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food incubators

Food Incubators and Other Ways For Startups To Engage with Corporates

July 5, 2017

Editor’s Note: Sarah Nolet is founder and CEO of food and agtech consultancy AgThentic. Here she takes a look at how startups can use food incubators to engage with large companies. 

There are an increasing number of large food companies seeking to stay on top of new technologies and innovations by engaging with startups. These corporates are driven by the struggle to maintain market share and keep up with rapidly shifting consumer demands.

Many corporates are engaging with startups via internal corporate venture capital arms that invest directly in startups, much like traditional venture capital funds. But there are other effective means of corporate engagement that are gathering momentum. Though they can come in many different forms, we can generally call these food incubators.

Food incubators can provide startups with a source of capital, strategic support, and even potential customers. But engaging with corporates can be frustrating for startups, and even a waste of time if they are beholden to corporations’ long timeframes (and watch out for a drawn out engagement process that ends in a frustrating ‘no’). So before you head down the corporate engagement path, here’s an overview of a few different food incubator models and how they can help your team.

Food Incubators

There are two types of food incubators: an in-house incubator housed within a large existing company, and a third party incubator that could be located in a research institution. For startups looking to build a relationship with an established corporate, in-house incubators may be the best fit. Though there is no commonly-agreed-upon definition, we teamed up with AgFunderNews last year to define an incubator as “a physical workspace and/or lab that provides support such as technological expertise and mentorship to startups accepted on a rolling basis; most incubators do not offer a fixed-duration program.” These programs give startups direct access to the well-oiled departments of a large business, from marketing and branding to procurement and logistics. Sometimes they offer funding, but not always. Startups should pay attention to program styles and engagement terms, as they vary across timelines, equity, exclusivity, and whether startups must re-locate to attend in person.

Examples include:

– Chobani Food Incubator is a low-risk, low-cost, equity-free incubator option for CPG startups that don’t want to give up equity but are looking to scale and build strong mentorship relationships from Chobani’s leaders in operations, finance, sales, and marketing. The program also connects participating startups with a broad external network of successful entrepreneurs, investors, and experts ranging from Luke Holden, founder & CEO of Luke’s Lobster to Todd Carmichael, founder & CEO of La Colombe. The four-month, in-house incubator is equity-free, allowing startups flexibility and independence to attract all types of capital. On top of that, Chobani offers $25,000 grants to early-stage food and beverage product companies. Successful alumni from the incubator include CPG companies such as Kettle and Fire, which has secured a national launch at Whole Foods.

– Coca-Cola’s Venturing and Emerging Brands (VEB) is based in-house, but in-person attendance is not required. The program provides beverage-based startups with access to funding, expertise, and a worldwide infrastructure to help them get “coke ready.” Startups who want their products to join the company’s portfolio of billion-dollar brands can look to VEB. The program has three investment level phases, the third of which is a direct ownership investment. Some popular brands that have participated and gained traction with Coca-Cola’s VEB program include Honest Tea, which Coca-Cola Company purchased in March 2011 after an initial 40 percent investment in 2008, and Suja, the organic cold-pressed juice maker, which Coca-Cola Company invested $90 million in for nearly a 30% stake.

Other in-house corporate food incubators include hospitality group Marriott’s Canvas and The Kitchen, which is linked to Israel’s Strauss Group.

Non-corporate food incubators include Kendall College Incubator and Rutgers Food Innovation Center.

Corporate-Funded Accelerators

Accelerator programs provide startups with a different type of business incubation opportunity: a fixed-term program where a cohort of startups receive help focused on investment readiness and growth, culminating in a pitch or demo day to help companies attract capital. Often startups must give up equity to enter an accelerator.

Unlike in-house food incubators and direct investments that create a one-to-one relationship between the startup and corporate, startups participating in accelerators with strategic connections to multiple corporates have indirect access to one or more corporates providing mentorship, distribution, media attention, marketing and branding advice, and possibly capital. To develop realistic expectations for corporate involvement, startups should ask previous graduates of the program and the managing team of the accelerator.

Examples include:

– AccelFoods – New York-based AccelFoods accelerator has received investment from major food corporations such as Danone’s VC arm. AccelFoods has backed about 30 natural and organic brands, including Wandering Bear Coffee, Tea Drops, and Crunchsters.

– Food-X- The Food-X accelerator, based in New York City, boasts a mentor network of power players in the food industry including Elly Truesdell (Whole Foods) and Michael Goodman (Campbell Soup Co.). The accelerator provides startups with an investment of $50,000 in each startup in exchange for a 7% equity stake.

Other food accelerators with explicit ties to corporates include Land O’Lakes Dairy Accelerator, Good Food Business Accelerator, and Prometheus.

Corporate VC funds

Startups in both food and agriculture looking to raise capital and start a journey toward potential acquisition can look to corporate venture capital. Nine of the world’s biggest industry players, including Danone, General Mills, Campbell’s Soup, Kellogg’s, Hain Celestial, and Tyson Foods have venture capital funds. And there are over twenty more if you count agribusiness corporates as well.

While an investment from a corporate could provide many of the same benefits as a food incubator or accelerator — such as access to network, expertise, and customers — startups should be aware of the corporate’s motivation for investing. Motivations range from potential acquisition to simple intelligence gathering. For example, corporates may be looking to invest as a precursor to acquiring the business or to gain a cheaper and faster means of establishing a new brand compared to internal R&D. For the startup, an investment from a corporate might also put off other investors, corporate or otherwise, who fear limited exit options.

Examples of food companies with venture capital funds include:

– General Mills 301 Inc. – The VC fund is a business segment at General Mills and is managed internally. 301 Inc has invested in early-stage startups like cottage cheese maker Good Culture, plant-based food company Beyond Meat, and kale chips brand Rhythm Superfoods.

– Kellogg’s eighteen94 Capital – Launched in June 2016, 1894 Capital is the venture investment arm of Kellogg Company, with a fund of about $100 million. The fund takes a minority stake in startups focused on new ingredients, food products, and packaging solutions. The company’s first investment, Kuli Kuli, a manufacturer and distributor of Moringa-based products, occurred in January 2017 with S2G Ventures and InvestEco closing out the $4.25M Series A. The fund is managed externally in partnership with Touchdown Ventures.

– Campbell’s Soup’s Acre Venture Partners – In 2016, Campbell’s became the sole LP in Acre Venture Partners, a $125 million venture capital fund investing in food and agtech startups. Acre Ventures operates independently from Campbell’s and has invested in Farmers Business Network’s $40 million Series C in March of this year and Juicero’s $70 million Series B in March 2016, among several others.

– Hain Celestial’s Cultivate Ventures- a platform that invests in lifestyle food brands, smaller portfolio brands, and concepts with the confessed aim of acquiring the businesses if they successfully mature to a certain stage. They acquired The Better Bean Co in June 2017.

As corporates continue to scramble to collaborate with disruptive business ideas, collaboration opportunities will continue to evolve in new ways. Resources like Fonterra Ventures Co-Lab and Terra from Rabobank, for example, do not fit the definition of food incubators but do help startups engage with corporates.  

Bottom line: startups should understand their motivation for partnering with a corporate before taking the plunge. Knowing which is best for you is essential to get the most benefit for you and the corporate(s) you work with.

For a complete look at the food incubators and other resources on offer to food and agtech startups, explore our online tool with over 115 resources for food system innovation.

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