How West China Tea Grew to $650K-$800K a Year and Took a $160K Deal

We're here in Austin, Texas about to meet a bootstrapped founder named So-Han who built West China Tea up from nothing. People would come

and sit on the floor and drink tea off of a suitcase.

In your first year, how much did you sell? Do you remember?

Maybe around 10. Here at this location, we're doing like between $6.50 and 800. Yeah. Yeah. Thank you.

That's incredible. Thank you. Today, he's looking to expand. I'm looking

for 30 ks to put roofs on the seating areas. People can pay $10.15 bucks just to go in the backyard. There's big pots of tea on the table.

The question is, does he have the capital to do it? And if not, will he get me excited enough about his growth plans to cut a check on the spot?

A couple years ago, one of these sold at an auction in Hong Kong for $45,000. Right? I have not glimpsed the ceiling of value of this industry.

Hey. Hey. Welcome. I'm Nate... I'm Nathan. Awesome. So-Han. Nice to Yeah. I love Your place.

This is West China Tea. Come on in. This is our tea bar. This will be completely full of people drinking tea. It's like a bar. Mhmm. Right? You sit down, you pay per drink that you get. The bartender's pouring the same drink for everyone at the same time. Everyone drinks it. Everyone's charged $6 for that. It takes about 15 minutes. Then we move on to the next tea. People just hang out as long as they want. Okay. And they pay the end.

Are they sitting here for five hours on a Friday night? Is it one hour in the morning to get started? What's the behavior like?

People usually will stay for at least thirty minutes and some people will be here for six, seven hours. Okay. We have a membership program, so members get 10 free pots of tea per day at the front of house and so they'll they're the ones who will be here for hours and hours. Everyone comes in through this front door, they're met here. This is kind of our front service kiosks that we check people out.

Okay.

We've got snacks. Retail purchases are made here and people, when they're done drinking tea, they get a ticket that says how many teas they had and then they come and they redeem it here and they pay it here.

This is just like regular right?

Is It's it like regular tea.

Special kind of tea. Does it do anything to me, like, for a neurologist?

Yes, it's regular tea, and yes, it does something to you from a neurological perspective. Unfortunately, we use the word tea in this very general sense in America. That particular plant is called Camellia sinensis, and it is psychoactive. It's not psychoactive in a tea bag because the quality of the product and the dosage are both too low. Okay. So you will never feel what's called chadzui, tea drunk. What you feel when you're drinking tea, good tea, or a lot of tea.

Oh, the six hours makes sense. I would love to feel tea drunk every now and then.

Let's see what we can do.

Like, go to YouTube. You guys check out tea maybe from your local places, but have

you ever truly been tea drunk? Let us

know in the comments below.

This is some fresh green tea. This is some spring green tea. It's all from China. We do our own direct sourcing. If you pick a bag off the shelf, I know the person who made it. Not on the Internet. In real life. I've had dinner with them. I know their kids. I know their dog.

A random new customer comes in and sits down. Do they expect you like a wine smiley to know the full story? Do you have those all memorized?

That is a huge, huge part of what we do that you don't get at other tea places, is having this like really, really intensive informational aspect. This tea has a story. This is infrared. This is an ancient tree. The older the tree, the more valuable the tea. If you go to the store and you pick up a tea bag, there's no story there because there is no person. There is a company. Yep. This is our Fulfillment

Room, and this is where we're packaging the teas. We started the website in 2020 because you can't do what we do in a COVID environment. So we started the website and built out the fulfillment center in 2020 to pivot so that we could still be in business. As we were still opening up the tea house again, the website was pulling most of the weight. Now the tea house is definitely outperforming the website. I'd say probably sixtyforty

or maybe even like seventythirty. This is our tasting room. It's a floor level tea bar. People will book a tea tasting in advance and bring a group so that they're not just sitting with random strangers at a table. They're got a dedicated tea server.

What does that cost if they just wanna book this room with friends on a Thursday night?

It's $25 per person per hour with a minimum booking of three people.

How many full time employees do you have?

Full time? I think like seven or eight. I think we have 20 employees total. What we're about to do is basically just exactly what Chinese people are doing when they do this practice. It's called gongfu cha. Gongfu means skill acquired through mindful practice. Cha means tea. And so it's a discipline associated with making tea, not just tea businesses. If you go to a hotel, you go to a hardware store. In the right part of China, someone's

got a tea table, they're doing this. I'm gonna go ahead and warm up my tea service vessels. This is my gaiwan. I could also be using a little teapot. Unlike coffee, you steep tea multiple times. We need to steep it very quickly, and we steep it again and again. Because if we can steep a tea 10 times, you only drink the first steeping, you're only drinking oneten of what's in the tea. Now we're gonna make the

tea. I brought, this is our little sample pack. This is like kind of a flight of teas. It's a tube with nine different teas in them. There is a long standing tradition of tea being pressed into cakes for export. This is a full size bing, which means cookie or cake, and these were traded along an ancient trade route called the Tea Horse Road.

