Taking a tip from tech, food incubators launch startups
Report by Neal Ungerleider, Thu Dec 13, 2012 3:12pm EST - A new group of food-based startups are applying tricks learned from the technology industry to grow a new wave of businesses to cash in on the growing “foodie” movement across the U.S.
Like tech entrepreneurs starting out in a Starbucks, foodies who find themselves needing space to prepare boutique treats are turning to shared programs called incubators and accelerators that help them launch by offering communal business spaces and logistical assistance.
Small food businesses—mom and pop operations selling goods at farmers markets, food trucks, or at boutique retail establishments—have proliferated in the last few years, according to data provided by the National Association for the Specialty Food Trade. In the New York City area alone, city politicians are rushing through 22,000 additional permits for mobile food vendors. Due to hygienic needs, raw material needs, and other factors, new small food businesses often need help getting started. In large urban markets such as New York and Los Angeles, startup costs frequently exceed $10,000, and that’s where the incubators and accelerators come in.
“A company can come in, rent space for the day, pack up their things and leave,” says Michael Schwartz at the Organic Food Incubator in New York. “The not so traditional part is that we have companies who stay here more permanently.” Tenants at the Organic Food Incubator work on everything from spicy Indian sandwiches to gluten-free breads to soft-serve “ice cream” made from crushed fruits.
Both incubators and accelerators offer small food businesses the opportunity to grow within a nurturing environment while defraying large startup capital costs.
The Organic Food Incubator hosts trade shows to introduce their members to prominent local grocery chains and distributors; members also have access to classes, networking event, and consulting assistance for recipes, social media, and distributors.
Ahkilah Johnson is the co-founder of Manhattan’s City Cookhouse, which offers commercial kitchen rentals along with community cooking classes and business development opportunities. Johnson says that “I used to do children’s cooking classes in the neighborhood, but could never find space for classes. We needed space in the community. My day job is in building schools so I thought we could build a space. We created a center for businesses and for healthy cooking classes.” Incubators such as the Organic Food Incubator and City Cookhouse offer micro-businesses access to high-end kitchen equipment, space to produce at scale, and support to grow their business. This can include anything from packaging assistance to networking sessions with large wholesalers and distributors.
While most of New York’s food incubators are medium-to-large sized commercial kitchens, several even larger facilities are coming to the city. 3rd Ward, a Brooklyn community arts and educational organization, is opening a large culinary incubator and educational center. Also in Brooklyn, a former pharmaceutical plant is being converted into a 660,000 square-foot culinary production facility whose rooms will be subdivided among a warren of small businesses.
While traditional accelerators have been aimed at internet-based startups and small technology firms, food accelerators are a much newer proposition. Food businesses traditionally require thousands of dollars in launch capital at the very least and are subject to much more intensive government regulation. The large sums that small food businesses need to expand have traditionally been found through more traditional fundraising methods in the past. One accelerator, 500 Startups, is nurturing mail-order food businesses among others. Culture Kitchen (which sells make-your-own ethnic cuisine kits) and Craft Coffee. In exchange for up to $250,000 in seed funding, participating businesses give up 5% equity.
One accelerator in Arkansas, The ARK, pays special attention to food. Due to Wal-Mart’s and Tyson Food’s headquarters being located inside the state, The ARK is specifically recruiting food start-ups who could benefit from close proximity to the agribusiness giants. Three of the groups funded by ARK’s 15 are food startups, including a social network for food trucks, a high-tech meat analytics firm, and an online marketplace for farmers. The ARK offers recipients approximately $18,000 in funding in exchange for 6% equity and a promise to relocate to northwestern Arkansas for the duration of the program.
“Not only do food-oriented startups get access to mentorship from top minds in the food industry, but founders also receive support and resources to accelerate their businesses during the three-month program, all in preparation to make investor pitches,” the ARK’s Jeannette Balleza told Reuters.
Another accelerator specializing entirely in food startups was recently launched in California as well. Palo Alto’s Local Food Lab is unlike traditional accelerators in that it doesn’t offer capital in exchange for equity, but rather an intensive six-week program for food startups to develop a business plan and cultivate industry contacts. Recipients include all-brunch food truck Brunched in the Face, South African-style snack maker LifeBites, and urban farming education effort Seeducate.
“Working through (ARK) benefited us by providing mentors and advice related to the industry we are entering,” said Derek Kean of Truckily, a logistics firm for food trucks funded through the ARK. “Being able to build upon experience and knowledge from former executives, entrepreneurs and current employees of companies that have had years of research and, more importantly, ‘mistakes made’ was invaluable.”
But despite the growing the popularity and apparent need food incubators and accelerators, they aren’t found everywhere: Apart from outliers such as ARK, most are situated in large cities or in dense suburbs. Only a few food incubators have sprouted up in smaller communities. Replicating the food incubator model in rural areas and college towns is the next great challenge for the growing field.
(The author is a Reuters contributor) (Editing by John Peabody and Brian Tracey)