Indoor agriculture has grabbed several headlines in the mainstream media recently. Not only does the idea of growing produce indoors, in an automated high-tech environment capture the imagination of many consumers and readers, but just last month, an indoor farming business raised a whopping $200 million in funding, in the largest ever deal for an agriculture technology startup.
South San Francisco’s Plenty raised the funding from SoftBank along with affiliates of Louis M. Bacon, the founder of Moore Capital Management, who joined the round alongside existing investors Innovation Endeavors, Bezos Expeditions, Chinese VC DCM, Data Collective, and Finistere Ventures.
Good news sells
Four different indoor farming operations told AgFunderNews that the rate of incoming investment inquiries noticeably increased after the Plenty news. High-tech indoor farming has captured the imagination of the media as well. In fact, you could say that indoor farming is the crossover hit of the agtech world — a niche story that has made it into the mainstream.
But like a country song that hits the pop charts for a while, high-tech, high-cost indoor vertical farming groups like Plenty are not necessarily representative of the form all indoor farming operations take. There are many different business models for growing food indoors, and as this segment of the agrifood industry is still very young, there are few proven successes yet.
Further, as Sanjeev Krishnan of S2G Ventures, an agtech-focused VC, told AgFunderNews in July, it is unlikely that this space will see a clear front-runner emerge.
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“There is no winner takes all potential here. There are many different models that could work and we are excited about the platforms being built in the market.”
Plenty has a similar business model to a few other well funded startups including AeroFarms of New Jersey, which closed $34 million of a $40 million Series D round in May, and Bowery Farming, which raised a $20 million Series A co-led by General Catalyst and GGV Capital, including GV (Google Ventures) in June.
All of these farming operations are indoors, using LED lights and varying levels of data science to create what is essentially a plant factory — or mega farm. They don’t use soil or sunlight, they seek to make a profit selling produce for retail and food service, and they rely on scale, explaining their need to raise vast sums of capital.
“The thing that is hard about investing is that at some point someone has to invest in scale before the scale is there and SoftBank is both visionary and courageous,” said Plenty CEO Matt Barnard to AgFunderNews when the news broke in July.
Some say that the high price tag of building indoor vertical megafarms makes profitability a distant dream — AeroFarms’ flagship facility in Newark will cost about $40 million when fully complete.
Virtue in variety
Below we explore some business models that differ from these mega-farms and are lower-cost. They are of course faced with a healthy dose of skepticism too; some industry insiders say that lower-cost, smaller-scale operations are not financially sustainable long term due to the high cost of labor and lack of efficiency.
What the alternatives have in common generally, however, is that they collect their revenue at different points in the value chain and, often, they have more than one income stream.
Read below how four indoor ag startups are taking a different approach to the indoor farming trend.
Based in Detroit, MI, Green Collar Foods (GCF) builds and operates small, indoor hydroponic farms that are run by community members. It sells leafy greens exclusively to local public sector institutions like hospitals, at market prices, with multi-year forward contracts. The company is built to operate in areas with a high degree of urban blight and eventually transfer each farm to a local owner, moving toward a franchise model. GCF plans to construct 6,000 square foot facilities, which will cost under $500k each.
The company has farms in Detroit and Bridgeport, CT, and soon will have one in Rotherham, UK, all in cooperation with local universities.
The company says that its aeroponic growing systems and farm management software are simple enough to hire unskilled labor and therefore make a larger impact at the community level through job creation. “The GCF Platform — a hybrid between best-in-class aeroponics and cloud-based computing — is designed to be an effective and simple solution right out of the box,” said co-founder Daniel Casanas.
Founder Ronald Reynolds sees his distributed — or franchised — model of urban farming as lower risk to a large megafarm because of the disease and pest risk associated with concentrated growing at scale.
“If you have 10-, 6-, 7,000 sq ft, you still add up to 60,000 sq ft. You can still leverage the same forward contract, but if you run into hiccups in the facilities you can switch over,” Reynolds told AgFunderNews.
Reynolds said that the high-profile megafarms are in a chicken and egg cycle, with investor money following this one business model and then entrepreneurs recreating it because that’s where the money is. “The business models are trying to follow where the perceived money is coming from. The only thing that seems to be getting people’s attention are big asks. People find it easier to write bigger checks than smaller checks.” GCF is currently working to complete a $1.5 million financing round. GCF’s funding to date has come from the co-founders’ own micro-venture firm called DayRiver, local individuals and grants. Read more about Green Collar Foods here.
Alesca Life charges hotels, high-end catering outfits or hospitality groups for the installation and operation of a small indoor farm and then sells the produce in a subscription model. It is based in Beijing and is currently expanding to the United Arab Emirates.
Founder Stuart Oda has recently been setting up and operating small farms for two members of the Dubai ruling family and Mercedes Benz. In order to increase his footprint, he is embracing the expat population in Dubai, targeting hotels and luxury food service operations where customers are willing to pay a premium and there is more appetite for his crop, leafy greens.
Oda says that his facilities can break even in around two years. “If we have a servicing contract in place for even a year and a half, we will have made back our money.”
He further said that picking the right crops and markets is what makes his financials make sense, “Let’s find a product, or a niche, or a market, or a city, or a customer that can generate the profit we need.” In contrast to the normal practice of American indoor mega-farms, to build the farm and then find the customer, Oda is bringing the farm directly to a specific customer. With Plenty likely to build a farm in Japan and AeroFarms recently receiving an investment from the UAE’s Meraas, the investment arm of Dubai’s leader Sheikh Mohammed bin Rashid, other players may be looking to capitalize on favorable pricing for produce internationally as well.
Alesca Life has raised undisclosed seed and angel rounds from individuals and family offices so far. Read more about Alesca Life and other indoor operations in the UAE here.
Boston-based Freight Farms is one of the older players in the indoor, vertical space, having been around since 2011. The company sells retrofitted shipping containers for indoor, vertical growing along with software to help farmers to track and control their operations remotely via cameras and a mobile app.
The container farms sell for about $85,000 in the US and have the growing potential equivalent to eight acres of land. Freight Farms has offices in the US and Europe along with a licensed dealer in the Middle East.
In June, Freight Farms, completed its Series B funding round of $7.3 million, raising the funding from existing investor Boston-based Spark Capital along with new investor Stage 1 Ventures with support from early investors like Launch Capital.
Freight Farms has now raised a total of $12 million and deployed more than 100 farms that use hydroponic technology, LED lighting, and automated watering and fertilizing technology. The startup raised $3.7 million in Series A funding in 2014.
Sitting in between a few of these models is Fresh Box Farms, a Boston-based indoor operation currently farming out of shipping containers, but soon building a facility the equivalent to 200 of those, admittedly moving on from the container model. CFO David Vosburg says that though containers were a great place to start, in the long run concentrating labor into one big operation makes more sense.
However, Vosburg’s larger farm will have rooms within it to provide more precise temperature control for different plants. “You just can’t grow efficiently in a large warehouse because basil does not like to grow at the same temperature as romaine and different cultivars like wildly different CO2 levels,” he said.
Fresh Box Farms has raised more than $10 million to date from individual investors and family offices.
The indoor vertical farming industry as a whole is far from maturity and perhaps decades away from competing with the Salinas Valley in leafy greens production. As it grows and matures it may prove important to remember that there is more variety in indoor farming businesses than makes the news.
Photo Courtesy of Freight Farms