Citizens is raising a Crowd SAFE at a $12 million valuation with a 20% discount. This price isn’t entirely unreasonable, particularly given Citizens’ 2019 revenues of $4.1 million and positive net income. The discount offered is also attractive for investors. Therefore, Citizens’ price rating is high. 

More than 60% of Americans over 18 drink at least a cup of coffee roughly every day, according to a 2018 survey. Coffee chains are one of the main sources for meeting this demand. There are more than 35,000 coffee shops in the U.S., with a market value of $45.4 billion. There’s a large market of coffee drinkers for Citizens to serve, though there’s no shortage of competition for that morning cup of joe. Of course, Citizens really sits at the intersection of multiple restaurant segments: coffee shops as well as casual sit-down restaurants and even fast-casual concepts. The combination of these addressable markets is significant, perhaps even more so after a year that saw many restaurants and cafes close due to COVID-19. Citizens will undoubtedly find many willing customers in any cities that it expands to, so the company’s market rating is above average.

Citizens was founded by two Australians, Andrew Geisel and Justin Guiffrida. It’s worth noting that the co-founders emphasize their “deep domain experience in the coffee industry, having led some of Australia’s premier brands” on Citizens’ raise page. However, investigation into their backgrounds doesn’t yield quite that level of expertise. 

CEO Guiffrida graduated with an accounting degree from Victoria University and spent roughly three years as an accountant and financial controller for two companies, including a restaurant business. COO Geisel holds a degree in architecture from Griffith University and spent three years as a full-time barista before founding Citizens. While the pair has been exposed to the restaurant and coffee industry in their short careers, they hardly have deep domain experience or a track record of entrepreneurial or brand-building leadership. Consequently, Citizens’ team score is its lowest across all five metrics. 

Restaurant chains are rarely all that different from their competitors — it’s just a fact of the industry. Citizens does have a carefully-curated Aussie-inspired, easygoing vibe in its cafes and seems to be highly focused on design and aesthetics. Beyond that, though, Citizens’ menus seem to be no different from many other cafe or fast-casual restaurants. Therefore, the company’s differentiation score is quite low, as might be expected for most restaurant deals.

At least based on financial data through 2019, Citizens is an extremely strong performer. After just three years of operations, the company generated $4.1 million in revenue in 2019, and even turned a profit with a net income of more than $400,000. Between 2018 and 2019, the company experienced almost 100% revenue growth. It’s very important to recognize, however, that Citizens is cagy about 2020 financial data. Virtually all restaurants struggled in 2020 thanks to the COVID-19 pandemic, and New York City was hit particularly hard. While Citizens cites some ancillary metrics about its improvements on things like average order value, it noticeably doesn’t address total 2020 revenues. 

That said, Citizens does seem to be a well-run business. The company reports that its unit volumes (more than $2 million) exceed standards set by Starbucks and other chains, and that its payback period for new locations is just 14 months. Citizens believes that it can leverage these advantages to expand efficiently in the wake of the COVID-19 pandemic, with record-low commercial real estate costs and decreased operating expenses. 

Overall, Citizens seems to have run efficiently and profitably over the last few years. Its performance rating is its highest score as a result. However, prospective investors should note the lack of 2020 financial data as they evaluate this deal.

One of the main concerns about Citizens is certain inconsistencies or exaggerations on its Republic raise page, and the company’s lack of transparency about 2020 financial performance. Citizens’ founders really oversell their relative lack of experience. Revenue growth is also offered in an arguably misleading manner that prioritizes percentage change over raw data. It’s a major gap not to understand exactly how much revenue Citizens generated in 2020 and/or how much debt the company had to take on to survive during COVID-19 lockdowns in New York City. 

These concerns motivate a bearish outlook that Citizens’ growth plateaus because it is simply never able to recover from the impact of the 2020 pandemic. The company seems to be obscuring certain details in its raise materials, which might indicate that it’s in trouble. Even if it’s not, there’s no concrete evidence that Citizens’ founders have the expertise to steer the company toward a nationwide expansion, which is significantly more difficult than local operations. Therefore, it might be a bad time for investors to enter at a relatively high valuation. 

While Citizens’ performance in 2020 is a bit mysterious, it’s undeniable that the company grew very rapidly and achieved meaningful success during its first three years of operations. Citizens cafes offer a carefully-designed aesthetic that draws loyal customers, and improvements on metrics like average order value and payback period give Citizens a unit economics advantage over other chains. Blockbuster restaurant concepts like Chipotle and Blue Bottle Coffee also started with a handful of locations, then grew steadily to build more and more of a brand name before achieving lucrative exits. With Citizens’ strong financial performance (at least through 2019) and focus on distinguishing itself from mainstream American coffee culture as much as possible, the company might have what it takes to follow in the footsteps of those restaurant success stories.

Citizens is a high-end, Australian-inspired cafe chain with four locations in New York City. The company experienced strong success and growth during its first few years of operation, at least through 2019 until the COVID-19 pandemic intervened. Citizens’ focus on the unit economics of its restaurants is encouraging, and as long as payback periods remain short and Citizens’ founders continue to prioritize profitability, the chain could successfully scale nationwide. 

On the other hand, Citizens’ 2020 performance is a major gap in information. The company could have really faltered last year (as many restaurants did), which would make it a risky time for investors to get in at this high valuation. It’s also a small red flag that the company’s raise page oversells its founders’ experience and doesn’t offer straightforward revenue metrics. Therefore, Citizens has been rated a Neutral Deal. 

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com.