This is

what it looks like. So what does this cost you? This is like a... This one's kinda old, so this one's a little expensive. This is like a $275 what retails And they get... The more valuable as they get older.

So how many how many glasses of tea could you serve with this one? I would

say this would make 70 pots of tea. Each pot of tea could serve, up to, like, 10 people.

So 700 potentially individual drinkers. Sure. Yeah. If you had more capital, would you go buy more expensive higher end?

More different kinds for one. More expensive ones. Yeah. Absolute... A 100%. Yeah. That's that's the constant struggle because tea is like wine or whiskey. There's just so much out there. Yeah. So I've got my my little mini microbe being in here.

So you hear the water, you then warm all the sort of materials. Now it's gonna steep for how

this because it's a little cake, it's gonna take a sec to open. And then once it's open, it's gonna steep for five to seven seconds. Or so quick. Yeah. Okay. So this is Puar Tea, which is an aged fermented tea. This is one of these teas that gets better with age. Look at that beautiful rich red brown color. Mhmm. And then go ahead and taste it. Okay.

So we're gonna smell first. Okay. We're gonna slurp it as we sip it.

Good slurping. Mhmm. And then after you swallow, exhale through the nose. Three sips is the perfect number of sips.

You do it so quickly, you just go for it, Yeah.

I'm I'm a professional. Yeah. I do this all day.

Talk about tea drunk earlier. How many of these cups would I to have have to actually sort of maybe start feeling a little something?

Honestly, one. If it's the right tea, if it's the right time. Exactly. Yeah. Exactly. It really just depends. Each tea has its own chi. And so, like, this tea, I think of as being, like, grounding, calming, embodying, but some teas are very stimulating, some teas are more euphoric, some teas are more psychedelic. So that's why people will sit here for for hours and hours. Take me back to

when you launched the business. What year was that?

Okay. We need to do

we need to drink

more We need like a dream sequence cutaway for this. Yeah. I'm Chinese American. My dad's from Hong Kong. I grew up drinking Chinese tea. So I'm like, you know, 19, 20. And I

stumble into a tea shop. I go to the back of the room, and there's a dude named David Wright in a Chinese robe. He's not Chinese. And in Chinese robe, pouring tea. And he serves me a little cup of tea. And I'm like, what is this? He's like, this is Gong Fu Cha. This is like a Chinese tea service. Kind of does the whole spiel with me. I drink it. I love it. I go to San

Francisco. I buy a tea set. I'm drinking tea with my girlfriend, my housemate. My friends come over to study. I serve them tea. So tea became my main way of socializing, and it just stayed that way. I moved to Austin. I get a job at a tea shop in 2009 called Jade Leaves Tea House. I start their Gong Fu program. They didn't have one before. We had a pretty good tea house going inside of a failing

restaurant. I see. And this is what you see over and over and over again with tea shops. So they try to be restaurants. They try to be bakeries. They try to be coffee shops. You can't do that. Tea doesn't work that way. And when food is on a table with tea, tea becomes a beverage. Yep. It's no longer the focus. I leave Austin in 2010. I moved to China.

Well, how long did you stay in China before coming back to the state?

Three years, and I met a bunch of these tea farmers, including this guy whose tea we're drinking right now, while I was living there. Moved back here and just brought some of the tea that I'd gotten from these tea farmers with me. Yep. Drank it with my tea friends from back in the Jade Leaves days who still lived here and still liked tea, and we drank all of it. 2013, started the business because I ordered some tea from China, from these farmers. I got it sent over. My friends gave me money. They were like, here, let me give you some money to get some tea also.

How much did you raise?

Oh gosh, a couple $100, like 300 Yeah, not that much. I get this box, I lose my job, I start my company, or I start selling tea, and the first place I sell is out of a room, a 200 square foot room in my friend's house.

So in your first year, how much did you sell? Do you remember?

God, no idea.

Not a Under how much? Under 5 k worth?

Maybe around 10 k. People would come and sit on the floor and drink tea off of a suitcase. I was thinking, oh, people are gonna come, they'll sample the tea, they'll buy some tea, And that's the main event is them buying the tea. It wasn't. The main event was them drinking the tea. People would come and they'd they'd sit for, you know, two hours while I would do these... I call it office hours, these sessions. Mhmm. And then the crowd just kept getting bigger and bigger and bigger. Every week, they were really there for the experience of sitting and drinking tea with people. That's what surprised me is how popular it was for people to just sit and drink tea with each other for hours.

The business has obviously scaled since then. Last year, how many people do you think you served tea?

