This CEO Joined a Cult?!

This is our most interesting Venture Spotlight segment yet.

In last week’s episode, we dove into a deal that didn’t quite meet our standards. It was so popular, we decided to do it again.

This time we explore a company that’s working in a huge market…

Has already raised more than $3 million…

And has quite an interesting CEO.

Does the deal match the hype? Or are investors entering a cult of their own?

Find out in this week’s highly engaging segment above.

TRANSCRIPT

Alex Moschina: Well, hello. Happy Friday, everyone. Welcome to this week’s edition of Venture Spotlight. I’m Alex Moschina. I’m the Associate Publisher of Manward Press. I’m here virtually with Mr. Andy Snyder, Manward’s Founder.

Andy, I will pass this over to you in just a second – I know everybody wants to see your face – but first I just wanted to say to everyone watching, we appreciate the notes that you’ve been sending in about Venture Spotlight so far. I am really glad to hear, especially that a) you all seem to like what we’re doing, but b) that you’re finding it helpful. That’s actually more important to us. That’s our goal.

We want to make private equity investing simple and help everyone who’s watching right now feel comfortable moving through the space. Please do keep emailing us your questions and your comments at mailbag@manwordpress.com.

Actually, today’s episode was inspired by one of the notes we got in response to last week’s episode. I don’t want to tease too much because there are some very unique qualities to the company that we’ll be discussing today.

Andy, I’ll just let you take it from there, okay?

Andy Snyder: Sure. Alex, we’ve got our first cult member… founder is a one-time accidental cult member. That’s interesting.

Alex: Drink every time you say that.

Andy: You’re right. That’s our dream for a founder.

No. We look at three things. Well, top to bottom, we look for the large total accessible market. We want a company that’s doing big things in an even bigger industry.

We want a unique, a novel product, something that has a large competitive mold, hard to replicate, totally new, lots of whiz-bang there.

We want a founding team, a management team, that’s done it before ideally or shows a lot of experience and just gumption to get the job done.

I mentioned the founder previously. She’s quite a character. We can say that because she’s a character in the business. She obviously, as the founder of it, plays a big role. But with this company, we’re talking about a lot of branding and marketing.

Alex: We should mention too that the “cult member” thing actually comes from her bio that she put out. This is not digging deep or doing a Dateline investigation into her life. This is front and center with the filings and things to bring on new investors. So “character” I think is the perfect way to describe her.

Andy: Let me share my screen here. We haven’t even mentioned it yet, but we’re talking about the company Rasa. It’s an alternative coffee company, if you will.

You can see here, they use adaptogens, not caffeine, for energy. It’s early-

Alex: I just want say, first and foremost, boo. But go on.

Andy: As an avid coffee drinker…

Alex: Mm-hmm (affirmative).

Andy: We’re talking about the founder. It’s Lopa van der Mersch. She’s got a long story.

You know me, I tell things the way I see them. I think she’s just an old soul hippie. She’s fairly young – doesn’t matter – but she’s traveled the world, big into yoga, big into herbalism, natural health, that sort of thing. Use that for what you will. It’s what you want to see from a founder for a company that’s doing alternatives to coffee, but you got to weigh that versus her experience taking companies public, running a company like this, of this size, that is going to get a cash infusion in the area of $3 million. What next? What does a former cult member – who accidentally joined a cult by the way –

Alex: A distinction I didn’t think we’d ever be making on the show, but here we are.

Andy: A month into it and we’re already talking about cults. Again, use that for what you will. The main thing here is if you read through the Wefunder page, you’ll see that whoever put this together – assuming it’s Lopa – talked about Lopa, the founder, as having experience in several startups and one successful exit.

That’s what I want to see. When I do my due diligence – and I did a lot on it here – when I do my due diligence, I want to see somebody that took the company public successfully… or an acquisition. I want to see those early investors got paid for their risk and their investment.

On their site, they talk about the successful exit. What was it? Well, Lopa worked for… I use that word pretty carefully, worked for… a biochar company that was acquired in, I think, April 2011.

I did some research on the foundation of that company, the people that started it, its background… From what I can tell, it was started by two guys that ended up taking it to an acquisition. Lopa was part of it. She looked like a pretty outspoken part, but I don’t know if she’s a founder and I don’t know what sort of day-to-day role in it.

Even more, when I did some digging, I found what seemed like some negative reviews from employees about that acquisition. I noticed, digging deeper, that the founder didn’t stick around and Lopa didn’t stick around. I didn’t see any signs of the employees stuck around in this acquisition.

