3. Case Study: impctcoffee
3.2. Real-world Investor Due Dilligence Questions/Answers
3.2.4. Company History and Impact Questions
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3.2.4. Company History and Impact Questions
3.2.4.1. Question 1
Investor: Sophisticated angel investor Q: Why are you not a non-profit?
A: Wholesale/office coffee represents a massive market and high impact coffee done right is the single best opportunity to capture it. Specialty consumers are particularly sensitive to origin issues and corporations have a strong incentive to create impact through their workplace services and these trends only grow by the day. Our impact trade model is a way to scalably address that market while creating deep impact for the kinds of origin communities our founders are from. We’re a social enterprise: the profits of our business scale our impact while our impact drives our ability to generate profits.
Nothing we do is done as, or makes sense in the context of, a non-profit. Our whole stack of activities, from sourcing, to selling, to re-investment are business activities.
There are three major reasons that we insist on the profitable approach to impact.
The first is a practical one: our founders and management team are six MBAs. Our Board of Directors and Advisors are ex sales executives from some of the Bay Area’s biggest companies. When we sat down four years ago and started thinking about how we could create sustainable impact in origin communities it’s no surprise that, given our backgrounds, we did so through the lens of delivering a compelling value proposition through a scalable business.
We quickly realized that true impact delivered on top of a foundation of quality product and design was that model.
The second reason is a philosophical one: the purely non-profit approach has failed time and time again to actually drive sustainable development. When we look at the kind of economies, infrastructure, and prosperity we have here in the USA it’s not clear what percentage, if any, was built on the backs of donation-based or non-profit models. When we look at the lack of
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infrastructure in places like El Salvador and Honduras, where our co-founders are from, it is equally unclear why we ought to accept non-profits as the solution. Finally, when we look at existing non-profit models it’s not at all clear what they’re actually accomplishing (outside of selling incredible amounts of coffee). Sales of Fair Trade coffee topped $9B this year globally, and yet meta-reviews by development economists show essentially zero impact to vulnerable members of growing communities and countries. This isn’t good enough for us. Attacking this problem requires using the best tools at our disposal and we’re not ashamed in our belief that business is the best tool we have to create the kind of shared prosperity in growing communities that we care about.
The third reason is a market reason: customers are simply tired of non-profits demanding their dollars with mediocre products sold on the backs of tenuous and opaque impact models. In the last four months I’ve led tastings of our coffee/told our story to thousands of people and the amount of critical comments I get about Fair Trade is staggering. Why is it so little money ($0.20/lb)? Where does my money go? Why can’t I see the impact? People are realizing that the old approaches aren’t working and are yearning for something better. We’re trying to redefine what coffee can be and build a brand that delivers a better product and better experience, period.
3.2.4.2. Question 2 Investor: Angel investor
Q: Who is behind impct coffee? And who is predominantly in charge of the coffee-related operations and/or roasting?
A: Although we have a bigger team now, we started with five co-founders. Andres Escobar from El Salvador, Juan Diego (JD) Prudot from Honduras, An-nung Chen and Jessi Fu from Taiwan, and myself, Taylor Scobbie, from Canada.
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As a startup the lines get a bit blurry on who is directly responsible for what. JD and Andres will inform our sourcing decisions from origin as well as manage our reinvestment program back into their countries.
Jessi handles our Taiwan operations from green import, to roasting partnerships, to managing our three retail cafes out of Taipei. Our very first cafe is, as far as we can tell, currently the highest rated in the world on Google Maps (4.9@~500 reviews). Jessi’s incredible work into developing the coffee program and telling our story through that space is definitely the reason why. Frankly, I know a dozen people in Taipei alone who make better coffee than us, not least of which are our friends Berg Wu and Chad Wang, but our story of beautiful coffee doing something incredible has really resonated with coffee drinkers in Taiwan.
Here in the United States we were super lucky to pick up Kyle Hughes as our Head of Sales last October. Kyle was previously Director of Wholesale at Linea Caffe and Black Oak Coffee Roasters, two other incredible Bay Area roasters. Kyle now oversees our entire North American operations including green bean sourcing, production, sales, and roasting in collaboration with our roaster Brad (who used to oversee Blue Bottle’s east coast roasting operations) at The Pulley Collective.
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enterprise? Why coffee as a means for positive economic and social change?A: We got our start almost four years ago now as a response to the 2015 global Hult Prize challenge. The Hult Prize is the world’s largest student business competition. This last year over 35,000 teams from around the world competed. Every year a new challenge is issued and teams are charged with coming up with a social enterprise, a for-purpose business that addresses the challenge.