So this is our thirteenth year in business. Here at this location, since we opened in May, I mean, thousands for sure. And we're doing, like, between $6.50 and 800, you know, gross revenue a year, with the whole company. Yeah. Yeah. Thank you. That's incredible. Thank you. And we own this. This is our building. We own this.

What's your goal for this year?

This year started off super slow because of the trade war, because of having this place being newly opened and like regaining our traction, I would be glad to make 800. Where do

you see this business in three, four, five years? And is there some way that My Capital could help accelerate your ideas?

Oh yeah, absolutely. The next thing that I want to do is to get this yard done because we're gonna introduce another service model. This is the first time we've had a big outdoor space, and we're really excited about it because tea is best outdoors. Chinese tea is traditionally consumed outdoors under a tree. And my business partner, Nate, he has completely renovated this place.

How much did you sink into just that area? I mean, that doesn't look cheap.

Oh, no. It's not cheap. I think that we're probably, like, like, 60, 70 k deep in this, and we've got a couple couple, maybe $10.15 k to go to to finish it, which the finishing is gonna be roofs on some of the seating areas, finish the fence so that it's completely enclosed.

Did you raise money to do this, or did you reinvest cash flows?

We just reinvested cash flow. That was a big hit to our our inventory because we had

Your bank balance, you mean?

No. Our inventory because what we did is we leveraged the tea inventory, and whereas normally we would sell tea and then use the revenue from that to buy more tea, we just let ourselves run lower on tea. So the value of our inventory has shrunk by, like, hundreds of thousands of dollars in the past two years because we've been using that tea that we had... That catalog that we built up to fund the build of this

place. I mean, we did take a loan, you know, for the renovation of this place. Okay. How big is that loan? I think that was, like, 75 k. Okay. So not... Was that a... Not crazy. It was a construction loan.

Construction loan. Construction loan. Yeah. Is there any other debt on the books besides the construction loan?

We've got some merchant cash advances.

How are those how are those working?

The goal ultimately is to stop doing those because they're not good debt. They're... How expensive are they? Pretty expensive. I think one of them is like 20%. It's just that we're we're paying a percentage out of all of our transactions that we run through PayPal or...

How much total is that? Do you owe PayPal today?

Oh gosh, like probably like 40 ks.

40 ks.

Okay, Not Not a ton. We have credit card debt.

How much do you have there?

Oh gosh, I think like 75 is our credit limit on the one card, maybe 20 k on another card. And have you

taken on any equity, or does you and Nate, your co founder, own fifty fifty?

We... No. Secondly, I still own the whole company. We have not actually done any kind of equity split. You know, he's... Him and a couple other folks who've helped me have small amounts of equity promised to them in the company that we have not actually done the paperwork for yet.

You don't strike me as a paperwork kind of guy.

I'm not. Yeah. You you you you clocked me. I'm not a paperwork kind of guy.

How much money do you need to finish this yard?

Yeah. I'm looking for 30 k to put roofs on the seating areas, build out more seating areas so that we can raise our seating capacity, and then finish the fence and the gatehouse so that it's fully enclosed.

And when that's done, what will it enable you to do in terms of a new revenue stream?

We will be able to hold a door cover charge style tea service where instead of paying per pot in the evening, Austin people love to hang out outside with their dogs. People can pay $10.15 bucks just to go in the backyard. There's big pots of tea on the table. You get unlimited tea. I love hang out and socialize. Yeah.

I love it much better than drinking. I don't wanna be drinking. Yeah. I stopped drinking years ago. You should be thriving in dry January. Yeah. We do. But you told me you didn't this year.

This year was... I mean, the tea house did great. The website did not because we were down to this place where we did not have our selection. People come to us because on our website, right? Well, because we do retail.

How few SKUs did you get down to?

You know, like 50.

And how many SKUs do you usually like to have?

120, 130, minimum. Our inventory was 700 ks at its, if I look at QuickBooks, like at its peak, maybe in like 2023. And is

that the equivalent of just like hundreds of these sort of pies stacked on top of each other? That's what the inventory looks like?

It's that, it's teaware. I mean, we've got teapots. Like, an individual teapot costs $350, like, for a little teapot like this, you know? So So hold up one of

those really quick Yeah. And just rearticulate to the camera. So how many of these do you have in inventory today?

Oh, god. I don't know. Probably 60, 70, 80. They come in stacks of seven. We usually get 28 at a time.

What's the most expensive one of these run? Like if you had... If money was not an issue?

Oh god, if money was not an issue?

If you wanted to buy the thing you wanted.

