialty coffee space is another one. Driving recurring purchases through customer loyalty, and ensuring store/café and business level profitability can help achieve staying power, given the volatility of the markets. Finally, expanding the channels in which we operate – cafés, hospitality, resellers, ecommerce – is crucial.”
In a sector built on routine and ritual, it’s worth asking: do we need a unicorn, or just a business that lasts? It seems that chasing outstanding valuations is not a prerequisite to building a respected, profitable coffee business. The VC script, after all, remains just that – a script.
Coffee Intelligence
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