Invigorating industry: Start-up incubators heat up an increasingly “crowded” investment space

10 Sep 2019 --- Investment in start-ups is a burgeoning space, attracting large and established industry players. Incubator programs have seen a rise over the past year in particular, fueled by heightened interest in disruptive ideas that benefit consumers in new ways and innovate exciting NPD. In these programs, fledgeling businesses gain valuable knowledge, expertise and funding from experienced stakeholders. Scalability, however, comes with its own set of challenges as companies seek to overcome growing pains.

“Investors are looking for the gamechangers of the future, constantly scouting for new opportunities. However, the main characteristics are always quite general: a big market for the product or service, a solution that is ten times better than what already exists on the market and a trustworthy and storytelling entrepreneur that believes in their innovation,” notes Benoit Buntinx, Director of Business Creation at EIT Food, a Belgium-headquartered accelerator fostering agri-food entrepreneurship in Europe.

Under EIT Food, start-ups receive financial support and cash-equivalent services of up to €100,000 For early-stage registered companies, the EIT Food Accelerator Network offers a four-month acceleration program in one of its five hubs located in Lausanne (Switzerland), Munich (Germany), Cambridge (UK), Bilbao (Spain) and Tel Aviv (Israel). The active participation of over 20 industrial and academic partners provides access to high-level experts and mentors (including Nestlé, Danone and Pepsico), but also facilitates market access for supported start-ups, as well as receiving financial support and cash-equivalent services of up to €100,000 (US$110,000) for each of the top three graduates.

In the US, Food-X, founded in 2014, is a venture-backed food innovation incubator with a mission to “scale change throughout the food system,” as outlined by Peter Bodenheimer, Managing Director and Partner at the New York City-headquartered international start-up accelerator. “What sets Food-X apart is that, as a professional investor, it looks at what’s happening in society, what’s happening in technology, in the environment, in the economy and in politics that’s influencing consumer behavior – all to stay at the forefront of food industry trends,” he notes.

Via an intensive, mentorship-driven three and a half-month program, Food-X provides capital; connections to investors, food and beveraProtes protein chips: an alumnus of the Food-X program.ge companies and retailers; and access to a global community of start-ups. This month, the pioneering and far-reaching food-focused innovation accelerator is celebrating its fifth anniversary with what will be the tenth cohort of the program.

“Several start-ups that have been guided by Food-X on their food innovation journey and propelled to their next critical stage come to mind,” explains Bodenheimer. “Protes is now sold in over 8,000 retail locations across North America. EIO Diagnostics is on the cutting edge of animal health by using a combination of machine learning and multi-spectral imaging to detect mastitis in dairy animals. They have grown by leaps and bounds in the last 18 months, and are rolling out with some of the largest companies in the world.”

“Uplift Food closed an investment led by Mondelēz International and is now launching the world’s first gut happy cookies. Finally, Halla.io is already piloting its dynamic grocery recommendation technology with some of the largest retailers in the world,” says Bodenheimer.

Chobani Food Incubator headquarters.Big brands give rise to small players
Overall, investing in the future of food has become an increasingly competitive and crowded field. “Big food brands used to dictate what people ate. Now, emerging brands are offering consumers more choices and responding more quickly to consumer driven trends. In response, a number of big food incumbents have launched their own accelerator programs to capitalize on these trends,” explains Bodenheimer.

One example of a larger company entering the start-up investment space is the Chobani Incubator, created in 2016 by US Greek yogurt manufacturer to provide promising food and beverage start-up businesses with access to support, community and mentorship, as well as an equity-free US$25,000 grant. 

“At the Incubator, we run four cohorts: Consumer Packaged Goods (CPG), Food & Beverage (F&B), Food Tech (now called the Food Tech Residency), and a truncated version of our highly intensive, well-known CPG program for specific communities, starting with the recent announcement of our Veterans cohort, which focuses on CPG F&B businesses in the US with military veteran founders or co-founders,” explains Zoe Feldman, Chobani Incubator Director.

Since the launch of the program, the Chobani Incubator has supported 37 CPG companies, ranging from shelf-stable baking products and chickpea pasta to “farm fresh sodas” and “pasture-raised sausages.” Through the Chobani Incubator program, each company receive three to four months of in-house programming, mentorship and a US$25,000 equity-free grant, as well as considerable assistance after the program has ended.

In Europe, Dutch multinational DSM has initiated its own startup program. DSM Venturing has been investing in many different start-ups in Europe, North America andDSM Venturing holds a portfolio of 30 companies, including DouxMatok, specializing in sugar reduction technology.Israel for almost two decades. The company currently oversees 30 companies within its investment portfolio, which includes food and beverage companies like DouxMatok – specializing in sugar reduction technology – and Blue Prairie Brands, which develops proprietary ingredients and finished products for use in the functional food and dietary fiber markets.

“We want to make sure that all parties benefit from our start-up initiatives. With respect to housing, about 2,500m² of our lab and office space will be renovated to be rented out to third-party biotech businesses. We anticipate that up to 30 companies – up to 150 new jobs – can be housed in our current start-up building,” says Rob Beudeker, Investment Director at DSM Venturing.

Overcoming scaling challenges
Start-ups in the CPG F&B industry need assistance with very tangible things, such as operations, sales and product development, notes Feldman. “Once a company gets bigger and gains more traction in the market, needs begin to change and there is a much more concentrated focus on marketing and sales in order to scale the business. Challenges are myriad, and include incumbents, other small businesses gaining market share, a highly competitive shelf and the need for a lot of cash.”

 Start-ups have the necessary agility to respond quickly to the needs of the market.“Each of the companies in a given cohort face unique hurdles. Our role is to help them identify those hurdles, bucket them based on immediate and long-term focus, and then prioritize around solving them. In many cases, it's simply about putting one foot in front of the other and avoiding distractions. For example, some of the most common hurdles we see are distribution and customer acquisition, fundraising, internal business operations and scaling the production of their product or service,” says Bodenheimer.

The natural challenge of any large entity is inertia – the larger the company, the harder it is to adjust to the constantly changing market needs and particular technological opportunities, as highlighted by Michelle Shi, Ventures Analyst of the Food & Beverage program at US start-up incubator Plug and Play. “Investments by corporations usually indicate partnerships with the start-up community, a community that is, by nature, more flexible to adapt to current market climates and technological capabilities.”

Startups can overcome scaling challenges through tie-ins with larger corporations’ supply chains, management and operations. And while established corporations are usually constrained to tradition, start-ups have the necessary agility to respond quickly to the needs of the market, which balances the equation, notes Shi. “These emerging companies are focused on creating the technologies of tomorrow, but don’t have the expansive reach that reputable corporations have. It’s ultimately the harmonic relationship between both sides that will allow innovation to flourish.”

By Benjamin Ferrer