SAN FRANCISCO — As a brand manager in the cosmetics and fragrances division of Proctor & Gamble, Andrew D. Ive quietly wondered whether the world really needed another new lipstick. More than 20 years later, he has discovered a greater purpose as managing director of Food-X, backing start-up companies on a mission to build a better food system.
Unlike nail polish and perfume, he said, “Food matters.”
“When we invest in companies at Food-X, we’re looking for big ideas,” said Mr. Ive, a speaker at the Winter Fancy Food Show in San Francisco. “If we have a choice between a company that is going to be out to launch something that’s going to bring about a positive, significant change versus a company that’s going to make a heck of a lot of money, we will opt toward the former.”
Founded in 2014, Food-X partners with early-stage companies across the food supply chain, from agriculture to consumer packaged goods. Up to 10 companies are selected per cohort to relocate to a co-working space in New York for 14 weeks and collaborate with a network of experienced entrepreneurs and industry veterans to develop, launch and scale their concepts. In exchange for 7% to 10% equity, participating companies receive $50,000 in cash in addition to access to expert mentorship and other resources. To date, more than 40 companies have graduated from the program.
An example is Rise Products, Inc., a New York-based start-up that has developed patent-pending technology to convert spent grain from beer making into a nutritious flour.
“Because it’s manufactured from grain that’s being brewed and the sugars have been removed, the flour is high in fiber and high in protein but low in carbs, which, from a flour perspective, is quite unusual,” Mr. Ive told Food Business News. “There are millions and millions of tons of this spent grain being landfilled at this point, and it has the capability of being able to convert it into human-grade flour that could be donated, sold, used in multiple ways. It makes great cookies, brownies, and right now it’s a byproduct being thrown away.”
Another Food-X alum is Wasteless, a Tel Aviv, Israel, venture that uses dynamic pricing to move fresh products at retail as they approach the expiration dates.
“What I love about the kind of companies we get to work with is they hustle,” Mr. Ive said. “They have very little money. They figure out ways around challenges, around obstacles. They bring these products to market and do so very rapidly...
“What’s fabulous, though, is I’m interacting with larger food companies who are recognizing that this tsunami of innovation amongst these small, young companies is happening, and they’re really willing to try and figure out how to work with them.”
In recent years, there has been much chatter about disruption in the food industry, particularly in the context of emerging brands snagging market share from the world’s biggest food companies. As Mr. Ive suggested, “it’s not us the investors or the start-ups who are necessarily disrupting the food system, per se; it’s actually the consumers and the dynamics of what’s happening in the marketplace that are disrupting the food system, and we as investors and as start-up folks who are developing new businesses, products and services are responding to those consumer disruptions in terms of the products and services we’re delivering.”
In the past, winning in the marketplace simply meant making a better product than the competition. Brands served as symbols of trust, quality and consistency, and traditional marketing was a “one-sided conversation,” Mr. Ive said.
“With the advent of social media and more transparency in terms of what the product is made of, where it’s sourced from, who’s doing the sourcing, what are they doing with their profits — all sorts of broader questions means that it’s less now just about positioning and more about having the right product and, not only that, but being the right company selling that product,” he said.
For food conglomerates, size has become a benefit and a barrier.
“They become very good at the volume side of the equation, but unfortunately, and I think we’ve seen this at some larger food companies, less good at consumer insights and understanding the changing tastes of the consumer and responding to them,” he said. “I think what allows the smaller companies and start-ups that we are heavily involved with at Food-X to do is get a viable product out to market, to get into the hands and mouths of consumers as a way of testing whether that product meets a specific need.
“The barrier to entry for small companies is much lower than it used to be because of commercial kitchens springing up and co-packing and so on. It’s now possible for people who want to scratch an itch that they may have themselves to create a limited-line, small number of products and get them into the hands of potential consumers and test them. You or I or anyone can pretty much do that for small amounts of money, especially in relation to what these large food companies are investing to launch one product.”
Many of the leading manufacturers have responded to the rise of emerging brands by investing in or acquiring them in recent years. Mr. Ive sees this as an opportunity for large, established companies to adopt a more entrepreneurial culture.
“At the moment, some of the responses from Big Food has been to put large amounts of money into funds as a way of potentially investing in these young companies,” Mr. Ive said. “But I think they’re more open-minded than that. I don’t think it’s just about acquisition and bringing young brands on board. I think they’re seeing this as an opportunity to shift their own internal cultures to become more responsive, to become more customer-centric...“By interacting with younger, faster-moving companies, it’s bringing them back to what made those large food companies so successful in the first place.”