David's Tea

Decommoditize tea: make a stodgy grocery aisle product fun and young

In 2007, tea was either a faceless grocery commodity (10 brands of Earl Grey, picked by box picture and price) or an intimidating quiet specialty shop. Segal saw an opening to put tea on Main Street and make it young and fun.

“We had the idea because nobody's really doing tea in a fun way on the main streets of the country, and tea was— had this stodgy vibe to it. And really, there was an opportunity to make it a lot younger.”

Steal thisFind a boring, commoditized product category with no fun brand and reposition it as young and approachable.

He pitched a 90-year-old cousin on tea, built it to a $1B Nasdaq cap

David Segal, then 26, had the idea for a fun, youthful tea brand and pitched his much-older cousin who agreed to back him. David's Tea grew to a billion-dollar market cap on the Nasdaq with $200M in sales before he sold his stake in 2016.

“He said, you do it and I'll back you. And I was like, great. We got to work and built a brand, grew it. And anyway, at its height, it was a billion-dollar market cap on the Nasdaq, $200 million sales. I sold my stake in 2016.”

When the board and management fight, nobody serves the customer

Segal's first million came from a private equity deal with Tom Stemberg (Staples founder) at Highland Capital, but the partnership soured as his cousin wanted family members in while Segal wanted a meritocracy. The company went public partly so the PE group could exit and the warring parties could separate.

“And when your management team and your board are fighting with each other, you're not focused on creating value for your customers. And I just want to get out of there. There are too many bullets flying.”

Sold IPO shares at $14; the stock trades at $4 today

Despite making ~$30M EBITDA and not needing the cash, Segal and Highland sold shares in the IPO to make it big enough. He sold at an average of $14/share; the stock later fell to $4.

“I ended up selling it at average price of $14 a share, and, you know, the stock today trades at $4.”