Philz Coffee close to closing deal to sell to private equity firm for $145M

https://missionlocal.org/2025/07/philz-coffee-private-equity-sell/

by danso • 12 months ago

62 76 12 months ago

deepsun3• 12 months ago

“All Common Stock will be canceled for no consideration and all Options will be canceled and extinguished for no consideration”

How is this even legal?

stagger872• 12 months ago

"In a liquidation, common stockholders receive whatever assets remain after creditors, bondholders, and preferred stockholders are paid."

Coupled with what sounds like an already bad financial state of the company... I'm not claiming no foul play, but it looks like there is a reasonable avenue for what is happening.

ryandrake• 12 months ago

Yet the board and CEO will get paid... So they're not that out of money. Just out of money enough to screw everybody but themselves.

Philz board members, which include former CEO Phil Jaber and his son, Jacob Jaber; representatives from investment firms Summit Partners and TPG Growth; and CEO Mahesh Sadarangani will receive payouts or bonuses from the deal.

bruce5112• 12 months ago

Investing in shares is, like most things in life, a task that requires some skill and understanding. Hence the concept of accredited investors. When you're swimming with the big boys, it pays to know the rules of the game.

Unfortunately employees getting or buying shares from their employer have little to no investment skills. Yes, it's possible for these shares to be worth something, but if the company fails, they're last in line.

It behooves tech staff, who think the road to glory is paved in stock options to get professional financial and legal (not to mention tax) advice.

Or just consider all stock offerings to be worthless. The times it isn't are a rounding error.

CommieBobDole• 12 months ago

The article implies that it's not a liquidation or bankruptcy, though, just a sale.

I don't know how you can buy a company without buying its stock from the shareholders, given that they are the owners of the company, but there must be some special circumstance that's not mentioned in the article.

m4tthumphrey• 12 months ago

Right? Can anyone answer this? The article doesn’t go into it.

morcus• 12 months ago

A follow up question: how can I check that my own stock is not subject to the same terms? Can publicly traded companies do the same?

jeffbee• 12 months ago

Of course. Common stock can always get wiped out by superior classes.

idontwantthis2• 12 months ago

I think if it’s publicly traded and they aren’t comitting fraud then this situation couldn’t happen. If the company is drowning in debt and unprofitable you would have already lost your money because the stock would have lost value.

bix6• 12 months ago

Common stock holders are last in line. Only if things go well do common stock holders have a chance. And even then they might still get worked.

CGMthrowaway• 12 months ago

The common stockholders have voting rights...

JonChesterfield• 12 months ago

Probably also drag along terms which render said rights broadly ineffective

givemeethekeys• 12 months ago

We have many more good locally owned coffee shops today.

jerlam• 12 months ago

It's only a matter of time until those locally owned coffee shops become popular, expand, over-expand, then get acquired.

morkalork• 12 months ago

Followed by regression towards the mean in quality, leading to under performance and giving way to a new crop of locally owned competition.

terminalshort3• 12 months ago

Southpark had a great episode on this where they burn down the Walmart and then this happens https://www.youtube.com/watch?v=scTjHvot3Uo

umanwizard3• 12 months ago

That is overly pessimistic. Plenty of businesses don't ever do what you suggest.

smcin3• 12 months ago

Can any of you name some, in the southbay and peninsula?

baristaGeek2• 12 months ago

Philz Coffee reportedly nearing a $145M PE acquisition. Just another "only in SF" story. Where your barista’s startup dream comes true, and the morning pour exits before your Series B.

rconti2• 12 months ago

Pretty sure the barista's startup dream wasn't to have the stock they own to be cancelled.

turnsout• 12 months ago

But what's more quintessentially SF than realizing your options are worthless?

koolba• 12 months ago

Dalla worked at Philz for nine years until last year, when he was laid off. He said that many longtime employees left around the same time as the company’s culture shifted to a more profit-driven, corporate culture.
On his way out, he said that CEO Sadarangani urged him against exercising his stock options — options that will now, barring changes to the current deal, be worth nothing. “I always assumed they would do the right thing,” Dalla said.

Wouldn't the options also be worth nothing now? So by not exercising them at least the exercise money was spared?

rconti2• 12 months ago

correct, not exercising them would have been better.

williamscales• 12 months ago

The tax hit, too, depending on the type and amount of options

Analemma_• 12 months ago

There is a bunch of shady and unfair behavior by the acquirers here, but yeah, that line doesn’t make sense. If the options are worthless, then exercising them would have been a waste of money - the CEO was helping this person out!

I think this article was written by someone with lots of outrage and little actual understanding.

asadm7• 12 months ago

Wasn't Philz the only Pro-Palestine coffee chain. That's too bad.

adastra223• 12 months ago

I fail to understand why a coffee shop should be taking sides on geopolitical conflicts.

asadm7• 12 months ago

I agree. No idea why Starbucks, McDonalds, Zara etc. came out shouting support for Israel out of nowhere. Requiring a boycott from sane people.

thornewolf2• 12 months ago

everyone takes a side on everything. explicitly or implicitly. intentionally or unintentionally. due to the interconnected nature of the world, it is impossible to construct a true-neutral position. the appearance of neutrality becomes more difficult the more important an issue is to those you interact with.

so, it's not really well-defined to ask whether or not a coffee shop "should" be taking sides, it will take one in all situations. it is a (slightly) more tractable question to ask "how should a coffee shop take a side?" Given how difficult this question is to answer still, I like to answer it with, "doing good is generally aligned with the long-term profit-motive."

this is also why boycotts are actually useful! though collective action, you can align the profit-motive with "good" clearly. this makes it easier for a coffee shop to move in-line.

mingus88• 12 months ago

Because all businesses are run by people and everything is inherently political

Coffee production by itself is already mired in geopolitics.

