Incubation Station Fosters Austin Food EntrepreneursBy Megan Giller | May 22, 2014 By Megan Giller | May 22, 2014
You know that gluten-free bun you crave at Hopdoddy, that absinthe cocktail at Odd Duck that you can’t get enough of and that Gold Top cider you downed at the Workhorse last weekend? Though the three don’t seem related, they are: they’re all made with local, artisanal products from fast-growing Austin companies. Bona Dea makes the mix that Hopdoddy uses for their buns, Tenneyson Absinthe makes the spirit that inspires cocktails at many local bars and Austin Eastciders sources rare, vintage apple varietals to make unusual and tasty ciders.
Beyond the local connection, the three companies are part of an accelerator for consumer packaged goods (CPG) called Incubation Station. Kind of like the Y Combinator for CPG, Incubation Station helps foster small CPG businesses by providing mentorship and resources in exchange for an average of 6% in equity. They don’t exclusively deal with food and beverage companies, but a majority of their businesses are in that market. Now in its third year, Incubation Station draws about 100 to 125 applicants per session, which they winnow down to 25 in-person pitches. From those, only five or six are chosen for the exclusive 14-week mentorship program. Why CPG when Austin is a tech town? Where tech has its booms and busts, consumer goods are more stable, and there’s a huge interest from companies and investors.
On Tuesday night, Incubation Station hosted a showcase for its third track of companies, where all five pitched to a roomful of angel investors. As founder and managing director Shari Wynne Ressler opened up the discussion, she mentioned that investment banking company Piper Jaffray had been in Austin to speak to the companies about the growing trend of investing in food and beverage CPG, and that the company had been impressed with Austin’s scene. “And you aren’t even in New York or California,” Piper Jaffray’s Janica Lane had exclaimed.
Austin as a Growing City
That’s precisely the point. Austin is growing. It’s no longer a small town with just a handful of local products and artisans. Instead it’s bursting at the city limits with vibrant new restaurants, bars, local products and skilled artisans: in short, food entrepreneurs.
In this new world of food, there are so many more ways than the farmer's market to sell a product (although we still love ourselves some farmer's markets). Self-starters are constantly looking for new ways to improve their product, brand, marketing and so on. But as often happens with small businesses with a good idea, demand can outpace supply. Think about Flour Bakery, which was incredibly successful at farmer's markets and in local stores, so much that it took an extreme toll on the head baker, and the company folded in exchange for personal peace.
The lucky companies chosen to participate in Incubation Station’s program gain access to a network of mentors who can help them navigate that path (too much demand is an awesome problem to have, but there are many more less-attractive roadblocks on the way). They work with local stars like Clayton Christopher of Sweet Leaf Tea and Deep Eddy Vodka, Scott Jensen of Stubb’s Bar-B-Que Sauce, Lee Valkenaar of Whole Foods Market’s nonprofit organization, Leon Chen of Tiff’s Treats and Matt O’Hayer of Vital Farms. In other words, Incubation Station is a site where old Austin helps shape new Austin.
This Year’s Crop
Before we talk about some of the companies that presented on Tuesday, let’s recap the most exciting ventures from the first and second rounds. You’ve probably seen them around town or even on Zagat. The first round featured two culinary companies that have since soared: Primizie makes Italian crispbreads, and you can find them at places like Central Market and Sprouts. Thunderbird Energetica first cornered the all-natural energy-bar market like no other, with goofy names for their bars like Almond Cookie Pow-Wow and a wrapper that is 100% biodegradable and compostable. A year ago they launched a new product, Epic bars, a whole-food Paleo energy bar made - you guessed it - completely out of all-natural, grass-fed meat. In the year since they’ve launched, they said that they have grown from selling 70,000 Epic bars per month to 1 million now. Find all the bars at places like Alta’s Café, Wholly Cow and Quickie Pickie.
The second round focused on another group of promising businesses. Goodseed Burger makes gourmet veggie burgers using locally sourced ingredients. Find them around town at restaurants like the Alamo Drafthouse and Snack Bar. We recently profiled Incubation Station company Austin Eastciders as our Pint Pick, because their new Eastciders Original is perfect for summer.
