North Spore wins Launchpad 2018, $50K prize

A Westbrook-based company that grows and sells mushrooms has won the Launchpad business plan competition and its $50,000 first-place cash prize.

North Spore, which was a returning finalist from last year’s competition, was chosen by a panel of three independent judges from among five finalists who pitched their businesses Tuesday evening at USM’s Hannaford Hall.

“Winning Launchpad was a huge windfall for North Spore,” Eliah Thanhauser, one of North Spore’s co-founders and its director of operations, told Maine Startups Insider. “We are such a bootstrapped business that this is the largest cash infusion we’ve ever had into the business, and it will go a long way in helping us grow.”

The other Launchpad finalists were American Roots, Bangs Island Mussels, Blue Ox Malthouse, and Wallace James Clothing Co. More than 180 businesses applied this year for the chance to compete in the sixth annual Launchpad competition, created by Gorham Savings Bank in 2013 as a way to support early-stage companies. The judges were Chris Claudio, CEO and co-founder of Winxnet; Steve Campbell, founder and CEO of Pro-voke; and Catherine Cloudman, an owner and CFO of Village Fertility Pharmacy.

Another company, NavigatER, which is developing a software platform that hospitals could use to improve the patient experience by improving communication and transparency, won the Emerging Ideas award along with a $10,000 cash prize and $10,000 of in-kind business services from various sponsors.

But back to North Spore…

At first blush, a mushroom farm may not seem like a scalable business idea (scalability is one of the criteria the businesses were judged on), but Thanhauser convinced the judges that a growing global consumer interest in mushrooms and the company’s recent investment in an e-commerce platform to allow it to sell mushroom-growing supplies, not just fresh mushroosm, has created a viable path ahead to major growth.

“We started as three college friends growing mushrooms out of a small garage, but in four years we’ve grown to a business with 12 employees, no investors and are closing in on $1 million in revenue this year,” Thanhauser told the judges. “Though we have greatly increased our production, we need to scale up yet again in order to keep up with demand.”

The company plans to use the $50,000 to purchase additional equipment to increase its production capacity and efficiency, he said.

North Spore has ridden a wave of increasing consumer interest in mushrooms and their health benefits. During his pitch, Thanhauser cited a 2018 Wholefoods Market report that lists mushroom products as the 3rd fastest growing food category in the United States.

The global mushroom market is currently estimated to be worth roughly $36.8 billion and is expected to grow at a compounded annual growth rate of 8.2% through 2024, reaching a valuation of $69.3 billion by that year, according to Transparency Market Research.

“North Spore is perfectly positioned to benefit from this trend,” Thanhauser said.

The mushroom business

Thanhauser founded North Spore in 2014 with Jon Carver and Matt McInnis, two friends he met while at the College of the Atlantic in Bar Harbor. The friends started the business in a 500-square-foot garage in Westbrook with roughly $10,000 in startup capital. They started off washing their equipment and mushrooms with a garden hose in the driveway, but within six weeks they had harvested their first mushrooms and were selling to restaurants in Portland.

Today, North Spore sells its mushrooms to more than 75 restaurants and grocery stores in Maine, and works with specialty distributors in Boston, New York, and Seattle.

While the fresh-mushroom business is where the company got its start, and still represents a majority of the company’s revenue, Thanhauser said the company sees great potential in the scalability and profitability of selling mushroom spawn—the genetic material used to cultivate mushrooms.

The company has invested in its e-commerce platform and its online sales of mushroom-growing supplies, including spawn, has increased year-to-date by 440%, Thanhauser told the judges. In a follow-up interview with Maine Startups Insider, Thanhauser said most of those online sales come from home growers and small diversified farms since its larger commercial customers usually place orders by phone or email, not the website.

“Our business is changing quickly, including percentages of each sales channel. We started primarily selling mushrooms directly to restaurants and small grocers, but as we grow this is a shrinking percentage of our total sales,” he told MSI.

Thanhauser estimates that fresh mushroom sales to restaurants, grocers and distributors currently represents roughly 40% of total revenue; while sales of mushroom growing supplies, including spawn, to both commercial and home growers is 35%; direct-to-consumer sales at farmers markets makes up another 15%; and value-added mushroom products are 10%.

He said the company’s gross margins are above 50%, providing strong cash flow to support future growth.

Launchpad’s $50,000 will be used to buy two pieces of equipment—an automated bagging machine and an autoclave, a device that uses steam to sterilize items—which will allow the company to double its spawn production and increase its efficiency, “launching us into our next phase of scaling up,” Thanhauser said.

The company’s employees are still weighing and bagging spawn by hand, which is a significant production bottleneck, he said.

“With a bagging machine we could bag four times our current production without increasing labor,” he said.

The Road Ahead

Thanhauser believes mushrooms’ time has come.

The average person, asked to imagine a garden, would think of tomatoes, carrots, and lettuces, he said.

“We are changing this,” he said.

In 10 years, he expects a home gardener growing shiitake mushrooms on a log in a shady part of the garden will be as common place as growing backyard tomatoes.

“Through innovation and education, North Spore is creating a more abundant future and changing the way the world approaches gardening, farming and food systems.”

North Spore is in the running for another big cash prize. It’s currently one of three finalists (along with Forager and Zootility Tools) on Greenlight Maine, the competitive business pitch TV show that airs on WCSH 6. Thanhauser will pitch the business again on June 8 at Husson University in Bangor, though the winner won’t be announced until June 30, when the TV show airs. The Greenlight Maine prize is $100,000.

In addition, North Spore was recently accepted into Cultivator, the food and agriculture accelerator program being organized by the Maine Center for Entrepreneurs. This will provide an experienced team of advisors to help the North Spore team strategically plan for the future, Thanhauser said.

“The world is hungry for superfoods and sustainably grown produce and mushrooms are at the leading edge,” he said.

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