I don’t know what sort of payout the early investors got. I would venture to say – and again, this is me speculating – that it was pretty slim. The operations that I saw, that I could find, weren’t great. You can’t find any… The URL for the company’s gone. The company that acquired it, I can’t even find records of them anymore. It doesn’t look like it was a great deal.

We can say she was part of a company, an early startup that was acquired and had an exit. But I don’t know if it was a successful exit, and certainly not the sort of exit that I’m looking for. That’s really important as we go down this Venture Spotlight corridor, as we talk more about equity crowdfunding and what we want to see, we’re going to see that word “exit” a lot.

We’re going to see a lot of people trying to boast that, “Yeah, I did this before. I made early investors a lot of money.”

Show me the money. That’s what I want to see.

As investors, as folks that are looking to get into these companies, we have to dig deeper than just the Wefunder page. When we go through a page like this… this is actually more the Form C stuff…but if we look at the overview here, $5 million in revenue. They talk about making $5 million in revenue, I think it was 2021, because the numbers I saw for 2020, the actual public numbers in their Form C, were smaller.

But they talk about 10 million cups sold. If you do the math, that comes out to about a dollar because they have $10 million of accumulative sales, so about a dollar a cup. We start getting into some iffy things there.

We got to stick to our list here. From the marketing sense… as I said, this is a largely a marketing company at this point because if we look at total addressable market, the coffee market, that’s $450 billion at Starbucks. Anybody from Starbucks to Folgers to the people that go to Chick-fil-A for coffee and McDonald’s… $449 billion of that could be from you, Alex. I know you’ve shopped for a lot of it.

Alex: That’s true. I’m definitely not boosting the alternative coffee market, which I think is an important distinction for us to make here, because yes, they do have a sliver of that marketplace that they can go after. And maybe I’m a cynic, but I have a hard time believing that an organic mushroom substitute is going to overtake Folgers in the near or long term.

They’re going after the kinds of people who I think are taking a step back from coffee, who are maybe health-conscious and want to drink less caffeine. There’s certainly a market of people who do that, but they’re not alone in the space.

The other thing is they’re fighting over what I feel like is a sliver of that bigger coffee market that you’re describing, and there are other people that… I’m being served up as that avid coffee drinker. I’m followed around online all the time by people suggesting, “Hey man, maybe you should be drinking this clay blend instead. It’ll be better for you. You won’t be all wired all the time.” They might be right, but the point I’m trying to make is that they’re not first movers. They don’t have a particularly unique product that no one else is offering.

Going back to your point about them being a marketing company, that’s about it. Marketing is what is going to sell this brand. That’s worked for brands before. There are definitely people who will argue, “Oh, Sam Adams is the best beer in the world.” “No, Budweiser is.” It doesn’t really matter. It’s a preferential thing. But man, whoever has the best marketing is going to win out. There’s a reason why Sam Adams owns the craft beer space whereas Budweiser is your, “I’m going out and I want a $2 beer night with my buddies.” They’re their own thing. They work on the market together.

Andy: That’s really… We covered the management team, total adjustable market, and now it comes into that, that niche product. Are they doing something big and unique? Really, their enemy is coffee. That’s who they’re going for. If they win, they think they replace the coffee market. Of course, we can say that’s unrealistic. And even if they get $20 billion of that market… hey, great. But again, like you said, there’s a lot of startups in that space. We just saw Black Rifle Coffee Company go public. To your point, that’s largely marketing. That’s a great point.

Let me share my screen here again. Let’s do this. Let me show you, so this is just some of their income statement and their balance sheet.

Alex: Andy, that’s coming from that Form C that you were referencing. We talked about that in a previous video. This is something that you will find or have a link to in each portal when you’re looking at various deals. This is the paperwork that they file when they do a fundraising round, correct?

Andy: Yep, exactly. We can go through here – just their income statement – and just see basically the line items where they’re spending things. I would say they’re probably underinsured. But as far as advertising and marketing, that’s the big one. It’s almost as much as the salaries, the payroll… and that’s any company in the space – it’s going be a lot of startups. But they just raised… so far… where are we at here? They raised about $3 million. That’s a lot more, and they say – don’t quote me in the actual number – but 70%-80% of the money that they’re generating through this fundraising deal is going to go to marketing.

That’s great. That’s going to be a big step forward. But if we look… I did the figures on the cash burn. Let me close this and stop sharing my screen and pull up those notes.

