Ratio

Early Stage

A new paragon in coffee

Analytics

Raised to Date: Raised: $397,398

Aggregate Commitments $

Platform

Republic

Start Date

09/25/2020

Close Date

01/31/2021

Min. Goal

$25,000

Max. Goal

$1,070,000

Min. Investment

$150

Security Type

SAFE

Funding Type

RegCF

Series

Pre-Seed

Valuation Cap

$6,000,000

Discount Rate

20%

Rolling Commitments $

Status
Funded
Reporting Date

01/31/2021

Days Remaining
Funded
% of Min. Goal

1,590%

% of Max. Goal

37%

Likelihood of Max
Funded
Avg. Daily Raise

$3,105

Momentum
Funded
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Location

Portland, Oregon

Industry

Food, Beverage, & Restaurants

Tech Sector

Foodtech

Distribution Model

B2C

Margin

Medium

Capital Intensity

High

Business Type

Growth

Ratio, with a valuation cap of $6 million, is raising funds on Republic. The company designs and manufactures intuitive coffee machines for an excellent home brew coffee solution. The machines of Ratio make delicious coffee irrespective of variables like water temperature, extraction time, and pour over pattern. Mark Hellweg founded Ratio in August 2017 and has raised over $4 million in previous rounds of financing. The current crowdfunding campaign has a minimum target of $25,000 and a maximum target of $1,070,000. Ratio reached its first profitable month in December 2019 and expects to generate $1.5 million in revenue by the end of 2020. The company has already sold over 5,000 units and generated $2.5 million in lifetime revenues.

Summary Profit and Loss Statement

Most Recent Year Prior Year

Revenue

$672,565

$503,146

COGS

$530,805

$287,701

Tax

$0

$0

 

 

Net Income

$-926,292

$-686,137

Summary Balance Sheet

Most Recent Year Prior Year

Cash

$21,025

$236,600

Accounts Receivable

$12,475

$0

Total Assets

$989,195

$757,846

Short-Term Debt

$748,299

$177,299

Long-Term Debt

$779,448

$468,507

Total Liabilities

$1,527,747

$645,806

Financials as of: 09/25/2020
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Ratings

Analyst Report

Synopsis

For many Americans, coffee is a daily necessity. More than 60% of Americans drink a cup every day, according to a 2018 survey — the highest percentage since 2012. While some of these lattes and cappuccinos are bought from coffee shops, 79% of survey participants had brewed a cup of coffee at home the previous day. The invention of single-serve coffee machines like Keurigs significantly expanded Americans’ access to convenient coffee at home. 

The COVID-19 pandemic only accelerated consumers’ interest in at-home solutions. Small kitchen appliance sales increased 39% between March and September of 2020, as trips to coffee shops and local restaurants were replaced by treats and meals made at home. Starbucks closed the majority of its stores during the pandemic, and many in city centers are still closed. The company will permanently shutter up to 400 locations as it plans for a post-pandemic future. Starbucks’ plight echoes that of Dunkin’ Donuts, Peets, and local coffee shops everywhere, which are struggling to overcome the significant shift to at-home coffee-making. 

Ratio is a high-end coffee maker company serving consumers’ desires for a beautiful, functional coffee machine that brews artisan beverages. Ratio offers two primary lines of coffee makers — the Ratio Six and the Ratio Eight. Retailing between $350-$500, these are not cheap coffee makers. However, Ratio machines deliver better-tasting coffee via a sophisticated pour-over system and are a striking design piece for the kitchen counter. 

Customers can purchase Ratio machines via the Ratio website, or via high-end retailers such as Williams & Sonoma or Crate & Barrel. The company plans to launch sales in Europe in the near future. It will also begin offering a ground coffee subscription to provide customers with regular deliveries of high-end coffee in fully compostable packaging.

Ratio’s current Republic raise has been rated a Neutral Deal by the KingsCrowd investment team.

Price

Ratio is raising on a Crowd SAFE at a $6 million valuation with a 20% discount. This valuation is appropriate given Ratio’s current revenue traction and profitability. The fairness of this valuation is reflected in Ratio’s mid-range price rating.

Market

Ratio operates in a mid-sized market for at-home coffee makers. The global coffee machine market is projected to hit $5.1 billion by 2027, with a CAGR of 6.3% during that period. Drip coffee machines are expected to experience the most rapid growth, with an estimated CAGR of 5.5% until 2027. Ratio’s obtainable market is much smaller, especially given the high-end nature of its products. Realistically, Ratio could capture 2% or less of the global coffee maker market, for a maximum of roughly $100 million. Both the total market and obtainable market sizes are small relative to most early-stage startups, and therefore Ratio is poorly rated for market size.

