Key Takeaways:
- The 2022-2023 period saw a significant decline in venture capital investments in indoor farming.
- Recent months have witnessed a resurgence in funding for indoor farming projects.
- Emerging markets, climate change, and food security drive the renewed interest.
- Historical investment patterns and proven results influence current funding trends.
- The distribution of capital favors larger, more established companies.
The 2022-2023 Investment Downturn
Our recent edition of The Indoor Farmer examined how indoor farming faced significant challenges during 2022-2023, marked by a sharp decline in venture capital (VC) investments. According to a May 2023 Pitchbook report, VC investments in indoor farms plummeted by over 90% year-over-year. Contributing factors included soaring energy costs, particularly in Europe, rising interest rates, and a generally unfavorable funding environment for startups.
These economic pressures resulted in severe consequences for several prominent indoor farming companies:
- Infarm: Filed for bankruptcy and ceased operations.
- Kalera: Filed for bankruptcy but continued operating some facilities.
- Future Crops: Filed for bankruptcy and ceased operations.
The Resurgence of Funding in Recent Months
In contrast to the previous year’s downturn, recent months have seen a resurgence in funding and project finance within the sector. Notable funding achievements include:
- Generate Capital: Invested £38 million in GrowUp to scale operations.
- Ceragen: Raised $2 million in seed funding.
- iyris (formerly RedSea): Completed a $16 million Series A fundraising.
- Agrourbana: Raised $6 million in Series B funding.
- Growcer Inc.: Secured $3 million to expand operations.
- Oishii: Achieved $134 million in funding from 19 investors.
- Hippo Harvest: Closed a $21 million Series B funding round.
- Crysp Farms: Completed a $2.25 million Pre-Series A funding round.
- Plenty Unlimited Inc. and Mawarid Holding Investment: Plan to develop up to five farms with an investment of up to AED 2.5 billion (US$680 million).
Analysis: Examining the Shift in Investment Trends
As the indoor farming industry experiences a resurgence in significant projects and substantial funding, it raises the question: have companies learned from past mistakes? Insights from experts provide a deeper understanding of this evolving landscape.
Emerging Markets and Global Expansion
Henry Gordon Smith, CEO & Founder of Agritecture, notes, “Many recent large-scale project announcements are coming from newer companies outside the traditional core markets of the US and EU. These emerging markets have not yet experienced the bubble burst, which explains part of this positive news.”
Climate Change and Food Security
Henry Gordon-Smith emphasizes, “Climate change, increasing demand for quality food, and threats to supply chains continue to drive the growth of Controlled Environment Agriculture (CEA) and Vertical Farming (VF).” Governments and municipalities prioritize agriculture and food production due to concerns over food security and local supply chains.
Historical Investment Patterns
Peter Tasgal, a Food & Agriculture Consultant, explains that the peak of investment in CEA in 2021 was due to low interest rates, reduced costs of LED lighting, and a robust investment environment. “Investors believe interest rates are peaking and should come down soon. More diligent investors are entering the space,” he adds.
A Greater Focus on Proven Results
Glenn Behrman, CEO of CEA Advisors, highlights the industry’s shift towards companies that deliver proven results. “Some companies that raised funds have slowly built a business with results; their funding and expansion are based on success in reaching key milestones,” he notes.
The Learning Curve: Evolving Strategies in Indoor Farming
Focus on Quality and Results
Glenn Behrman emphasizes the importance of quality personnel and operational success. “The quality of people involved in indoor farming today are much more committed, realistic, and sincere,” he says, noting a shift towards a results-oriented mindset.
Mixed Lessons Learned
Henry Gordon Smith highlights ongoing challenges, stating, “More experienced professionals could help address operational challenges faced by earlier vertical farms.” Despite recent growth, skepticism remains about whether lessons from past failures have been fully absorbed.
Strategic Investment and Location
Peter Tasgal believes investors have learned from past errors, recognizing the importance of location for profitability. “There needs to be a consumer who can afford to pay for premium products in a location where access to lower-priced premium products is unavailable,” he explains.
Merging Technology and Practicality
Thea Otto highlights the industry’s movement towards practical technology use. “Successful companies focus on plant-centric and human-centric approaches,” she notes, emphasizing the complementary role of vertical farming and traditional agriculture.
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