Risks Specific to Vera Roasting Company
1. Supply Chain Risk – Our current supply chain relies heavily upon a single co-packer located near our head office in New Hampshire. As we have no existing relationships with other co-packers in our area, the failure of our co-packers’ business or the loss of their cooperation could lead to an immediate and/or lengthy disruption to our supply of freshly roasted coffee. In such an event, we may be forced to contract with another co-packer on unfavorable terms or even be unable to find another coffee roaster to prepare our roasts to our specifications.
2. Cost of Goods Sold Risk - The prices we pay for the green coffee beans we use to craft our premium roasts are indexed to the cost of “C” Coffee futures, a commodity which has exhibited substantial volatility in price over the past few years. This risk is not hedged in any way and we have no plans to do so. Substantial increases in the price of the underlying commodity, such as those that might be driven by natural disasters or global financial/political crises, may reduce our profitability and/or the quality of product we are able to bring to the market.
3. Patent Risk – We have made a submission under the USPTO’s Prioritized Patent Examination Program for a utility patent covering the composition of matter and process used in the production of our product, CoffVee. If the patent were denied, there is a risk that a competitor could offer a similar product with the same heart-healthy differentiation we claim to have developed.
4. Competition Risk – The specialty coffee market is very competitive with many incumbents. There is a risk that we will be unable to differentiate ourselves from other players in the specialty coffee space in a way that leads to long-term recurring sales and growth.
Liquidity Risk – The funding instrument we are using, the Simple Agreement for Future Equity (SAFE), is a convertible equity security. Neither the SAFE nor the equity received on conversion will have an active market on which the investors will
be able to sell their interest in the company. Additionally, it is possible that the company will require multiple follow-on financings as we continue to develop the business, some of which may be dilutive to investors in this round. At the current time, the company has no target date for a liquidity event. Investors should expect to commit their capital to the company for an extended period of time.
Qualified Employee Risk – Given our funding situation and cash flow from sales, there is a risk that we will struggle to attract employees with sufficient qualifications
at a level of compensation we can afford.
7. Spoilage Risk – Although coffee is a fairly shelf-stable product, there is a risk that a portion of an outsized production run of CoffVee could expire before being sold.
8. Lack of Operational History – Although a team of experienced entrepreneurs leads the company, none of them have ever been involved in bringing a retail food product to market. There is also limited proof of the business model—there is no certainty of the number or persistence of consumers interested in buying a resveratrol-infused coffee.
9. Shift in Perceived Health Risk – For the last 20+ years, the supporting science and public perception have billed the consumption of red wine—and resveratrol, specifically—aspart of a healthy diet. Overwhelming numbers of studies have shown resveratrol to be a powerful antioxidant that may contribute to improved cardiovascular health, neuromuscular health, cognitive function, and overall fitness. Still, there is potential for new research to emerge and dramatically change the perception of resveratrol in the market. Furthermore, new research could emerge and dramatically change public perception towards coffee overall. Unforeseen changes in market affinity for coffee could significantly impact Vera’s sales and customer loyalty towards CoffVee.
Execution of Strategy – Vera Roasting Company may fail to
successfully execute its strategy to grow sales through online, television, and
event marketing. Should its marketing efforts fail, the company may be limited
to much slower growth or may be unable to meet its obligations and be forced to
11. The founders and officers are not currently full time with the company. As such it is likely that Vera Roasting will not make the same progress as it would were that not the case.