How To Be Successful In Vertical Farming?

As the number of vertical farming projects flourishes worldwide, I had the chance to interview the COO of Finland-based company NETLED, Niko Kurumaa, during the Indoor AgTech event in late June in New York.

While Niko Kurumaa, COO of NETLED, has not explicitly outlined the ‘four essentials’ in the notes provided, based on his statements, we can deduce that the four fundamental elements he prioritizes in a vertical farming project include commercially proven technology, robust financial modeling, strategic partnerships with retailers, and prudent financial strategies such as debt leveraging.

The first cornerstone, commercially proven technology, underscores the need for vertical farming to demonstrate its practicality and efficiency in real-world settings. For Kurumaa, it’s not merely about deploying innovative technology; the technology’s commercial viability, in terms of operational efficiency and cost-effectiveness, is paramount. With an industry as nascent as vertical farming, adopting a tech approach proven in a commercial environment reduces risks and lends credibility to the project.

Secondly, Kurumaa emphasizes the importance of robust financial modeling. Before any project can secure financing or investment, it must present a reliable and compelling financial model. Kurumaa’s insistence on audited financial modeling showcases his understanding of the need for transparency and reliability in financial forecasting. Accurate financial projections are critical in demonstrating the project’s potential profitability, thereby securing investor confidence.

Strategic partnerships with retailers form the third essential component in Kurumaa’s approach. The relationship between vertical farms and retailers is vital in securing off-take agreements, which offer a predictable and steady revenue stream. Despite the complexities involved in fresh produce agreements, Kurumaa values direct engagement with retailers. This strategy aligns the supply chain, bridges gaps between producer and distributor, and helps maintain a consistent output flow, fostering stability in the business model.

Lastly, prudent financial strategies, particularly leveraging debt financing, form the fourth cornerstone. Kurumaa understands the financial hurdles in establishing a vertical farming project, such as high initial costs and potential risks. To navigate these challenges, he leverages debt financing through entities like Finnverra. This strategy helps to mitigate risks and initial costs while simultaneously promoting a more professional image of vertical farming as an investment opportunity. Kurumaa’s method exemplifies a forward-thinking approach that seeks to balance risk and reward while providing a financially sound foundation for the project.

Adapting The Communication

Effective communication is critical to the development and acceptance of vertical farming among investors, retailers, and the public. Niko Kurumaa rightly emphasizes that vertical farming should not be perceived as just an enticing opportunity for venture capitalists. Therefore, it is crucial to showcase the sector’s sustainable potential, practical viability, and economic soundness in the communication strategy. The narrative surrounding vertical farming must change to attract diverse investors, secure institutional support, and gain public trust.

Communication should strike a balance in an industry where fresh, sustainable produce output is as important as technological innovation. Kurumaa stresses the need to focus on the produce, which sets vertical farming apart from purely tech-driven sectors. This perspective must be communicated clearly to demystify vertical farming and encourage wider adoption. A professional and comprehensive communication approach can also facilitate meaningful dialogues with traditional financial institutions and potential retail partners, leading to stronger relationships and more robust business models.

Changing the communication strategy around vertical farming is essential to make it more professional and not just an attractive investment for venture capitalists.

Working With Traditional Financing To Navigate Funding Drought In Vertical Farming

Niko Kurumaa, COO of NETLED, believes that traditional financing is crucial for the growth of vertical farming, despite the challenges it may pose in the early stages of a project. He values the stability and credibility that traditional financing offers compared to more volatile forms of funding.

Kurumaa’s approach involves showcasing successful vertical farming projects, such as those implemented by NETLED in Scandinavia, to traditional banks to demonstrate their commercial viability. This strategy provides a tangible guarantee for banks and fosters a deeper understanding and acceptance of vertical farming within traditional financial institutions.

His willingness to work with traditional financing demonstrates his commitment to maintaining a professional and business-centric approach to vertical farming. This approach shows a keen understanding of the need for long-term stability and robust financial planning, reassuring potential investors, lenders, and partners. It contributes to the broader credibility and acceptance of the vertical farming industry, often portrayed as an attractive but risky venture for more speculative financing.

Image provided by NETLED