Building the next “Juicero” wth $1M, not $100M

Juicero just announced they are packing up. This, after the recent discovery that you could just squeeze the cold press juice out of the packs with your bare hands. And this, after having raised over $100M. I find this fascinating, so I’d like to share my experience at YouWeb incubator, sponsoring a sophisticated beverage machine with recyclable “caps”, which is delighting its early users and shipping early production versions in December. It’s called Chime, the first authentic freshly brewed Chai latte and Chai maker. Check out brewchime.com. It’s not trivial to make these beverages that involve boiling chai leaves, with spices and milk. All Chime raised was $1M. How is this possible? Both Juicero and Chime address “hot” new market opportunities, but there are five key differences between how Juicero and Chime have been financed and built.

  1. A thorough team: The Juicero team had a seasoned entrepreneur and founder, who COULD raise a lot of money, so the bet was made on a pre-assumed outcome. The Chime team were first time founders leaving Salesforce and Cisco, with no beverage/food tech work experience, to pursue a passion. They simply couldn’t raise a lot of money, so they did their homework, very painstakingly to show me and other investors in my circle of influence, how the system would work. And since I love chai, but didn’t know much about it’s biochemistry, I personally read a few academic papers, some published patents, and did blind taste tests myself in my kitchen, before I sponsored them. And that too, with only $120K. Until the core design and materials were locked and loaded, patents filed and user testing done at companies like Google and Dolby with a crude prototype, we didn’t even go out to raise more money.
  2. Supply Chain to UX design thinking: The Chime team really cared about the end user experience in terms of how the chai cap containing the fresh chai leaves and spices would be delivered to the user from estates in India, how it would be packaged, how would it empty into the machine, how would the leaves be removed and a dozen other details. We went over it again and again. We talked about users just putting their own leaves in. They researched every detail about the cap, and the brewing process until we were satisfied that the chai cap and the machine were fundamentally symbiotic. There was no reason to bypass the machine, and there was no reason to bypass the cap.
  3. Milestone driven funding: In general at my incubator, I encourage milestone based financing because the projects we take on are quite risky (otherwise why do an incubator!). This keeps entrepreneurs paranoid, and they really focus on making sure the next milestone has an existential importance to them. Rather than raising $5M or $10M, I encouraged the Chime team to raise $500K to get an industrial, mechanical and electronic design prototype done. We did this on Angel List, using my syndicate, and also brought in angels who had a passion for the project. Everybody wanted to just taste the chai this prototype would make, so no other outcome was acceptable with this money other than one: a prototype that would make a great cup of chai from a cap filled with fresh leaves and organic spices from India.
  4. Insource core IP and outsource everything else until Series A: The founders simply couldn’t hire a big team, so they chose to hire one design engineer who had previously worked on a coffee machine. Being engineers themselves, this team did all the core design work. Everything else: industrial design prototyping, mechanical and electronic prototyping, was done through contracts. All core design decisions were ultimately made in house with the goal of hiring people into roles the founders were overloaded with, post Series A. They used equity to minimize even the costs of the outsourcing. The founders also took no salary for quite a while, just to make sure that every dollar in the first $500K would be used efficiently.
  5. Satisfying a pre-order list and highly engaged community: Again, the next milestone was very existential. It was: build the actual machine and have the supply chain ready to start shipping the Founders’ Edition, for which they took reservations. The promise made to early backers was unequivocal. The company would be dead if it didn’t deliver. No room for lots of delays, and excuses. The traction the team got with early adopters led to another $400K in financing, some from the same investors who did the first $500K. Investors love teams who deliver on promised milestones. They will invest more. This time the founders had a gorgeous prototype to show off!

Now the manufacturing contracts are signed, and tooling is set up, and the founders’ edition is ready to ship in a few months, so the team can heave a sigh of relief. But only briefly. The team is setting out to raise it’s Series A. Even that is not a huge round like Juicero. These guys just know how to get the job done for much less. And theirs is the path I would recommend to others doing similar products. It might appear expensive to build a hardware based product, but you can pull it off for $1M. Mostly.

I’d love to hear comments here, or email me: peter@youwebinc.com

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