by Mike Montgomery
What we eat is changing dramatically. Grocery stores devote aisles to organic merchandise, farmers’ markets spill into the streets and restaurants list the producers that supply their menus. People have become suspicious of Big #food, a catchall term that has come to mean anything processed or fake.
There’s also a growing desire for transparency from consumers. People want to know what they’re putting in their bodies, which drives #health and fitness #entrepreneurs like Melissa Fox to launch their own companies in response. Fox’s M-Jo Life meal replacement products contain only plant-based, vegan and non-GMO ingredients. Products such as these are part of a group of food #startups that have elevated recipes to a higher order, or what Fox calls “ingredient curation” lacking from many mass-marketed products.
Big Food is trying to keep up with the times. General Mills has vowed to remove all artificial colors and flavors from its cereals by 2017. McDonald’s is selling fewer sodaswith its Happy Meals. And many big companies are just flat out buying health. General Mills spent $820 million to purchase Annie’s and Campbell’s spent $1.56 billion on Bolthouse Farms.
Still, as outlined in a recent Fortune article, the big boys are falling behind: Major packaged-food companies lost $4 billion in market share last year, much of it to smaller, more health-conscious companies.
Venture capital firms are taking notice. Over the past five years, they’ve invested nearly $570 million in food companies. Much of that money has gone into high-profile food replacement companies like Soylent, a powder drink composed primarily of carbohydrates that costs $3 a serving beloved by coders in the #tech community, and Impossible Foods, which is developing a plant-based meat substitute.
But now a growing group of investors is taking the VC tools that have worked in tech and is applying them to the real-food industry. We are seeing a trend in food-focused business accelerators launching in cities like Los Angeles, New York, Portland and Chicago. Like tech accelerators, these food incubators provide direct investment and mentoring as well as advice on business plans and marketing. But they are also tailored to meet the unique challenges of the food industry including manufacturing, distribution, and regulation.
New York based AccelFoods targets early-stage packaged-food companies with revenue of up to $1 million. For each startup it accepts into the program, AccelFoods initially invests up to $40,000, in exchange for 6–9% of equity. Its current investment fund of $4.1 million closed in January 2014.
“In terms of the investment landscape, strategic and financial buyers are looking to acquire high-growth brands,” says Jordan Gaspar, a managing partner at AccelFoods. “That’s moving sophisticated entrepreneurs away from other sectors and toward the packaged-food sector.”
Gaspar and managing partner Lauren Jupiter tweaked the familiar tech accelerator model to better meet the needs of food entrepreneurs. AccelFoods’ classes are smaller than at a tech accelerator (the current group has six members) and last longer (nine months, rather than the tech standard three or four months). AccelFoods doesn’t require startups to relocate since it’s more difficult to uproot companies in the food industry where local partnerships and regional differences loom larger.
Startups that complete the program receive an education in building a scalable brand. They learn strategies to keep their manufacturing processes consistent, so that one batch of hot sauce doesn’t look or taste confoundingly different from the next. They develop marketing plans to attract the right customers at the right prices. And they study government regulations, making sure their labels are compliant. “It’s not just about baking a cookie in your kitchen,” Gaspar explains.
That’s basically what Lindsay Karson was doing a few years ago. The former yoga teacher was whipping up batches of her non-dairy frozen treat, called Cows Gone Coconuts, in her kitchen and trying out samples on her yoga students. Then she was accepted at AccelFoods where she is now in the current class of entrepreneurs.
“So much has happened in the past few months, in terms of what we’re doing with everything from manufacturing to sales to finance,” says Karson. “They help me stay motivated and on track. I see it as going to CEO school.” Karson is now selling her desserts at Whole Foods and independent markets.
By giving these companies the help they need to grow, AccelFoods is changing the food industry by promoting foods that not only taste good but that can reduce our impact on the planet.
Exo, a member of AccelFoods’ first class, makes protein bars using cricket flour. “I think they wanted to show that they were serious about innovation—that they weren’t just going to choose the same five kale-chip companies,” says Exo co-CEO Greg Sewitz.
Exo is addressing concerns about the sustainability of our agriculture. Drought in California, the mounting effects of climate change, and global population growth may mean we need to cultivate and consume differently.Sewitz’s mission is to normalize eating insects in the United States and parts of Europe, where bugs aren’t included in the typical diet. Insects are “incredibly nutritious,” he argues—a high-quality protein, with more iron than beef or spinach that produces a fraction of the methane of cows and takes little space to raise.
But what do crickets taste like? “Kind of like flaxseed meal or buckwheat—an earthy, roasted flavor,” Sewitz explains. AccelFoods helped Exo build its first financial model and complete its first fundraising round. The company’s biggest problem right now, Sewitz says, is keeping its products in stock.
Featured image credit to lexmarknewsblog.com