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Blue Bottle Coffee Gets Caffeinated With $25.75 Million in Funding From Internet Stars and Morgan Stanley

Viva la siphon!

Clay McLachlan/ for Blue Bottle Coffee

Blue Bottle Coffee, the specialty roaster that has become a favorite of hipster techies in the San Francisco area, has raised $25.75 million from a range of high-profile Internet players and also Morgan Stanley Investment Management.

The banking giant is not making the investment directly, but “on behalf of certain mutual funds and other investment vehicles for which it acts as Investment Adviser.”

Blue Bottle said it will use the funding to “expand retail operations, improve internal training programs and further develop its quality control department.”

This is Blue Bottle’s second round of funding, having previously raised just under $20 million in late 2012 from a range of high-profile entrepreneurs and VCs. Those include Google Ventures, Index Ventures and True Ventures, as well as Instagram’s Kevin Systrom, Twitter and Medium co-founder Evan Williams, investor Chris Sacca and skateboarding star Tony Hawk.

Why are the digerati so attracted to fancy coffee? Founded in nearby Oakland in 2002 by James Freeman, the micro-roaster brought its focus on Japanese-style siphon coffee preparation to the fast-growing retail genre with great success.

From one store, it now has five cafes in San Francisco and four in the New York City area, which also offer food, as well as a mobile farmer’s cart and a seasonal kiosk. Lines are typically out the door (see photo above).

Blue Bottle said it had signed more leases in Oakland, Manhattan, Brooklyn, Palo Alto and Los Angeles that will open over the next twelve months.

In addition to retail stores, Blue Bottle has a brisk online business. Only about 25 percent of its sales are in the wholesaling of its beans, an arena that it is wading into slowly and carefully.

All this growth largely came after Freeman, who is CEO of the privately-held Blue Bottle, partnered with Bryan Meehan, an Irish entrepreneur with deep ties in the tech community. Meehan is the company’s executive chairman.

In an interview, Freeman talked a lot about his goal to keep delivering high levels of customer service and quality, especially as Blue Bottle grows.

“We want to build our company, but also have the artisanship of it remain intact,” he said. “There is a growing interest and enthusiasm for specialty coffee, so we also want people to feel like it is also accessible.”

In that, Freeman declined to run down mega-coffee chains like Starbucks, despite Blue Bottle’s tonier image. “We all owe them a debt of gratitude, because — were it not for them — the concept of coffee as more than a side thing never would have happened,” he said.

That said, he also noted, keeping up a level of high quality will be key for Blue Bottle going forward. “We want people to taste the investment we are making,” said Freeman.

Blue Bottle did not provide current financials, but Freeman noted that same-store sales — that is, annual changes at stores already operating and a key indicator of success in retail — were robust.

“I can’t believe I’m talking about same-store sales,” he said, laughing. “And I also can’t believe we are here now, after starting out in the back of one store.”

(For more, here is a blog post on the whole shebang by True Ventures’ Tony Conrad — who is, IMHO, the coffee hipster poster boy — in which he notes loftily: “What we saw and why we got involved is that James and his team are part of a handful of people who are founding a movement around coffee … We believe Blue Bottle Coffee is at the forefront of a ‘consumer movement’ or mega-trend in which consumers are moving to higher quality, artisanal micro-roasters of coffee, where quality, attention to detail, beauty and a distinctive experience are being sought over more mainstream alternatives.” Viva la siphon, apparently!)

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