The monthly figures in that same form talk about sales of about $357,000 per month. Good. The cost of goods sold, though, is $150,000. There goes almost half of it. Then the operational expenses each month are $230,000. Right there, that’s a $30,000 net loss just on the basic things there. It’s got about, I think it was 30-some thousand in cash that it’s using each month as well. This fundraising is going to run out quickly. It’s important, but they got to get it right. They’re very clear about this, that they’re going to raise funds again in about 13 to 18 months. We see that there’s a lot of risk right now, and we’re getting a price-to-sales ratio of about 5 on this deal.

That’s a lot of risk, a lot of price that we’re paying. We’re not being compensated as investors for that risk.

My advice on this one, given those three main criteria we’re looking at, is be patient. Wait those 13 months. Keep your eye on the company. If you’re like, “Man, that’s the market I want to be in. That’s where I want to put a few hundred bucks, a few grand into that,” wait the 13 months. You might pay a little bit more, or you might pay less. But you’ll get a more mature company, and you’ll get to see what they did with this money. That could really help you decide how much you want to put in and what sort of returns you could expect.

I don’t worry so much about the founder’s background. It’s very unique, and she’s a character. But that’s what we want. We want somebody to drive things. We don’t want somebody that’s plain vanilla – especially for something like this where it’s so branding- and marketing-focused. We want somebody who’s not afraid to be afraid and push the envelope.

But that total adjustable market… We’ve got to see this company going up against the big boys. Ideally, we want to see them squaring up with Starbucks, and we want to see fast-food chains starting to offer this alternative to coffee. We haven’t seen that.

I’ll share my screen one more time here. I dug through where you can get their products. If we go over here to Colorado – that’s where Rasa is headquartered – 19 places throughout the Denver area, 18 places that you can get it.

But look at these… It’s botanical shops, it’s acupuncture, tea shops. It’s not Whole Foods. It’s not your big-name grocery stores. If we go to Nebraska or Kansas, we can see one there. While we’re out here, one in Kansas, and that is a health food store.

They’re getting the breadth throughout the country, but it’s acupuncture companies, it’s small boutiques. It’s the kind of companies that… a chiropractor… It’s the kind of things that, as an investor… you’re like, “Is that where the big money’s going to be?” Again, I want to see the Whole Foods. I want to be able to go to the airport and buy this stuff. Once we see that, then that’s when we want to start thinking, “This is a true going concern.”

We used that idea last month. Ideally, we can start seeing those stepping stones between now and those next 13 months. That’s what we want to watch. Keep your eye on Rasa. Go to their website, sign up for their e-letters and keep your eye on that next funding round. If you’re on their e-letters, you’re surely going to hear about it, but that’s where the opportunity’s going to come, hands down. I’m holding off on this one. Largely, the management team thing is an issue. I don’t see signs of a successful exit, even though they said they see it. But more so, I want to see a unique product that’s doing unique things, and that comes down to branding. They got $3 million that’s coming in. Let’s see what they do with that. If they can do something good with it, then it might check that box. But right now, it doesn’t check it.

Alex: There are a lot of echoes of what we discussed with Tulum in last week’s episode… which, if you haven’t seen that one, I would recommend you go check it out because we’re hitting on a lot of the same points. But there may be opportunity with both. It’s really up to the companies at this point to take what they get from these fundraising rounds. If they put those proceeds toward making some of the changes and addressing some of the concerns that you’ve raised in here, they might be more attractive down the line. But there does seem to be some work to do.

For now, I’m going to go ahead and just stick to my eight o’clock coffee. It is a great bargain coffee, very reliable.

This isn’t Alex’s coffee hour, though. I have a different YouTube channel for that. I don’t really… I think this is a great place for us to leave it.

I would just reiterate what I mentioned in the beginning. We love hearing from the folks who watch this. We love hearing from subscribers. Feel free to send us questions, send us comments regarding Venture Spotlight to mailbag@manwardpress.com.

We’re going to be doing this every week. I don’t know, Andy, I’m hopeful that one of these days, we’re going to stumble into a company that maybe you like. I think that would probably be very exciting for people, but we do have a lot of stuff cooking. You and I are talking all the time about who we would want to bring on as a special guest or the kinds of things that we want to bring to viewers’ attention in the weeks and months ahead.

All I’ll say is stay caffeinated and buckle up for what’s coming up. Thank you very much for watching. We’ll see you next time.