A couple years ago, one of these sold in an auction in Hong Kong for $45,000. Right? And that's not that one's so expensive for old. It's from nineteen o five. So it's just like wine. People go crazy about this stuff in China. The the the... What we have here, even this fancy teapot, this is not an expensive teapot by Chinese standards. There are teapots that are thousands of dollars or tens of thousands of US dollars per teapot.

Yeah. Okay.

If it's made by a master, if it's fancy clay, if it's vintage, etcetera. So there's... I have not glimpsed the ceiling of value of this industry. How much cash would you want right now just to build your inventory back up? 60 k. Okay.

So the all in ask might be something more like 30 k for the backyard, 60 k to buy more inventory, and the rest to pay off credit card debt, 70 k. Yeah. Okay. So that'd be like a 160 k, something like that all in. Yeah. Okay. Are you interested in selling a portion of this on the equity side to raise money or you prefer a debt deal?

Debt deal. Yeah. Debt deal.

That was quick.

Yes. I've never sold equity in the company. I've never traded equity for money in this company and I probably never will.

You would not sell the company today for any amount of money?

No. No. No. No. This is my this is my vision. This is my life's work. This is what I'm trying to do. I'm not trying to sell this company. What do

you guys think on YouTube? Is it crazy? Would you sell a business for... That you love? That's your passion for one x revenue to a random investor from YouTube? Let us know below in the comments. It's a no from you. If I offered something like $150,000, where you paid it back over some period of time as a percent of monthly revenue, which

That sounds great, to be honest.

Yeah.

That sounds nice....

Because in a slow month, you don't owe as much. But the other side is in a big month you owe way more.

Right. Right. Right. Right.

So we could go that route or we could go a route where it's just a lower but consistent fixed monthly payment over some period of time.

Honestly, either of those are going to be better than the credit card debt. The debt that we've had to take on as a bootstrap business without lots of of funding behind us is just like... It's like a weight that you drag along. You know? It's just dragging on the ground, and it just slows down everything that we do. And if we can consolidate that expensive debt into less expensive debt, that's just an... It's automatic. It's just money in our pockets. Know?

I'm gonna offer you a debt deal, but I need to think about how long I'm gonna give you to pay it back. Mhmm. And I wanna I wanna match the payback period with what you're using the money to invest in. Right. So how long and how much money do you think this backyard experience could generate with the cover charges?

Looking at 24 ks per month and that's, you know, I don't know what the profit would be, but let's just gross estimate, like let's say that's 20 ks profit. I don't think we'd paying more than 4 k in payroll for just having someone man this backyard. That's 200 k? I don't know, two years? This feels like safe and comfy to me. Two years.

I love how... You've been bluffing this whole time, like you don't think about numbers or margins or paperwork, but that was a very good rundown.

Paperwork and numbers are different. I... Actually filling stuff out, I don't like.

That was a very good rundown of sort of a... How a business owner would think about a space. So here's what I'm gonna do. I'm gonna make you an offer where if you pay it back faster, it's cheaper.

Great. Love that.

If pay it back longer, it's more expensive because my money's at risk.

Of course.

So my offer is gonna be a $160,000. Mhmm. If you pay it back between years one and two, you pay back a 1.2x multiple. If it takes longer and you pay it back between years two and three, it's a 1.3x multiple. Between years three and four, it's a 1.5x multiple.

So

you're incentivized to pay it back faster Yeah. But it's What do you think about that structure?

I think it's something we need work with. I like the flexibility of it. The sooner that we can get this up and running, the sooner that we can get extra inventory, you know, time is money, there's an opportunity cost there. So Being able to do that and not have to grind our way to the point where we can afford to do this would be really valuable. So eight ks a eight ks a month. Does that seem

like something that we could do? If we get this thing up and running, like I said, then we should definitely be able to do that because said, we're looking at hopefully 20 ks a month. Even if I'm looking at half of that, we're still able to pay back.

And we like the margin of safety.

Here's my pushback. It's about to be summer. It's going to take us some time to construct this. Can we get this this first period, to start at three months, like in the fall?

Someone is effectively asking for a four or five month payment holiday, but I'm making no money on my money during it. I'm going to wire them 160 ks day so can get to work on this. I've got to make some money on it, so what I'll do is I'll do that offer, but I would add 0.05 to each of these if you wanted that. So 1.25, 1.45, 1.65 if you want a five month payment holiday to

start.

What if we're paying you back but we just add four months to this, so it's sixteen to twenty eight months for that first period? So we're still paying you back during those months, but we get a little bit of an extension on this 1.2 period.

So you want to keep the 1.2 x, but instead of between twelve and twenty four months, want to do it between sixteen and twenty eight Yeah.

Would do that deal. Okay. Cool. Do have a deal?

Yeah. There we go. Good. Money, baby. Magic. That's how money works. That's how money works.

That was a good negotiation.

That was well thought out. Thank you. I try. Yeah. Yeah. If

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