When the market was booming, tech investors poured billions into companies designing new ways of farming. Now some of those bets appear to be wilting.
Fifth Season, a Pittsburgh-based vertical farming company, told employees this fall it was shutting down. Berlin-based Indoor Urban Farming GmbH, valued at more than $1 billion, laid off about 500 employees last month. And greenhouse startup AppHarvest, which went public through a special purpose acquisition company last year, has seen its stock sink more than 90% since its 2022 high. After telling investors it was low on funds, AppHarvest recently sold one of its farms and plans to rent it back.
“Our empathy goes out to any startup company in our space,” says Arama Kukutai, chief executive officer of Plenty Unlimited Inc. Plenty, based in South San Francisco, raised nearly $1 billion from investors including Walmart Inc. and SoftBank Group Corp.’s Vision Fund, promising to build the world’s largest vertical farms. Kukutai says getting started in the business is expensive, as is operating complicated agricultural technology, and it’s difficult to make sure each farm turns a profit. Plenty will open its first commercial-scale farm in Compton, California, next year, nearly a decade after its founding in 2014. “We’ll see more companies not survive the next year and 2023,” Kukutai says.
Novel farming companies raised more than $2.2 billion in 2021, according to researcher AgFunder. Of those, vertical farming and greenhouse-style grow houses have attracted the most attention. Vertical farms stack crops layer by layer in warehouses outfitted with lighting and irrigation systems, often using sensors to monitor plant health and regulate watering. The promise of these systems is that as climate change causes extreme weather, indoor farms will provide a more durable and space-efficient way to feed growing populations.
Not every company appears to be crumbling. Some of the largest players in indoor farming raised monster rounds earlier this year, including Plenty, which raised $400 million in January, and Soli Organic Inc., which closed a $125 million funding round in October. But the rapid withering of smaller companies could portend a larger reckoning to come.
The challenge with investing in indoor farming companies is that they must excel at not only software, but also robotics, agricultural science and farm design, says Hans Tung, managing partner at GGV. “It's not an easy category to crack,” he says. “Only the strongest will likely survive, and there won't be that many great players.”
Berlin’s Indoor Urban Farming, operating as Infarm, has been grappling with rising energy prices in Europe. Infarm says that it’s undergoing a “significant strategy shift” to reach profitability and that its layoffs so far have amounted to half its staff. AppHarvest, which earlier this year was running dangerously low on cash, said the crisis was averted after the company secured a loan and made a deal to sell a farming unit to a produce distributor. Fifth Season, which once promised to grow salad greens “in a happy home, made so by robotics and cutting-edge AI,” did not respond to requests for comment after telling employees it would wind down operations.
The cost of operating an indoor farm, where a company must control everything from light, heating and cooling to each drop of water, costs $300 or more per square foot, says Henry Gordon-Smith, founder and CEO of Agritecture, a farm-tech consulting firm. That compares with just a couple of dollars for a regular outdoor farm. That makes indoor agriculture startups vulnerable to a tough fundraising climate, Gordon-Smith says. If a farm hasn’t been able to achieve enough scale to show it can be viable and sell its products, it might not be able to continue funding operations.
“We are a business that takes and requires capital always,” says Irving Fain, CEO of Bowery Farming Inc., a vertical farming company that has raised nearly $500 million in equity from a star-studded roster of investors including singer Justin Timberlake and Alphabet Inc.’s GV. The New York-based company is one of the largest in the space and sells its leafy greens to more than 1,400 retailers.
Agritecture’s Gordon-Smith predicts that the downturn will bring expectations for vertical farms back down to Earth—especially the idea that indoor farming is the answer to the climate crisis. Startups can offer people more access to healthy foods, he says, even if the farms don’t solve world hunger with their pricey and (low-calorie) leafy greens. Despite the economic headwinds, he thinks the concept still has big potential. Right now, “the promises made can’t be delivered,” he says. But “it’s not like they can never be delivered. The main enemy I see is the hype.”
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