For ReGrained co-founder Dan Kurzrock, the road to capital has been less conventional compared to other startups. The San Francisco-based startup takes spent grains, from the never-ending influx of craft breweries, and upcycles them through a patented process into what it describes as a superfood ingredient.
In January 2018, privately-held global product development company Griffith Foods made a $2.5 million seed investment into the startup following a successful matchmaking period during the second cohort of TERRA, the growth-stage accelerator program from Rabobank.
“At some point during TERRA, I flew out to a meeting with the global executive leaders of Griffith Foods and presented work we had been doing with the team. It was definitely a powerful experience,” Kurzrock tells AFN. “After the meeting, I got called into a room with all of the executives including the company chairman, Brian Griffith, and they said, ‘We are wondering if you are open to considering us investing in you,’ and that’s when it all clicked. TERRA was a lot more than just a connection point; it was tailored matchmaking.”
TERRA, a non-equity-based accelerator program, is unique in its approach to acceleration by focusing on startups that are ready to scale their businesses, as opposed to those at the proof of concept stage refining their pitches for seed funding. It executes this focus by partnering with established food and agriculture businesses that work with the cohort of startups to co-develop products, adapt technologies to specific parts of the industry, become customers, and discover new uses for technology.
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Commercial Scale R&D
As part of ReGrained’s TERRA experience, it completed its first commercial-scale R&D pilot with Griffith to explore potential uses for its upcycled superfood ingredient. Launched in 2013, the startup has a line of CPG snack bars sold nationwide and online. It’s also cultivating a B2B market to sell its upcycled brewers’ grains to major food companies. Several leading manufacturers, including pasta maker Barilla, have shown interest in co-developing products with the trademarked ReGrained Supergrain+ flour.
“When TERRA was formed, I learned about it not only from the Rabobank team but from our local peers Kuli Kuli. They were in the first cohort, and I learned about their experience and their work with Griffith Foods,” Kurzrock explains. “We were already hitting a point where we had this corporate collaboration experience with Barilla, and we discovered that our product was as functional and versatile as we hoped it would be by doing some of our R&D work with Griffith, so we felt ready to take it to the next level.”
Not only was TERRA pivotal in helping ReGrained complete the pilots that it needed to perform to validate its product, but it also helped the startup gain access to capital after an atypical financing journey. Since launching, ReGrained has dabbled in different capital sources, including rewards-based crowdfunding through Barnraiser, as well as equity crowdfunding through MicroVentures.
The startup was wary of raising too much capital too soon for several reasons, including a desire to ensure that when it did choose a partner, it was the right partner.
“Our mission is very important to us, and while we didn’t want to raise too much too soon and lose control, we also wanted to make sure that we are bringing on partners who weren’t just strategically aligned but who were also mission-aligned,” he explains. “We also knew no one had any idea what our ingredient is. There are analogs like whey from dairy processing, which is a value-added ingredient byproduct from making cheese, but turning spent grains into a nutritious ingredient was an entirely new concept, so we had to make sure that an investor understood that.”
Don’t be skeptical of corporate partnerships
Some entrepreneurs have a skeptical view of corporate partnerships, wondering whether they will have to sacrifice too much control or whether the spirit of their company will be overshadowed by a big food titan. For Kurzrock, however, partnerships are the smart way to overcome some of the many challenges that a young company will undoubtedly face. This is especially true for him when it comes to not reinventing the wheel and taking advantage of successful companies’ expertise. After all, big food companies like Griffith didn’t grow to their mammoth sizes by accident.
“Early on, I realized that even if I had a successful business with $100 million in annual revenue selling consumer products, I would probably be working with just two breweries. I can’t even make a dent in the available supply chain. A lot of entrepreneurs fail to realize that there are people in large companies who are just as passionate about changing the food system as they are. We can get a lot of learning especially when it comes to where we don’t need to reinvent the wheel.”
TERRA understands the value of corporate partners, which can offer startups segment-specific advice and mentoring. Some of its corporate partners include Mexican sugar producer Beta San Miguel, Australian grain handler GrainCorp, ingredient company Griffith Foods, food processor OSI and Tate & Lyle’s ingredient business, and this year, Meat & Livestock Australia joins the group that’s worth over $100 billion in annual revenue.
Corporate partners have also wisened up to tapping startups for forward-thinking nimble innovation that is often hard to achieve inside of a large company that moves more slowly. With deep pockets to fund outside companies, corporates are always on the hunt for the next best thing in food and eager to beat their competitors to the partnership punch.
“There are many great things I can say about my experience at TERRA, but ultimately the value it offers is that TERRA has created a sandbox for titans of industry and emerging companies to come together and explore what they can accomplish. The best advice I have for startups is to seek a lot of advice, and major food corporates are one of the best possible sources.”
*This post is sponsored by TERRA, an AgFunder Network Partner. Find out more here.*