Bowery’s KKR-led $150m credit facility may hint at robust business model, industry inflection point

Bowery secured a $150 million credit facility from leading global private equity firm and broke ground on two new farms in the Atlanta, Georgia and Dallas-Fort Worth, Texas metro areas last week. The deal takes Bowery’s total funding to-date to $647 million after its record-breaking Series C round last year.

So what?

Credit funding is different from venture capital in that it necessitates a deep focus on the financials and economics of a business in the near to midterm, compared to the long-term potential and vision that venture capital investors focus more on. And while Bowery has secured leverage before, landing a big name like KKR is a vote of confidence in the existing business model, not just its aspirations. 

The timing of KKR’s vote of confidence is particularly interesting as there are concerns that vertical farming is heading for rocky times after a prolonged period of hype about its potential. Referencing the Gartner Hype Cycle, a long-established pattern for industry growth cycles, Henry Gordon-Smith recently wrote in a guest post for AFN that vertical farming was heading into the “Trough of Disillusionment.”

“With one of the oldest and biggest vertical farming companies failing to go public and an already-public greenhouse behemoth missing its revenue projections, it’s safe to say we have passed the Peak of Inflated Expectations,” he wrote referencing the termination of AeroFarms’ public listing and AppHarvest’s poor stock performance.

Context in numbers

Recent AgFunder data point to a decrease in the number of deals closing in the Novel Farming Systems category, which is typically dominated by vertical farming; are entrepreneurs and early-stage investors potentially shying away from this challenging category until they see more solid and successful business models? 

The industry’s overall traction is also underwhelming. Despite the hype, vertical farming still accounts for only 30 hectares of equivalent farmland globally; that’s compared with 500,000 hectares of greenhouses and 50 million of outdoor farming. 

While Bowery would not comment on how close it is to reaching profitability, which some industry insiders say is a long way off, it said that its produce is available in more than 800 stores with retail partners that “represent half of US grocery market” and that it had doubled revenue in 2021.

Furthermore, vertical farming hectarage should increase significantly in the coming years with big plans for growth among players like Bowery, as well as vertical farming technology providers like Intelligent Growth Solutions (IGS). IGS is gearing up to deploy hundreds of its growth towers for around a dozen major customers in over 30 cities across 4 continents after far surpassing its sales targets in 2021, according to its CEO David Farquar on LinkedIn. [Disclosure: AgFunder, AFN’s parent company, is an investor in IGS.]

What they’re saying

Bowery’s “thoughtful scaling” approach has enabled it to dodge the hype, said Irving Fain, CEO of Bowery. While Bowery is continuing to build on its tech stack, including its AI and computer vision capabilities, its new farms in Texas and Atlanta won’t necessarily deploy the latest innovations as the company balances the rate of growth with the rate of technological innovation introduction.

“There’s no question that early on the amount of hype around indoor farming was rampant at times. I think it was driven by positive reasons, which is that people cared about sustainability; people cared about climate change; people cared about solutions in agriculture. But we have really been believers at Bowery in focusing on execution and results instead of speaking and hyping,” Fain told AFN.

“I think it’s hard to draw the conclusion that the entire sector and industry is in a trough of disillusionment. I think that’s a pretty powerful term. I think that we are at a new chapter in the industry and an inflection point that’s a net positive for the industry overall. There’s now a much larger and more widespread understanding and awareness of indoor farming. There are people who are seeking out indoor-grown products much more actively than they were before… if consumers don’t want to buy it, retailers don’t want to buy it, and there isn’t much of a business. And in the industry itself, I think it has a real place in the produce conversation now in a way it didn’t have a few years ago.”

Michelle Hour, director at KKR, said in a release announcing the deal: “We believe that Bowery has the right commercial model, technology and team to capitalize on the rapidly growing consumer demand for sustainably-sourced food.”