A Funding Frenzy And SPAC Listings Are Fueling The Indoor Growing Industry. But Does It Make Financial Sense?

With billions in funding, yet limited sales, the indoor growing industry is hitting an inflection point. 

A stunning $1.9 billion in funding poured into the industry globally in 2020, according to Pitchbook, which amounts to more than the industry pulled in over the past decade combined. Now, a roster of well-funded and unprofitable vertical farming companies are preparing to list publicly, including Aerofarms. It follows public greenhouse startup AppHarvest, which ignited consolidation rumors with an AI acquisition announced during its first quarter results. Privately held brands are also faring well: lettuce grower Bowery hit a $2.3 billion valuation after raising $300 million at the end of May. 

“I think it’s terribly inflated. Even the Bowery valuation this last round was shockingly high,” says investor David Barber, who is also the cofounder of nonprofit farm the Center for Stone Barns. “On the other hand, the addressable market is really large. The enthusiasm and focus on the sector is about food security, and how are you going to develop capabilities to feed people in any ecological condition?”

Barber, who says he chose to back Bowery because of its proprietary operating system, is far from the only investor placing his bet. The frenzy around funding these businesses has continued into this year, as debt financings and another $715 million in funding have been secured by startups, amid the anticipation of two more SPAC listings in the U.S. and a reported third in Europe. 

That’s a lot of expectation for an industry whose actual impact has been muted so far. The top 20 brands selling leafy greens grown indoors have about $135 million in U.S. retail sales from just 22,000 stores. None of the top brands have cracked more than 3,000 doors on their own—less than 3% of the nationwide grocery store footprint. Indoor farming company Brightfarms, which was founded in 2010 and sold a majority stake to billionaire-backed Cox Enterprises in October 2020, leads the pack with distribution in 2,500 stores.

Local Bounti, which is backed by heavyweights including Cargill and Fidelity, and Newark, New Jersey-based Aerofarms are both expected to go public via a SPAC listing this year. But both are currently unprofitable and facing limited distribution. 

“This is a capital efficient way to scale — to tap the public markets,” says Aerofarms CEO and cofounder David Rosenberg, who is expecting his 17-year-old company to list in this summer, pending regulatory approval. “Whether we’re in several hundred supermarkets or several thousand, we feel like several hundred was enough to prove the business model.”

AppHarvest, which grows tomatoes and broke ground on its fourth and fifth greenhouses in Appalachia this month, has seen its stock price cut in half since it went public in January. AppHarvest’s net sales for its first quarter came in at $2.3 million, from selling 3.8 million pounds of tomatoes. Its market cap is currently $1.5 billion.   

“With the immense demand, we can’t make enough product. We don’t have to worry about demand. We have to worry about high quality scale and supply and being financially sustainable,” AppHarvest president David Lee said at the Indoor Ag Tech Conference last week. “We are bankable now, at really affordable, non-dilutive structures that will get better and better. There’s a lot of room to run.”

This article was published in Chloe’s newsletter, Forbes Fresh Take, which is all about big ideas changing the future of food. Subscribe here.