Yerbaé is raising capital on StartEngine via common equity with a $44.6 million valuation. The company’s valuation is very reasonable, despite being on the higher end of what we generally see in online startup investing. Last year, the company saw more than $6 million in revenue, making for a revenue-to-valuation multiple of 7x. That figure is just slightly above the 2x to 4x average for the beverage industry. Considering Yerbaé’s growing traction, its valuation is pretty fair for investors.

The energy drink market in the United States sits at approximately $16.3 billion in 2022. It’s expected to grow by 6.9% each year through 2026. This market includes both organic and inorganic products as well as plant-based products. Companies like Red Bull, Monster, and PepsiCo dominate the space. Many of these drinks have energizing properties from vitamin B12.

Since Yerbaé is a tea-based drink, it lies at the intersection of a few markets. The US yerba mate market sits at just under $6 million. It is growing a little more slowly than the energy drink market – around 5.2% each year. 

The true total addressable market for Yerbaé is somewhere in between the domestic energy drink market and the domestic yerba mate market. While both markets have a steady growth rate, the energy drink market is more than double the size of the yerba mate market. Energy drinks are a more established and familiar product in the US, and consumer trends indicate they are trending toward plant-based alternatives. Yerba mate is still being introduced to US consumers. The plant has been consumed in South America since the 16th century but, like coffee, has gradually become more popular around the globe. The market is still relatively nascent in the United States and has significant room to grow.

Yerbaé could benefit from the overlapping trends of plant-based energy drinks and yerba mate’s growing popularity. If the company is able to attract consumers from both markets, it will be well-positioned to grow brand awareness and sales.

Yerbaé was founded by husband-and-wife team Todd and Karrie Gibson. CEO Todd Gibson has extensive experience in the beverage industry. He served as vice president of sales at Fuze Beverage and NOS Energy and was later a vice president and general manager at Coca-Cola following the purchase of Fuze Beverage in 2007. According to his LinkedIn, upon purchasing Fuze Beverage, Coca-Cola established a still beverage division within the company. There, Todd Gibson was responsible for brand management of Vitamin Water, Smart Water, and Powerade, among others. 

COO Karrie Gibson has more than 14 years of past entrepreneurial experience, which includes founding Vintage Tech Recyclers. There, she focused on sustainability of electronic equipment until Kuusakoski acquired Vintage Tech Recyclers in 2015.

The couple’s combined experience is quite complementary. Todd has put in years in the beverage space, and Karrie has experience founding companies and making an exit. Any concerns about risks associated with how large and crowded the energy drink market is can be quieted by the founders’ networks and proven ability in navigating this specific industry.

The energy drink market is well-established with many major name brands dominating the space. Indirect competitors also extend to the massive coffee market. Standing out in this space will be a challenge regardless of product differentiation. That said, Yerbaé stands out in one big way: sugar content. Guayakí Yerba Mate, the closest direct competitor with a large footprint in the market, includes 28 grams of sugar in one 15.5-ounce can. Those 28 grams of sugar account for 56% of daily dietary value for a 2,000-calorie diet. Yerbaé’s 16-ounce energy drinks are sweetened with stevia, a popular alternative sweetener, and the 12-ounce seltzers have no sugar and are unsweetened. Yerbaé’s ingredient profile is massively differentiated and gives it an advantage in a market where low-sugar and sugar-free options are trending. Customers favoring healthy alternatives could pick Yerbaé off the shelf in an effort to cut back on added sugar, especially if they already favor yerba mate-based energy drinks. This competitive advantage could ultimately lead to better return on investment.

Yerbaé is consistent with existing market prices, if not slightly cheaper. A 12-pack of the 16-ounce drinks costs $32.99. The 12-pack of Guayakí Yerba Mate’s energy drinks costs $39.99 on the company site and $33.48 on Amazon. AMAZ, another lesser-known yerba mate brand, sells 6-packs of sparkling tea for $17.95 — which amounts to $2.99 per can compared to Yerbaé’s $2.75 per can. Yerbaé’s slightly lower price point could further encourage consumers to choose it over its direct competitors.

However, concern for Yerbaé’s future success lies in the energy drink market as a whole. Red Bull, for example, is a household name and goes for far cheaper than any yerba-mate-based drink on the market. A 24-pack of Red Bull energy drinks costs roughly the same as a 12-pack of Guayakí Yerba Mate or Yerbaé at $33.98 on Amazon. In order for customers to seek Yerbaé as a regular alternative, they need to have expendable income and be committed to a plant-based beverage. Otherwise, alternatives are widely and cheaply available.

Yerbaé has a heavily differentiated ingredient profile that matches consumer trends in the beverage space. But the company may face some challenges standing out on the shelf. For one, customers may not be familiar with yerba mate or its energizing properties. Also, competing products like Red Bull and Monster are priced much lower.  Yerbaé will need to build consumer awareness around yerba mate if it wants to carve out a niche in the energy drinks market. 

In 2021, Yerbaé saw more than $6 million in revenue, an impressive jump from $4.8 million in 2020. However, the company has notable short-term debt of $1.5 million, and it has a high burn rate of $316,805 each month. Despite its growth in revenue, Yerbae is still far from profitable.

Yerbaé’s energy drinks and seltzers are available for purchase in retailers on both coasts, including ​​Sprouts Farmers Market, CVS, Stop N Shop, Safeway, and more. Management reports that the company’s products are also stocked on the Meta and Apple campuses. Additionally, customers seem to enjoy the drinks. The variety pack offering on Amazon averages 4.3 stars from more than 640 reviews. Yerbaé also reports product margins (how far sales have exceeded the cost of goods) at around 58%. These margins are fairly in line with average gross margins across the beverage industry, which stood at 54.9% in 2019.

