San Francisco-based Philz Coffee, known for its personalized pour-over blends, is reportedly being sold to Los Angeles-based private equity firm Freeman Spogli & Co. for $145 million. The acquisition comes as the company faced significant financial challenges, with one prominent venture capitalist, Jason Lemkin, stating on social media, "Philz ran out of money. That’s really what it is." The deal is expected to finalize in August.
Reports indicate that increased operational costs, exacerbated by inflation and supply chain disruptions, severely impacted the coffee chain's profit margins. Intense competition within the specialty coffee market also made it difficult for Philz to maintain its unique market position and customer loyalty. These factors contributed to the company's decision to seek an acquisition.
The sale has reportedly led to the dissolution of common stock, raising concerns among current and former employees who hold shares. Mission Local reported that many common stockholders, including employees, are effectively losing their investments, a rare occurrence outside of liquidation or bankruptcy. Philz Coffee and its representatives have not yet publicly commented on these specific details of the sale.
Founded in 2003 by Phil Jaber, Philz Coffee rapidly expanded beyond its original Mission District location, fueled by tens of millions in venture capital funding from investors like TPG Growth and Summit Partners. At its peak, the company operated over 40 locations across California, Chicago, and Washington D.C., becoming a popular choice among tech industry professionals. Its last major funding round, a Series C, secured $45 million in 2016.
Despite its initial success and expansion, Philz Coffee has navigated turbulent periods in recent years. The company laid off 181 workers in 2020 amid the pandemic and employee protests over safety practices. Additionally, all five of its Washington D.C. area locations and its original San Francisco store closed in 2023, signaling a contraction in its footprint prior to the current sale.