Imagine coffee served to you no longer by a human, but by a robot. CafeX is on a mission to build robotic coffee bars, revolutionizing the way we imagine coffee being served. Founded in 2015 by Henry Hu, they currently have 3 active single serve full bar locations, 2 in the San Francisco Airport, and 1 more in the museum of the future in Dubai, which plans to expand operations globally. Each fully automated café system can serve up to 600 orders per day. A human employee will be required for adding the coffee supplies to the machine, cleaning the machine and inspecting it for any deficiencies. Otherwise, it’s as close as it gets to a futuristic hands-free coffee bar. You know, the type you see in the movies. The machines center around a robotic arm to automatically move to service coffee, and even uses machine learning techniques to learn about users and operations. They were ranked 6th out of 29 competitors by Tracxn.
They have a website with much more information via https://cafexapp.com/
The equity crowdfunding campaign was available to non-accredited investors on republic, with the campaign closing on April 29, 2023, with 393 investors contributing $317,398 USD @ https://republic.com/cafe-x at a valuation of exactly $50m USD. I jumped at the opportunity and put a little bit of money in. These types of startups are not available too frequently, particularly in equity crowdfunding to the average joe non-accredited investor.
Founder
Henry initially thought of the idea while lining up for a long time at a Starbucks for coffee. This is a first world problem yes, but he actually did something about it rather than complain about the line and exorbitant prices. It’s always nice to see a founder solve a personally experienced problem, as it means they are more likely to be vested in seeing the solution through to the end. Finding a problem that someone else has come up with can always lead to the hired gun problem of jumping ship once “enough” money is earned.
His background is as a Hong Kong immigrant, former university attendee turned drop out in order to work on this idea. Interestingly, he mentions that he bad grades in high school, and had always had the idea of taking a non-traditional path in life. He went instead to perhaps a non-traditional entrepreneurship college, and received a Thiel Fellowship in 2016. The Thiel Fellowship has a 0.1% acceptance rate, meaning that only 1 out of every 1000 applicants receive the reward. For reference, Harvard College acceptance rate was only 3.4% out of all accepted applicants. This Fellowship was originally founded by Peter Thiel, in 2011, and is a 2-year program for young people with an entrepreneurship idea. They also have additional support from the vast network of founders, investors, scientists, VCs, etc. A $100,000 USD grant is provided during those 2 years. Evidently, it shows some reputable people see potential early on. For icing on the cake, was also named on the Forbes 30 under 30 list, and Business Insider under 30 tech rising star.
After viewing some of the publicly available videos, I conclude that he is an interesting founder. He seems something of a passionate eccentric genius that doesn’t exactly show in his grades, but rather in what he is interested in. This often happens with successful types, where they are very gifted in a narrow set of areas while lacking dramatically in others. Finding founders with strong strengths and unusual strengths is what propels a business to unusual successes, not a balanced well-rounded person who is effectively mediocre at everything. I also liked his authenticity and humility in openly admitting what he didn’t know along the way. I found from his interviews while in front of an audience, he did not try to cater to the audience, or modify his wording to appeal to the masses, or to try and promote CafeX or himself. He did not ramble and go into topics of nonsense that had nothing to do with the theme or question at hand, and only gave details that were relevant. Such succinct, to the point answers where a sentence represents a paragraph are founders who have clear thinking and are able to process complex topics down into simple phrases. This shows a clear mind and true understanding.
Previous investors
To 2023, CafeX had raised $17m USD. This includes a cohort of several of the most reputable private pre-IPO investors over time:
-All 4 members of the All-In Podcast (Jason Calacanis, Chamath Palihapitiya, David Sacks, David Friedberg
-Jason Calacanis, early investor in Thumbtack, Uber, Robinhood, Calm, and far more
-Craft ventures, started by David Sacks and Bill Lee, with investments previously in Airbnb, affirm, Addepar, Atrium, bird, Eventbrite, Lyft, Opendoor, Palantir, Openphone, Reddit and more
-Social Capital, Established in 2011 by Chamath Palihapitiya with investments in Slack, Box, Relativity Space, etc
-Launch ventures, with exits in FansUnite, BTL, Immersive Tech
-Khosla ventures, with early investments in Doordash, Opendoor, Faire, Gitlab, Neon, stripe, affirm, OpenAI, impossible, QuantumScape, etc
-Felicis Ventures, with portfolio companies Adyen, Canva, Credit Karma, Flexport, Guardant Health, Gingko Bioworks, Notion, Plaid, etc
Just because a lot of reputable investors and venture capital firms are in on a company, it doesn’t mean it is a sure bet. See FTX and Theranos as examples. But, it’s probably better than having no reputable investors; in that scenario, either you’ve struck gold before anyone else realized, or you’ve struck garbage that all the brilliant people have passed on. Personally, I don’t consider myself in that genius realm so I’d rather see some of the big guys invested too.
Future growth
CafeX had $1.8m revenue in 2022, as compared to $271k in 2021. That’s a growth rate of 564% year over year. I don’t expect that to continue, and in fact would be astounded if it did. 100% growth to 3.6m in 2023, as a starter, would be promising. Of course, at the time of investing, a $50m valuation for $1.8m sales and significant losses is not exactly cheap or prudent investing. Given the number of established investors in early, this kind of premium would be expected, particularly for Silicon Valley based startups.
CafeX currently charges 15k for annual fee for software, tech support, warranty, and $285k for the full coffee bar. They have shipped 15, consisting of 5 in 2022 and 10 scheduled in 2023; given they were paid significant non-refundable deposits for those, I would expect most if not all of them to be delivered and fully paid for. The fact that they were able to charge higher prices is also a plus sign; it suggests some ability to have pricing power.
CafeX is targeting B2B customers with not only the robotic arm but also the full-service robotic bar; due to its convenience, it can be placed anywhere designated by the business buying, and can thus be put in the highest traffic areas. With these new customers signed on, like Tesla, CafeX has not spent any money towards marketing, and does not even have a sales team. It has all been through social media, organic growth, and word of mouth. That tells me that the product has a natural moat from product superiority. Moreover, with Fortune 100 companies buying in, this could lead to increased awareness of the brand with higher foot traffic.
If successful, CafeX will ultimately lead to the creative destruction of a lot of baristas and other coffee-based jobs, but these are boring meaningless jobs and will free people up to do something more meaningful. I see this as a net positive towards society; baristas in particular will no longer have to suffer being treated poorly, people can now have practise doing so yelling at robotic arms.
Market
The intelligent vending machine market was at $11 billion of USD in 2017, and is projected to reach $30 billion in 2024. Specialty coffee is also growing at a 11.28% CAGR rate, so those are figures that offer a nice tailwind. Not to mention, there could be untold amounts of cafes closed in favor of the full robotic bars, so that may present a significantly larger market in the future should CafeX reach that kind of traction. In the event this cannibalization takes place, and CafeX is the primary choice, then this would become the type of investment that makes a small fortune for even a minute amount put in.
Disclaimer
This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.
Disclosure
I/we have a beneficial long position in the shares of CafeX either through SAFEs, stock ownership, options, or other derivatives. I wrote this article independently, and it reflects my personal viewpoints. I am not being compensated for it. from CafeX. I have no business relationship with any company that is mentioned in this article.