Making a Profit 'Growing 'Shrooms'

UC Berkeley classmates Alex Velez and Nihil Arora started a business growing gourmet mushrooms in coffee grounds.
Content Creator/Speaker/Consultant, Alpha Dogs Media Group
March 12, 2012

 

Company:  Back to the Roots

Founders: Alejandro (“Alex”) Velez and Nikhil Arora
Year founded: 2009
Location: Oakland, Calif.

No one goes to UC Berkeley for four years with the intention of becoming an urban mushroom farmer, least of all Alejandro (“Alex”) Velez and Nikhil Arora. Velez had an offer from an investment bank in New York, and Arora planned to sign on with a consulting firm in San Francisco. And then, in their last semester, the two were sitting in a business ethics class when the professor threw out a random but intriguing bit of information: It was possible to grow gourmet mushrooms on agricultural waste streams, such as coffee grounds. The two didn’t know each other at the time, but both e-mailed the professor for more information. The professor, in turn, introduced them to one another.

“We met at Alex’s fraternity, hit it off and started brainstorming ideas,” recalls Arora.  “Right before spring break, we said ‘let’s give it a shot.’”  With ten paint buckets from the hardware store, coffee grounds collected from campus cafes and some spore donated by mushroom expert Paul Stamets, the two started their experiment in Valez’s fraternity kitchen. When they came back from spring break, nine of those buckets looked the same, but the tenth had yielded a gorgeous crop of mushrooms.

Giddy with excitement, the two took their bucket to “the best restaurant in town:” Chez Pannise, run by legendary chef Alice Waters. As luck would have it, Waters was there and instructed her head chef to sauté some of the mushrooms. The verdict: “Delicious!”  From there, they went to Whole Foods where a conversation with a produce employee resulted in an e-mail from a regional produce manager who told the two that if they could scale their operation, Whole Foods would give them a shot.

With a $5,000 grant from UC Berkeley and $1,000 each in savings, the partners rented some cheap warehouse space and bought a beat up van on Craigslist. By combing the Internet for information and experimenting with moisture levels, density, airflow and humidity, Velez and Arora produced their first crop in late 2009.  “We sold 3.14 pounds of oyster mushrooms to the Berkeley Whole Foods,” says Arora.  Word of the two young Berkeley guys “growing ‘shrooms” in coffee grounds spread.

“We got up to 500 pounds a week,” says Arora, “and we were selling to Whole Foods and local farmers’ markets. Along the way, we kept hearing from the community that people would like to grow mushrooms themselves at home.”  And that’s when the partners made a critical pivot: They decided to create a boxed kit that would allow consumers to grow their own crop of oyster mushrooms in ten days.

Essential to their success was a partnership with Peet’s Coffee & Tea, which supplies Back to the Roots with coffee grounds.  “When we first approached them, we didn’t know how they would respond to us asking for their coffee grounds,” recalls Arora.  “But they were so happy for us to take the grounds off their hands that they started paying us to do it.” So the company now makes a small profit on its biggest raw material.  “We now collect grounds at about 30 cafes every morning at 5 a.m.,” says Arora. He notes that Peet’s also provides a $2 coupon that’s inserted in every mushroom kit.

Last year, Back to the Roots did a whopping $1.3 million in revenue—all from sales of mushroom kits to 1,200 retailers nationwide, including Whole Foods and Home Depot. The company, which now has a 10,000 square foot warehouse in West Oakland and 28 employees, is profitable and has taken no outside investment.

In the coming months, the partners will focus on expanding their retail distribution and on marketing a second product—a “soil amendment,” or fertilizer that’s made from coffee grounds and mushrooms. “We’re selling the waste of our waste,” notes Arora. It’s a virtuous cycle, and a profitable one.

Illustration by Cannaday Chapman