Perhaps most promising about this raise is the fact that Yerbaé has signed a merger agreement with Kona Bay Technologies to be listed on the Toronto Stock Exchange. We rarely see companies that have signed agreements to merge and go public following an online funding round. Yerbaé investors will have a rare chance for relatively quick liquidity options. Kona Bay Technologies is also contributing $1 million for the $6 million initial public offering (IPO) round. If all goes to plan, Yerbaé should be public between October 15th and November 15th of 2022. There will be a period following the listing when investors can’t sell shares, which could affect liquidity for investors in the crowdfunding round that closed in 2021. The IPO opening share price is also yet to be determined. Until that price is revealed, it is unclear how much return on investment, if any, early investors will receive.

In sum, Yerbaé has strong and growing revenue numbers, but investors should still be wary of the company’s overall performance. Burn rates are high, and the company is nowhere near profitability. Potential investors should also keep in mind that the company will be going public in the near future, a rarity this early on for crowdfunded companies. It is unclear what the opening share price will be, but having a liquidity option may be a bonus for anyone looking to get in on this round. 

Yerbaé’s drinks are in production, and very little risk is associated with a product that is already out on shelves and liked by consumers. From a risk standpoint, finances are the only major note. As it currently stands, Yerbaé is nowhere near profitability. The company has $1.5 million in short-term debt and is burning about $316,805 on a monthly basis. It is unclear at this time what kind of role the Kona Bay Technologies merger will play in fiscally reducing Yerbaé’s risk. Overall, the company needs to improve its margins and reduce debt in order to eliminate the main red flag for investors.

Yerbaé raised a round of capital on StartEngine that closed in March 2021 and was a KingsCrowd Deal to Watch. The Kona Bay Technologies merger is undoubtedly the biggest highlight since that round as it provides investors with a rare shot at quick liquidity options.  

Yerbaé’s previous round had a valuation of $34 million, resulting in a high revenue-to-valuation multiple for an early stage atartup. However, this round’s $44.6 million valuation is much more reasonable due to the company’s positive traction. Yerbaé remains unprofitable but has seen massive leaps in revenue, increasing from $3.6 million in 2019 to $6 million in 2021. Since the start of 2022, management also reports 624% growth in net sales. 

The team appears to have remained relatively consistent, with no major hiring sprees. Net losses for 2019 totaled $2.7 million. In 2021, those losses grew to $3.8 million. Coupled with Yerbaé’s high $1.5 million short-term debt, which grew from $406,163 since the last raise, Yerbaé is still a long way from profitability. Therefore, Yerbaé’s KingsCrowd rating was downgraded to a Neutral Deal.

Yerbaé is going to have to stand out in a very crowded market to be successful. Many Americans may not even know what yerba mate is and will continue to exclusively turn to vitamin-based energy drinks or coffee for energizing effects. Drinks based on an unfamiliar ingredient like yerba mate are probably less likely to be given significant real estate on grocery store shelves, forcing this market to be dominated currently by one brand: Guayakí Yerba Mate. Despite standing out from direct competitors thanks to its low sugar profile, not much about Yerbaé is defensible. It would be very easy for newcomers to adopt sugar-free or low-sugar alternatives or for Guayakí Yerba Mate to expand. Finally, the company is far from reaching profitability. Burn rates are high, and unlike a software company, consumer goods brands tend to be more capital intensive to keep up.

Yerbaé is reasonably valued and led by an industry veteran. CEO Todd Gibson’s direct experience in the space is a huge bullish indicator. He knows firsthand how to navigate the markets and has an established network within the industry. Co-founder Karrie Gibson has entrepreneurial experience and — perhaps more importantly — exit experience. Together, they make a complementary team.

There are only a handful of bottled yerba mate-based energy drinks on the market. Yerbaé stands out from the dominant competitor, Guayakí Yerba Mate, by excluding sugar from its ingredient list. And customers have responded. Revenue is up 26% this year at more than $6 million. Yerbaé products are stocked in retailers nationwide, like Vons and CVS, and are available on the Meta and Apple campuses for employees. Finally, Yerbaé has a merger agreement with Kona Bay Technologies to go public on the Toronto Stock Exchange later this year. 

Yerbaé is a yerba mate-based beverage company offering 16-ounce energy drinks and 12-ounce seltzers. Both products are sugar-free and have limited ingredients. The drinks are available on the Yerbaé site, Amazon, and in retailers on the east and west coast. 

Yerbaé is far from profitability. The company is rapidly burning cash and has notable short-term debt on its books. Its current financial position is less than desirable. Energy drinks are also a dime a dozen. Yerbaé will face the challenges of being in a nascent domestic yerba mate market while simultaneously competing in the large and established energy drink space. Yerbaé is getting the worst of both worlds when it comes to its target market. 

But if any team can overcome this challenge, it is Todd and Karrie Gibson. The husband-and-wife team have complementary industry, founding, and exit experience. Very few founders are as well equipped to deal in their respective markets as this pair. And with more than $6 million in revenue for 2021, a big jump from $4.8 million in 2020, the Gibsons have already begun to prove it. Finally, this is a rare chance to invest in a startup with a relatively immediate and confirmed liquidity event. Yerbaé has clear product differentiation and a strong leadership team, but it is plagued by high burn rates and an overall weak financial position. These factors make Yerbaé a Neutral Deal.

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

Analysis written by Olivia Strobl, July 13, 2022.