Is vertical farming dead? Not so fast...

Billions of dollars of venture funding has flowed to vertical farming startups in recent years. Several companies alone have raised hundreds of millions of dollars: Plenty ($941M); AeroFarms ($238M); AppHarvest ($692M); and Gotham Greens ($435M) among them. 

Yet today, we’re seeing frequent, high profile collapses. Upward Farms and AeroFarms have folded. AppHarvest is about to run out of cash. 

As the sector seems to be down the hype curve toward the trough of disillusionment, we’re asking: was it all hype, or is there a value proposition with vertical farming that many players seem to have missed? 

We used to be a hard pass on vertical farming 

For a long time, our answer as venture investors was a confident “no thank you” on vertical farming. We broke the space down into a few business models, all of which seemed problematic: 

• Sell produce - but in many geographies, sunlight is plentiful & cheap, and power, labor and materials are not.
• Sell farms - but are there really a lot of people wanting to  farm, that aren’t?
• Sell tech & tools to farmers - but it’s a small/fragmented market, plus, the venture-backed tech companies are all touting the benefits of their custom tech. 

And on top of this, we were skeptical because vertical farming is not applicable to the vast majority of crops, and the opportunities for expensive herbs and leafy greens are typically very fragmented and have major margin capture/protection challenges.

But then, last year, we met a company whose founder and business plan caused us to change our minds about vertical farming. 

Strong opinions weakly held

Phyllome, founded by former naval engineer and serial entrepreneur, Sebastien (Seb) Eckersley-Maslin, is rethinking both the cost and value sides of the vertical farming equation. 

On the cost side, rather than focus on technology for technology’s (or investor’s) sake, Phyllome set out to explicitly manage against two key metrics: “cost per square meter” of construction and operating “cost per kg of produce”. They use off the shelf parts whenever possible, investing in automation only when it will accelerate their path to profitability. This means that their farms cost an order of magnitude less than many of their competitors. 

Beyond just profitably servicing the leafy greens markets, Phyllome has a long-term vision to use their automated “plant factories” to grow custom, plant-derived ingredients for higher value markets. 

Vertical farming 2.0 is here, and we’re investing

We’re thrilled to be backing Phyllome (technically our 11th investment, but we’ve kept quiet for the last year as they operated in stealth) and to be sharing our investment notes. 

We also caught up with Seb on the podcast recently, for his views on why vertical farming is NOT dead, and what he has learned from the first generation of companies in the space. 

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Hungry for more vertical/indoor farming news?

Check out the following articles:

• The vertical farming bubble is finally popping
• Funding Is Drying Up for AI-Run Vertical Farms
• VCs Plow Money Into Indoor Farming, But Open Fields Might Be More Ripe For Innovation
• The economics of indoor ag (podcast by our friend Tim Hammerich)

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