Coffee Circle: A conversation with Martin Elwert and Andreas Kirchschläger

Coffee Circle is a Berlin-based company that aims to bring the world’s best coffee directly from producers to consumers in Europe. By integrating coffee farmers into the value chain, they foster positive social change in coffee-growing regions. elea played an active role as an early investor in Coffee Circle from 2013 until its successful exit in July 2023. We recently had the pleasure of inviting Martin Elwert, the founder and CEO of Coffee Circle, along with our CEO Andreas Kirchschläger, to reflect on this long-term partnership, the key drivers behind its impact and the business model’s success, as well as the shareholders’ exit.

Andreas: Coffee Circle’s innovative model for locally sourced coffee, a product we appreciate daily, immediately grabbed our attention. The early adoption of online sales gave them an edge over traditional retailers. Yet what stood out the most was Martin’s dedication. Seeing his genuine interest in improving coffee farmers’ livelihoods and engaging with them during our visit to Ethiopia left a lasting impression. He effectively conveyed to farmers the significance of their product and how it is valued by consumers worldwide.

Martin: In 2013, the landscape for impact investments was virtually nonexistent. However, in conversations with elea, I experienced a breakthrough moment. For the first time, I felt that a potential investor understood our vision for generating sustainable impact through an entrepreneurial approach and was willing to embark on this journey alongside us. There was a mutual understanding that such endeavors demand patient capital and a long-term perspective regarding return on investment.

Andreas: Our interaction with Coffee Circle was very stimulating, as we swiftly recognized our shared objectives. We aspired to a commercial model where impact was not merely an incidental outcome but a deliberate pursuit. The pivotal question for us was whether the implementation was plausible with the given business model, team, and market dynamics. After extensive discussions with the founding team, we were thoroughly convinced about its feasibility. For us, the priority was not the growth pace but rather the focused joint journey towards achieving our shared goals.

Martin: Honesty and transparency formed the basis of our reliable long-term partnership, even during challenging times. I have never felt the need to put on a facade; the exchange has always been transparent and genuine.

Andreas: The founding team’s openness was immensely valuable to me. We fostered an environment where we were able to discuss all topics, even when one founder withdrew during the initial investment process. Our dialogue remained robust, and our joint objective to achieve our goals never wavered. Overall, elea is committed to fostering partnerships built on transparency, honesty, and equality. We continually assess ourselves to uphold these standards in our collaborative relationships.

Martin: No. I approached the topic as a consumer, and I had a solid education and boundless energy. Alongside my two co-founders, we quickly grasped market structures and made our own informed decisions, like investing in direct trade instead of fair trade. Ethiopia, in particular, ignited my passion for making a positive impact, although I was always mindful of market dynamics and economic incentives. It was crucial for me to involve coffee farmers in a participatory manner and express genuine appreciation for their exceptional product.

Martin: Direct relationships with coffee farmers in Africa, South America or also Asia are key. Regular communication and visits foster mutual trust and deepen our understanding of local conditions. We also strive to bridge the gap between consumer preferences in local markets and those that are abroad, like Berlin, which are quite distinct, by explaining these differences to the farmers. We integrate farmers into the coffee value chain, enhance coffee quality, and secure better prices. Our efforts have enabled cooperatives to supply not only Coffee Circle but also other globally renowned specialty coffee roasters and traders, thereby significantly expanding their sales market.

Martin: One significant aspect was calculating living incomes, a process that involved spending two weeks engaging with focus groups across several cooperatives. We delved deep into understanding the composition of household incomes, realizing that coffee constitutes only a portion of it. We analyzed other crops that are grown for both consumption and sale, as well as their corresponding costs. This thorough approach enabled us to develop a comprehensive understanding about the economic realities faced by coffee-farming communities.

Martin: First, we create significant additional income for the farmers by buying their high-quality coffee from remote areas and paying a high price for it. Furthermore, we invest in training and infrastructure (e.g., coffee-washing stations) for the farmers and work together with them to achieve top quality and higher quantities of coffee. Beyond that, through the Coffee Circle Foundation, we invest EUR 1.00 per kilogram of coffee sold back into coffee-growing regions. To date, our investments total more than EUR 4.5 million across cooperatives in Africa and South America. Working alongside local communities, we also implement initiatives related to health, education, and coffee cultivation. For example, clean water access is a priority, since it is a fundamental right that is often lacking in many regions. With Coffee Circle, we have developed springs, constructed an extensive pipe system and water kiosks, which benefit over 100’000 individuals – a significant impact on entire regions. Moreover, our WaSH projects encompass various components, including drinking water supply, sanitation, hygiene training, food security and biodiversity conservation. To summarize, we have introduced innovative concepts that, when successful, are sustained and expanded by the communities in the long term.

Martin: Continuous improvement of coffee quality through farmer training and in-house roasting at our Berlin roastery has not only enhanced our product but has also positively impacted our margins. The integration of technology and e-commerce into our core identity has further driven growth by boosting our online visibility and sales. Furthermore, the opening of five cafés in Berlin has marked a turning point, as offline sales have become a significant revenue stream for us. In these cafés, consumers can not only enjoy our coffee specialties and snacks but also buy coffee and equipment and learn about where our coffee comes from.

