“The program … is a very, very interesting model to bring innovation forward … and based on what we are learning, I don’t see any reason we couldn’t do something similar in the [United] States or the UK or China,” said Yoni Glickman, president of IFF Frutarom’s Natural Products Solutions.
He explained that one of the elements that makes the model appealing is that it focuses on extremely early stage companies – many of which likely have not even established a proof of concept, yet.
“Literally, we have people come in here and say, ‘Hey, I have an idea. We played a little bit at home. I did something in my garage,’ and maybe there is something here, maybe there is not,” but either way the program gives Frutarom a peek at the types of innovations that are on the horizon and the types of problems that the next generation of entrepreneurs are trying to solve, he said.
But as one of five innovation labs established by the Israeli Innovation Authority, and the only one focused on food and technology, FoodNxt is highly competitive with Frutarom planning to take under its wings only four companies at a time, each of which will have one year to prove its merit.
Frutarom’s selection criteria
So far, Frutarom has selected only one company, which is focused on health and which started its one-year stint in the program Feb. 19. But according to IFF Frutarom’s Director of Innovation and Natural Product Solutions Gali Artzi, the company hopes to bring on the second company by the end of the quarter and an additional one or two by the end of the year.
When evaluating potential participants, Glickman said IFF Frutarom is looking for companies that “address an unmet need or have an innovative technology that we can contribute to the development of. … One of the important things for us is not for it to be a stupid financial investment. That is not what we are about. So, we are really looking for areas where we feel we have strong expertise and if we have that strong expertise we can bring additional value to startups. Otherwise, we are not really doing anything other than just giving them money, and money is cheap they say.”
With that in mind, he explained that IFF Frutarom is particularly interested in startups focused on shelf life extension, natural colors, personalized nutrition, alternative protein sources and “in general the ingredient side of things, rather than looking at finished brands.”
In addition, for this specific program, the companies must be based in Israel. Ostensibly though, if Frutarom expands the model to other regions where the Israeli government would not play the role of a significant investor, the companies could be based elsewhere.
So far, IFF Frutarom has met with several startups focused on alternative proteins and personalized nutrition, but has yet to see many companies offering interesting natural ingredients or solutions focused on shelf life extension, Artzi said.
Striking a deal
Companies that make the cut will receive up to $300,000 in seed funding, about $40,000 of which will come from IFF Frutarom and the rest from the Israeli Innovation Authority, for establishing a proof of concept.
They also will gain access to office space and an innovation wet lab for experiments that has equipment specifically tailored to meet their needs, for which IFF Frutarom is eligible for reimbursed by the Israeli Innovation Authority of up to 50%, explained Artzi.
Beyond the money and work space though, “the most valuable thing we are giving [participants] is the Frutarom name. It is Frutarom’s go to market approach, Frutarom’s customers, Frutarom’s partners and Frutarom’s knowledge about regulation, food application, clinical studies and more,” Artzi said.
She also noted that the IFF Frutarom staff that work with the startups will be specialized depending on the project – “we do not have one team. It is not one size fits all. So each startup is really getting what they need according to the specific nature of the product.”
In exchange, IFF Frutarom is eligible for 15% equity, partial reimbursement for startup costs from the Israeli Innovation Authority and up to $140,000 annually for certain Opex items, according to Artzi.
Recognizing that 15% of equity from a startup isn’t much given the size and stage of each company, IFF Frutarom is looking for companies in which it will want to reinvest at the end of the one-year term in the innovation and it is looking for good ideas, said Glickman.
“What we really get out of this is we see very nice innovation … new projects that we believe at the end of the day could be interesting to go to market within the context of Frutarom, and that is probably the most important thing we have. So, it is really the products and unique innovation for us,” he added.
IFF Frutarom hopes to support graduates but not acquire them
Unlike some incubators or accelerators associated with established companies, the goal at the end of the term is not to acquire the startup, but rather to reinvest and protect the young company from becoming too corporate so that it can retain its nimble agility needed for rapid innovation, Glickman said.
He explained that at the end of the one-year term, participants still will not have gone through even one “real round” of investment, and they will need more money and time to grow before they are an acquisition target.
Glickman added that IFF Frutarom hopes to be involved with its graduates after their time at the Innovation Lab ends.
“I would say, if we are not going to be a key investor in the next round, in a way it is a failure in what we have done because we definitely want to be in a situation where we are the people who keep putting money into them because I think we are not just here as financial support, but rather to continue being part of the company,” he said.