Team

Ratio was founded by Mark Hellweg, a coffee-focused entrepreneur and product designer. Hellweg is also the founder and CEO of Clive Coffee, which sells at-home espresso machines. Between Ratio and Clive, Hellweg boasts that he has sold over $25 million of coffee equipment over the last 12 years. Hellweg holds a bachelor’s degree from Hillsdale College. 

Ratio’s COO, Brad Walhood, manages the company’s product development processes, supply chain, and logistics. Early in his career, Walhood served as a sales manager for watersports companies. He later became the Director of Retail Development at LaCrosse Footwear. He subsequently joined Hellweg as the Director of Operations for Clive Coffee and now runs another brewing company in addition to his work with Ratio. Walhood holds a bachelor of science degree in Business Administration from Warner Pacific College. 

Ratio’s team is highly rated due to their length of experience in the coffee industry and skills in product design, supply chain, and other logistics key to the operation of a product manufacturing company.

Differentiators

Ratio has a clear differentiator from mainstream coffee makers — its products are very expensive. Keurig sells many coffee makers for less than $100, and most retailers offer commoditized coffee machines for less than $50. Ratio’s $350-$500 products, on the other hand, are meant to be a beautiful and highly functional addition to customer’s homes. Ratio machines are made for coffee connoisseurs who delight in experiencing high-quality pour-over coffee from a sophisticated and sleek machine. 

While Ratio’s price, product design, and focus on high-quality pour-over coffee are clear differentiators among the coffee maker market, these differentiators primarily serve to narrow Ratio’s potential customer base by creating a niche in high-end coffee. While Ratio’s early traction signals that the company has achieved product-market fit in this niche, this niche may be so small that Ratio can never achieve significant growth in competition with mainstream makers like Keurig. Therefore, Ratio’s differentiation rating is middle-of-the-road.

Performance

Ratio was founded in 2017 and has generated over $2.5 million in lifetime revenue with more than 5,000 coffee machines delivered. In 2019, Ratio generated $672,585 in revenue, a 34% increase from 2018’s revenue of $503,146. While Ratio operated at a net loss of $926,292 for 2019, the company achieved monthly profitability in December of that year and is aiming for year-long profitability in 2020. 

This early traction is decent for an early-stage startup, and profitability only two years after founding is also a positive signal for prospective investors. However, Ratio has not posted explosive growth yet. Therefore, Ratio’s performance rating is solid, but only moderately high.

Bearish Outlook

There is already a wide range of coffee machines available on the market: cheap, commoditized machines for $20 from Walmart, expensive espresso machines from Starbucks, and everything in between. Keurig was able to capture significant market share upon introducing the concept of single-serve coffee, and Keurig machines are available at a reasonable price. Therefore, Ratio’s products are unlikely to achieve significant traction among layperson coffee makers. The price is simply too expensive for most consumers, particularly when the machine’s primary differentiator is sleek design and pour-over capabilities (the latter available in many cheaper systems). 

Ratio has generated decent traction in the two years since its founding and will likely see a sales bump from launching in Europe (particularly the continent’s luxury market, which will appreciate the European-inspired sleek design of Ratio’s products). However, Ratio may never achieve significant growth or a high valuation. Exit potential may also be limited, as mainstream coffee machine manufacturers could likely replicate a sleek pour-over design and sell it for a lower price. 

Bullish Outlook

COVID-19 has undoubtedly sparked consumer interest in at-home alternatives to products and experiences typically sought outside the home, including coffee. For many consumers, the only drawback of at-home coffee is a lack of quality when compared to coffee shop brews. Ratio offers these buyers a high-end way to brew quality coffee at home without sacrificing design. This market segment may have grown significantly in 2020, so Ratio may have an opportunity to compete with Keurig and other manufacturers that are not meeting this particular set of pain points. 

Moreover, Ratio has an interesting opportunity to expand its product line to include monthly coffee subscriptions and other extensions. Stabilizing the company’s cash flow via recurring revenue could allow Ratio to secure more efficient manufacturing and supply chain procedures or invest in growth-oriented marketing campaigns, which could be the key to long-term growth and profitability. 

Executive Summary

Ratio produces a set of high-end coffee making products that are likely not appealing to the average consumer. Given that the company is battling against name-brand competitors like Keurig, this niche may not be large enough to build a company with significant value. 

On the other hand, Ratio is led by coffee industry veterans. It has potentially lucrative opportunities to expand the business to include recurring revenue from coffee subscriptions and to launch in Europe and other luxury markets. Growth potential from these opportunities may or may not outweigh the limited size of Ratio’s obtainable market. Therefore, Ratio 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

Analysis written by Katy Dolan. 

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