And as a customer, where we spend our money matters. It’s often the only voice we have.

Take a look at Black Rifle Coffee Company. Their brand attracts a certain type of customer. It’s a market differentiator.

jajuuka• 12 months ago

The founders immigrated from Palestine so that's not surprising. They even donate a portion of proceeds to Palestinian aid efforts. Surprised to see they are going under though. They have been a grocery store staple for a while.

yapyap2• 12 months ago

if you make coffee at home you can decide yourself whether it’s pro Palestine or pro Israel

asadm7• 12 months ago

who needs coffee, i rawdog my days.

umanwizard3• 12 months ago

Apparently not all that pro-Palestine, if Wikipedia is to be believed:

At the end of 2023, five employees were sent home from the Gilman Street location for wearing Pro-Palestine pins. Despite asking for a written statement from management about why the pins were not allowed, the employees never received any information from management. The employees were sent home and the entire staff unionized.

asadm7• 12 months ago

i assume this was AFTER this takeover?

naet• 12 months ago

In my experience around the SF bay area the vast majority of local or independent coffee shops have a Palestinian flag or stand with Palestine poster right on the front glass.

While I think that your choice in coffee shop has little to no effect on the actual Palestinian country or people, you can always try going local instead of supporting these multi million dollar chains.

asadm7• 12 months ago

indeed. I love the late night Yemeni shops that have popped up.

mc32• 12 months ago

That sucks. It sucks that employees’s common stock will be cancelled. It also sucks that the vitality of the company will be drained. Maybe this was its destiny.

With investments they were able to furnish nice locations pretty well. Better than many normal franchises.

But perhaps that was overshooting and they will be brought back to financial reality by the PE firm —they’ll try to make it turn a profit at the expense of employees and customers but then again maybe it was existing on borrowed time (money).

At least, so far, it’s a slightly better story than the ice cream shop that grew too fast and then had a complete meltdown from the financial burden.

branperr• 12 months ago

Is there any good reason why preferred stock exists? It just seems like another tool to screw people over in favor of investors.

czhu12• 12 months ago

To entice investors? Im not a lawyer, but I assume you're perfectly free to try to raise money by selling common stock to investors?

mlinhares• 12 months ago

The reason is to protect investors.

ubermonkey• 12 months ago

The big answer is "no."

I mean, look at Meta. The stock you can actually buy through your broker is not actually a stock that can control the company, so in a very real sense it's not a "share" in Meta. Zuck controls nearly all the "preferred" shares that have supervoting privileges, so he can operate it as though it's essentially a private firm. The board, which in a conventional public company could exercise control over the CEO, has no ability to remove him.

jwatte2• 12 months ago

Voting rights in founder-led public companies, and liquidation preference rights in private investments, are very different things.

contingencies• 12 months ago

If you raise money, sometimes you just want the money. Other times, you are happy to cede some ownership and/or control. If things go pear shaped, investors want some protection. If things go really well, sometimes they band together and kick you out of your own company. At some point rules have to be codified: the systems for doing this are share classes, voting rights, information rights, articles of association, board resolutions, etc. While you can start a totally new system and run your company using a magical talking stick and rubber duckies on the blockchain, the reality is that just makes it unfamiliar and hard for conventional institutional capital to invest in, it also makes it hard for slow-moving conventional institutions such as banks and lenders to grok your operational process and internal structure, which in both cases generally limits your upside.

jwatte2• 12 months ago

Because someone who might invest some money, maybe wouldn't invest that money if they didn't get the preferred class protections?

This is similar to how different credit risks get assigned different interest rates.

Companies failing (or close enough to failing that they restructure and wipe out common) is not uncommon in start-ups. If you want a more or less sure thing, you'll have to work at a more or less sure employer, and the risk/reward will be different.

Now, whether those who exercised their Philz options and paid for the shares, were really aware in what they were doing -- I don't know! But there doesn't seem to be anything explicitly sinister about the way this was set up, or went down -- simply, the business didn't do well enough. Which is too bad, because I think their coffee is actually good.

FreakLegion• 12 months ago

Yes. Preferred shares give investors their investment back first if things go wrong.

If an investor gives you a million dollars for a piece of your company, and you turn around and sell the company for a million dollars, then the investor gets their million dollars back and you get nothing. Obviously. Any other outcome would be shenanigans.

Under standard deal terms investors get 1x, i.e. their money back. That's all.

yapyap2• 12 months ago

they can just cancel stock?

boothby• 12 months ago

On his way out, he said that CEO Sadarangani urged him against exercising his stock options

I'm curious about this, as it sets off a little alarm in my head. Is this a legal thing for the CEO to do?

xvector• 12 months ago

It's not. CEO needs to be put in prison.

gsibble• 12 months ago

Sounds like Windsurf.

k310• 12 months ago

Speaking as a coffee drinker, I saw Philz distribute through retail stores far away from SF, and expect enshittification (figuratively) in the future.

For other Tesora addicts, the house brand Italian roast at Safeway/Von's is very similar and a lot cheaper.

I can't imagine what changes are coming. Probably Son of Philz AItalian Roast.

It was fun and flavorful.

Philz Coffee close to closing deal to sell to private equity firm for $145M

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