Ace in the Hole: Oats Overnight Raises $21M

There are many ways to fund a startup, but using the winnings from a career as a successful, high-stakes professional poker player is certainly not the norm. However, Oats Overnight CEO Brian Tate is ready to go all-in, announcing today his seven-year old company had closed $21M in funding this week.

The oversubscribed round included participation by Singh Capital Partners, BFG Partners, Impatient Ventures, Watchfire Ventures, Morrison Seger Venture Capital Partners, Vanterra Ventures, Access Capital, and Pure Ventures. Prior to this, the company had been self- funded by Tate, and then raised $9 million in funding, mainly via several SAFES.

Tate formerly was one of the top poker players in the world, prior to that career playing Magic the Gathering professionally. The inspiration for the company came from his preferred meal while on tour playing poker; several members of his executive team are also former professional poker players.

Founded in 2015, the Arizona-based company has a run rate of over $100 million, with $55 average order volumes, and profitability expected by April, according to Tate.

The new capital  will mainly hit the balance sheet, Tate said, and go towards acquiring more inventory and upgrading its manufacturing processes via new equipment purchases. Key to its success, Tate said, is that Oats Overnight is a vertically integrated company, handling the manufacturing, packaging and fulfillment of its protein-enhanced, low-sugar, creatively flavored oats. To support these efforts, the company has 250 employees, largely on the manufacturing side.

“We feel really excited to have this capital for the balance sheet to invest in machinery, invest in this new facility and get efficiencies up. Automation, of course, is always a big win from a margin perspective, and really helps us reach that profitability faster,” Tate said. “We took just what we needed to be both comfortable going into whatever this next year will bring at a macro level…we want[ed] to make sure we can be solid, but also maybe [go on the] offensive.”

Currently the business’ sales are 80% direct-to-consumer, 10% on Amazon and 10% in retail, but the company hopes to bring that online to retail ratio closer to 50/50 by 2026.

“A big thesis of ours is that consumer preferences are changing constantly, and strategics that are getting data through retailers have very, very long drawn out feedback loops. There’s a lot of friction and there’s not a lot of good information,” Tate said. “We really think that our build, the way we’ve structured the business, it’s very data oriented.”

In brick and mortar, which Oats Overnight entered two years ago, the company sells shelf-stable bottles, filled with 2.2 oz. of oat milk powder and its flavored oat/protein mix, requiring consumers only to add water. Packaging was selected because the end product is more like a shake than a bowl of oatmeal and is easier for on-the-go consumption. Though the bottle format is unusual in the oatmeal set, Tate says the product competes with single serve heat-and-eat oatmeal bowls. The brand is in over 2,000 stores including Walmart, Whole Foods SoPac region, HEB, Meijer, Safeway Albertsons, and Wegmans.

However, it’s online where the brand has really taken off, selling 2.8 oz. sachets which retail for $60 for 16 meals, or $84 for 24 meals and are far more efficient to ship. Unlike the bottles, customers have to add their own liquid and then, ideally, shake in a blender bottle or blend.

In addition to one-time purchases, the company also maintains an active subscription business, currently with 130,000 subscribers. First-time subscribers are offered $21 off their order as well as a free blender bottle, and then subsequently receive $6 off every future order. Subscribers typically order 16 packs per month, Tate said, and the company “overindexes on retention” with most shoppers who pause their subscriptions returning in six months, spurred to rejoin by the release of a new flavor.

“We’ve seen LTV expand at a 25% CAGR over the last five years and those LTV expansions allowed us to pay incrementally higher CACs while still maintaining a really, really healthy payback period,” Tate said. “We have a very strong brand LTV which allows us to be much more nimble.”

This emphasis on flavor variety and limited time offerings has been another key to the company’s growth. Every subscriber’s order includes a packet of a flavor currently in testing, with customers encouraged (and incentivized) to provide feedback. These real-time focus groups then help Oats Overnight determine which products should be offered on the wider ecommerce platform as well as what may eventually make it to retail.

Subscribers not only have a private Facebook group, which currently has 21,000 members and an average of 1,000 comments per day, but access to exclusive flavors. Currently that subscriber-only storefront, for example, has 35 flavors while one-off customers have access to only 21 options.

“We always give feedback to our customers. We say ‘this is what we heard from you. This is how we changed the formula,’ or ‘this is why it was not released,’” said Nina McKinney, chief strategy officer. “There’s this actual incentive to be involved in our product development process because their voice is truly being heard and listened to.”