For a long time, we watched the vertical/indoor farming space attract billions of dollars in venture funding with a high degree of skepticism. The space, characterized by the use of artificial lighting, like LEDs, rather than sunlight, was heralded as a solution for both improving the sustainability of production and providing predictable food supply amid climate-related threats such as extreme weather variability and supply chain disruptions. 

But we couldn’t see how the economics of these production systems stacked up. Companies seemed to be racking up costs with a focus on building technology for technology’s sake, the market economics seemed challenging, and ultimately, sunlight seemed like an indomitable competitor. 

But then we met a company that caused us to change our minds about vertical farming. 

Introducing Phyllome, our 11th investment, an Australian controlled-environment agriculture startup building profitable, flexible “plant factories”. We invested in their oversubscribed seed round - here’s why. 

What they do: profitable plant factories 

Phyllome develops and operates modular, tech-enabled systems for indoor, short-run production. These “plant factories” initially produce leafy greens, starting with spinach, for direct sale to food aggregators, such as meal kit companies and independent food retailers. The value proposition to these customers is certainty of supply, price, and quality, as indoor production is not susceptible to weather events. 

In the future, Phyllome will leverage their automated production environment to grow crops for much higher value, and high growth, markets. 

Zip ties and off-the-shelf technologies 

In contrast to the capital-abundant engineering approach of many of their well-funded vertical farming competitors on and offshore, Phyllome has a design-for-cost ethos with three key pillars:

• capital efficiency at the 'space' (i.e., farm) level;
• production efficiency at the operating level; and
• unit economics at the plant level.

This starts with Phyllome’s founder, Sebastien (Seb) Eckersley-Maslin, a naval electronics and systems engineer by training, and serial entrepreneur by background, whose vision was to build farms that are cheap to build and economical to run. 

Using system-design principles to solve for low capex from day one, Phyllome has designed a capital-efficient, highly-automated production system that can get to profitability quickly in the leafy greens market. They leverage off-the-shelf technologies wherever possible, investing in proprietary innovations (e.g., robotics, AI) only when they will help to reduce capex and opex costs at scale. 

As a result, Phyllome’s current 1,000sqm farm is an order of magnitude cheaper per square meter than much of the indoor competition. 

But what about energy usage? 

Broadly, indoor farming has significant climate benefits, including:

• Using less water and reducing food miles.
• Reducing or eliminating pesticides, herbicides and fungicides (with no run-off).
• A predictable supply of food amidst hail, floods, drought, etc. 
• Faster growth cycles and quicker harvests, meaning more food can be grown on less land, and supply can be more accurately matched to demand to reduce waste.

However, in terms of total emissions per kg of produce, there’s some important nuance. 

While the introduction of cost-effective LED lighting technologies has enabled vertical farms to provide an environment optimized for plant growth, it also means that vertical farming is an energy-intensive production method. Without renewable energy, when benchmarked against outdoor spinach production, the emissions per kg of produce is roughly the same. 

Phyllome is committed to being a low emission company. With renewable energy, namely the rooftop solar that Phyllome has committed to install/buy, Phyllome’s total emissions per kg of spinach produced will be reduced to 0.00075 tonnes CO2e. When compared to traditional farming methods, this represents a 36% decrease.

The future of Phyllome

Ultimately we believe Phyllome’s approach to costs/efficiencies and value is an opportunity to fundamentally address the biggest challenge with indoor vertical farming - defensible and scalable margins. 

By approaching capital cost as the biggest variable and solving for the lowest possible outlay to build and operate facilities; earning the right to scale by focusing on commercial partnerships that value their unique offering; and tapping into highly specialized markets that will pay significantly more than what crops like spinach will ever be able to attract, Phyllome is well placed to not only combat the vertical farming skepticism, but unlock massive impact and returns. 

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Phyllome maps to the Tenacious Ventures investment & impact themes of lower intensity production and democratized infrastructure to achieve impact. 

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