Soon for sale: Altos Ventures-backed Cafe Knotted operator

Silicon Valley-based Altos Ventures-backed Good Food For Good (GFFG), operator of South Korea’s popular dessert cafe, Cafe Knotted, will likely soon be put up for grabs, according to investment banking industry sources on Wednesday.

The company, which runs multiple food and beverage brands, including Cafe Knotted, a homegrown donut brand that once created a doughnut craze across Korea, is said to be in talks with two potential buyers after verbally tapping demand, said sources.

It is said to be hoping to raise more than 80 billion won ($5.7 million) from the sale, which includes not only Cafe Knotted but other brands such as Hojokban and Littleneck.

The company’s asking price is 16 times higher than its earnings before interest, taxes, depreciation and amortization (EBITDA) for 2024.

Currently, Norang Food Co., operator of the popular Korean-style fried chicken chain Norang Tongdak, is up for sale at a valuation equivalent to 10 times its EBITDA.

GFFG reported 63 billion won in revenue last year, 85% of which is from Cafe Knotted. This suggests that the company’s valuation will be determined based on the value of the dessert cafe brand, which posted 5 billion won to 6 billion won in EBITDA in 2024.

As of 2024, GFFG’s largest shareholder with a 53.4% stake is its founder and Chief Executive Lee Joon-beum. The remaining shares are held by other financial investors, including Altos Ventures, NH Investment & Securities Co., Korean Development Bank and Musinsa Partners.

TOO CHEAP?

To these FIs, the asking price is, however, too cheap.

When GFFG raised 30 billion won from Altos Ventures and QUAD Investment Management in a Series A funding round in 2022, its valuation was estimated at 300 billion won.

Since the funding, however, Cafe Knotted’s popularity has fallen, largely due to the rapid expansion of its chain stores, which has made the cafe less desirable.

Its Instagrammable donuts in pastel packaging went viral soon after their debut in 2017, thanks largely to their perceived exclusivity, with only a handful of stores carrying them at first.   

Following the expansion of its operations through franchise contracts, however, the premium value of its donuts has noticeably diminished. 

Yet some have claimed the company merits a higher price tag, citing its capability to leverage its brands across new applications and evolve them into intellectual property content.

LIFESTYLE PLATFORM PROVIDER  

With its signature characters Sugar Bear and Smiley, Cafe Knotted stands out among dessert cafes in the IP business. 

It has succeeded in diversifying its revenue sources with other businesses, such as Knotted World, a cultural space offering experiences beyond desserts.

It is also growing its footprint in the global market with its flagship stores. Last month, it opened its first US store in Los Angeles. 

In view of its ability to transform its brand into a lifestyle platform, GFFG remains attractive to strategic investors, said industry observers.

Its valuation is expected to be determined by the funding outcome for another popular local dessert cafe, London Bagel Museum, which has a valuation of up to 300 billion won.

Write to Da Eun Choi at max@hankyung.com
Sookyung Seo edited this article.