Andreas: Recognizing the limitations of forcing growth in this niche, high-price segment, we explored diverse strategies for substantial expansion, such as entering new markets and diversifying the product range, as well as expanding into retail and physical points of sale. We saw that managing differing investor growth expectations posed a significant challenge, particularly for Martin, and we supported him with that.

Martin: One of our primary challenges, quite classically, was sales – specifically, whether we could sell our product at the anticipated pace. The second hurdle revolved around consistently securing financing for Coffee Circle. This was further complicated by our commitment to social impact and the necessity for patient capital, factors that are not always aligned with investors’ priorities.

Andreas: The first restructuring of Coffee Circle, approximately a year after the fundraising period, posed a significant challenge for me. We had to make difficult decisions, including major staff cuts in Berlin, as the organizational growth outpaced sales growth. During this period, I was particularly impressed by Martin’s behavior given his straightforward approach and transparent communication with employees. He guided the organization through this challenging time by providing clarity and showing respect to everyone involved.

Martin: Since many investors had long-term stakes in Coffee Circle, I felt a certain pressure throughout the last years of their investment to provide them with a favorable exit strategy. At the time, my own shares represented only thirteen percent of the company.

Andreas: I viewed our role as helping Martin to carefully consider the implications of his decision. For instance, we advised against a sale a year ago, because, at that time, the true essence of Coffee Circle (i.e., access to coffee farmers and the ability to connect their story with customers) was not fully appreciated. We also supported the process of finding compromises and agreements among existing investors.

Martin: We sell coffee equipment, which occasionally requires repairs – a challenge shared by everyone in the market, including our new investor. During discussions about repairs, the idea of pooling resources emerged. In one of these meetings, we discussed our core business and his interest in investing. The unique aspect of these discussions was the pre-existing trust and familiarity between us – unlike a typical pitch scenario.

Martin: Ensuring alignment on Coffee Circle’s strategic direction and securing my long-term involvement with the company were paramount to me. This vision became a reality with the arrival of our new investor, who shares our values and admires our product and team. Importantly, this investor recognizes sustainability and social impact as integral to corporate responsibility, making it a fortunate match. I am also grateful to our former shareholders for their agreement, which enabled us to reach a mutually satisfactory solution for all involved.

Martin: In the next five years, I see Coffee Circle continuously expanding the number of physical stores in urban areas in Germany, where there is a concentration of quality-conscious customers who appreciate Coffee Circleֹ’s values and social impact. The rise of roasteries in cities over the past five years has fueled the emergence of the specialty coffee segment. In terms of volume, Coffee Circle ranks among the largest providers in this segment, boasting market leadership in online sales. Moving forward, it is imperative to maintain excellence and seamlessly integrate new cafés into our structure. This approach will ensure continuous and sustainable growth in the coming years.

Martin: We aim not only to preserve but also to enhance our impact model. Discussions with the new investor, who is backed by a consortium of socially committed larger companies, are underway to explore pooling funds into our Coffee Circle Foundation. This collaborative effort has the potential to significantly boost our impact on coffee farmers and communities.

Andreas: Coffee Circle serves as an inspirational model in several ways. Success is fundamentally a motivator, as it encourages others to join in. The Coffee Circle journey underscores that success is seldom linear, and setbacks are inherent in entrepreneurship. It also demonstrates that perseverance toward long-term goals pays off. Professionalism in executing impact ideas is another key takeaway. Entrepreneurs like Martin and their teams exemplify this with their expertise, dedication, and ability to grow.

Andreas: Absolutely! Our relationship with Martin and his team has spanned fourteen years, fostering a strong personal connection. As a result, I would not hesitate to consult the team nor to seek Martin's advice when needed. The enduring trust we have built is incredibly valuable, providing a solid foundation for continued collaboration and growth.

Martin: Remaining a member of the elea Entrepreneurs' Community is of utmost importance to me. I made that clear before closing the deal. With this community, elea has created something unique, which most investors and funds are unable to offer due to their different organizational structures. Discussions with fellow entrepreneurs within the community enrich me both personally and professionally. I also look forward to sharing the learnings from my entrepreneurial journey and the shareholders’ exit with the community. An outstanding highlight for me was my participation in the world-class "Leading for Impact" program, offered by elea in partnership with IMD Lausanne. This program provided problem-solving tools, tailored coaching sessions, and insights into effective team and organizational leadership, which have all significantly advanced my entrepreneurial journey.

In 2023, elea successfully exited its investments in Coffee Circle, Digital Divide Data, and Virohan, which were all able to grow substantially thanks to elea’s support over the years, thereby attracting commercial capi­tal for the next development phase. This successful conclusion of our long-term involvements was a very rewarding experience for the elea team, as it proved that our model is viable and, beyond that, allows us to reinvest the regained capital into new, promising impact ventures.

Interviewer and author: Romy Sauer, Communications Specialist at elea