Now let’s talk about the brands that just pitched on Tuesday. Bona Dea makes gluten-free mixes for restaurants and home bakers. As we mentioned above, Hopdoddy uses that mix to make in-house gluten-free buns, as does Planet Sub. You may have seen them at the Austin Food & Wine Festival’s Grand Tasting, where they blind-taste-tested their bread over the local competitor, with 8 out of 10 people choosing their product. But what really makes Bona Dea special is their commitment to nutrition and health; their products are whole-grain, non-GMO, organic and allergen-free, plus they use supergrains like teff (high in protein and fiber), millet and sorghum (which has more antioxidants than pomegranates and blueberries). They’re trying to raise $750,000 in funding to move more into the home-baking market with their mixes and the ready-made market, distributing through big channels like Sysco.
Then there’s Tenneyson Spirits. They started in the absinthe category, and their absinthe royale has won awards and been featured in magazines like Esquire. They’re an Austin brand through and through, with mixologist David Alan (the Tipsy Texan) on their board and their absinthe in cocktails at places like Drink.Well, Bar Congress and Odd Duck. But their stint at Incubation Station has helped them realize that they want to move into a much bigger liquor market: gin. As we’ve often written about, the trend in spirits has moved from tequila to vodka to whiskey, and gin is next. Texas is the fourth-largest gin consumer in the U.S., and Tenneyson plans to disrupt the craft category with the launch of their new gin, which combines the classic juniper style with new flavors like garden mint and rosemary. They’re hoping to raise $750,000 in investments to further their brand. Look for it on the shelves and in restaurants in January.
Old Austin Vs. New
The innovations and growth at Incubation Station are beyond exciting, and they point to Austin’s transformation from small food town to big food city. But with that transition comes growing pains. Austin’s independent culture has long created artisanal makers who do it because they love their craft, not to make a buck. While Incubation Station brands and other companies looking to go big are passionate as well, they and their investors have a different end goal: exit strategies like selling the company to a national name like Nestlé (which, for example, bought local brand Sweet Leaf Tea a few years back).
Meanwhile, makers like Crave Artisan Chocolates say they never plan to expand out of Austin, though they are approached regularly. With staying small comes control over quality, production and message. Incubation Station’s Austin Choate says that there are many Austin artisanal brands that they’d like to work with but that aren’t interested in their accelerator model of rapid growth followed by a sale. He sees it as a difference between creating “lifestyle or a business that you want to grow and sell.” And for Incubation Station and investors, scaling up is crucial for a company to be fundable and, therefore, profitable.
However, many Austin restaurants are looking for lifestyle rather than riches too. For example, Aaron Franklin of Franklin Barbecue told us recently that he’s happy with the amount of meat he’s making; he’s never going to expand to a bigger restaurant, franchise or “go big” (that said, he does sell his barbecue sauce, which you can now find even at places like H-E-B). And for all the flack Larry McGuire (Perla’s, Jeffrey’s and more) catches, he says that he would never expand out of Austin, either; he sees his restaurants as particular to this city.
Of course, it’s different with a packaged brand, where one city’s market is only so big. But the contrast clarifies the tension between types of businesses and end goals: developing a craft vs. developing a company. For example, one mentor said that he started with a bourbon company that’s now a kale chip company. Contrast that with a local maker like Confituras: owner Stephanie McClenny painstakingly gathers local fruit and uses natural sugar to create high-quality jams, jellies and preserves, and she’s committed to that particular product. Is one type of business better than the other? No; it just depends what you’re looking for.
They’re not mutually exclusive, either. Choate raises a good point, saying, “The craft movement is the driver of the CPG industry.” For every dozen artisanal food entrepreneurs, one will want to step out of the lifestyle business and into the national spotlight, providing their product to more people on a bigger scale.
Even large corporations are paying attention. Because giants like Nestlé are “failing to do their own innovation,” Choate says they’re “doing R&D through acquisitions, which gives investors a chance to get a significant return because there’s liquidity within five to eight years.” In other words, there’s more innovation, growth and opportunity for small-business owners than ever before.