Mushroom vertical farming company Smallhold files for bankruptcy; firm in ‘worse financial shape than previously disclosed’

Smallhold, a US-based company that grows specialty mushrooms via vertical farming, filed for bankruptcy on Feb. 18, 2024 in the US Bankruptcy Court for the District of Delaware.

Court documents state that “Smallhold was in substantially worse financial shape than previously disclosed” and that “it was no longer feasible to keep all of its farms open, and it has been implementing an orderly shutdown of its farming operations in Texas and New York, including reductions in workforce.”

Founded in 2017, Brooklyn, New York-based Smallhold operates indoor mushroom farms in NYC, Los Angeles and Austin, Texas. The company uses patented technology to control temperature, humidity and other climate elements in order to create optimal conditions for growing mushrooms.

Last year, Smallhold announced a nationwide expansion in the US with Whole Foods stores. Its website also lists Sprouts, Safeway, FreshDirect, and a handful of other retailers that stock the specialty mushrooms.

‘A significant downturn in the venture capital fundraising market’

As of the bankruptcy filing, Smallhold employed 81 individuals, according to the court documents.

Those documents also note that, while Smallhold has grown its retail presence over the last few years, “the combination of a significant downturn in the venture capital fundraising market as well as the fresh mushroom category remaining largely flat for the past year have led to difficulties in the Debtor’s fundraising efforts.”

Smallhold is the latest indoor agriculture company to file for bankruptcy, following a string of them in 2023 that included leafy greens grower AeroFarms, high-tech greenhouse operator AppHarvest, indoor farm robotics startup Iron Ox, and multiple others. The cost of running these farms along with a struggle to reach positive unit economics are frequently cited as big reasons for these shutdowns.

Smallhold stands out in that it’s the first major company growing mushrooms to file for bankruptcy.

Private equity firm Monomyth Group, originally a minority investor in Smallhold, took control of the company on February 7 after acquiring shares formerly held by another major shareholder, taking its share of Smallhold’s common stock to 90.77%, according to a document signed by James Dunn of Monomyth Group (chairman at Smallhold).

Following this, both of Smallhold’s founders resigned from the board of directors. Gustavo Reichmann (a partner at Monomyth) and Tariq Jawad were then appointed interim CEO and interim CFO, respectively.

Los Angeles farms will remain fully operational

Smallhold cofounder Andrew Carter announced his resignation via LinkedIn on Feb. 16 but made no mention of financial difficulties or bankruptcy.

Court documents note that Smallhold hopes the closures of its farms in Texas and New York are temporary. Its Los Angeles farms will remain fully operational “as a bridge” to Smallhold’s interim business strategy as the company explores “restructuring alternatives to right-size its balance sheet.”

Smallhold will continue to operate its business as debtor in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.

A hearing is scheduled for Feb. 21.

AgFunderNews has reached out to the company for comment.