In 2015 the challenge was to bring the power of early education to urban slums communities in the developing world. The challenge’s premise was simple: early education is the single highest social return on investment (an ROI of $14 for every $1 invested - improving incomes, educational achievement, decreasing violent crime, you name it) that we can make into vulnerable communities - so how do we sustainably deliver it?
impctcoffee was borne of this challenge and we went on to win the global prize in 2015, for which President Bill Clinton called us “one of the top new companies changing the world”
and awarded us a $1M USD grant to build out the model. We don’t think we’re there yet, but that idea remains our guiding light to this day.
Coffee as a means for positive economic change sprang up rather naturally from the fact that our founding team is comprised of myself, an ex-barista, combined with two Latin American cofounders from Honduras and El Salvador.
We had come up with a really interesting partnership-driven way to invest in local women to build and run poverty-fighting schools but were stuck on a way to actually raise the capital to invest. How we got onto the idea of using coffee to raise that capital is actually a bit silly. One morning we got together and somebody made an offhand comment “I had a dream last night that we were selling coffee”. It took about a week to realize the brilliance of the idea: we
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could source a local product (feeding back immediately into the communities), sell and unlock its value abroad, and then transparently reinvest back into local women to build real, unparalleled poverty-fighting assets. JD and Andres quickly realized the promise of using one of their country’s most valuable resources to attack the root of some of its most pressing social problems and we never looked back.
Put another way, we’ve built our impact trade model as an answer to the question “How do we use coffee to create the most impact possible in growing countries and communities?”.
From our direct trade sourcing model, to partnership-driven production, to investing rather than donating, to building schools rather than looking back to the supply chain, every single thing we do is designed to capture the most value possible abroad and use it to do the most good possible at origin.
That impact has been pretty incredible so far. We just completed our eighth school last year in Honduras, joining existing ones in El Salvador, Guatemala, and South Africa (where we source rooibos tea!). Altogether we delivered over 1,000,000 hours of education to some of the most vulnerable communities in the world last year through our impact trade program.
Our target is 5,000,0000 more hours this year.
3.2.4.4. Question 4
Investor: Major Silicon Valley Tech VC
Q: Do you think it is a risk to the brand that you are profiting off of this? Do you plan on limiting profits in some way?
A: No and no.
There is currently no plan nor desire to limit future profits. Future profits will be reinvested into growth, which fuels impact by virtue of how our model is built.
In the rare case that our customers even ask us about our structure we’ve explained our approach to sometimes neutral, often positive response. Companies like Toms, Patagonia,
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Cotopaxi, etc have led the way here, actively producing superior market returns and valuations from customers rewarding their impact-led brands with loyalty and price premiums.
Maximizing the value of this businesses both allows us to create the impact that we want and reinforces that trend - setting the stage for a new generation of companies to do better than those of our parents.
Frankly the most common response we personally get from an explanation of our model is a surprised look and a “why doesn’t this already exist?”. We don’t know either, consumer, but it’s about time.
3.2.4.5. Question 5 Investor: Angel investor
Q: How does impct determine where and how to invest at origin? Are all of these projects in coffee-growing communities? How is each project established and is it direct funding (cash) that impct provides? Are you also involved with implementation, etc?
Currently we focus our reinvestment program in urban slum/informal communities of major cities adjacent to our growing communities. Larger urban communities represent a permanent audience large enough to support and take advantage of the kind of schools we help build.
Because we literally invest in these schools, building in larger and more vibrant communities means fuller classrooms, a more sustainable school, and ultimately higher impact.
Our model, at a basic level, involves investing in women already running informal daycares to transform those into real schools that they own and operate. New facility, materials, teacher training, community/government outreach, ongoing support. We bring the capital and partners required to make those all happen and act as project managers for the implementation. Before they could take care of 2-3 kids per day and would charge $1-2/day - now they can educate 15-20 and charge $0.75. The owners of these new schools slowly pay us back over time and we take that repaid capital and roll it into future projects.
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As far as I can tell we have one of the only investment-based ethical product models around.
Investing rather than donating not only creates improved incentives for our schools to be run sustainability but allows us to invest a whopping 25% of our revenue. Between what we pay for coffee and what we reinvest we’re hitting an RTO of nearly 50%. When you multiply that out by early education’s enormous social ROI we’re hitting $35 of social ROI per wholesale pound we sell and over $100 per retail pound.