Startups Take a Shine to Urban Agriculture; Can They Reward Investors?

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since plants need artificial lights and, in some cases, heating and cooling.

The most valuable thing urban farmers bring to the table is product consistency and year-round availability, not cheap food, says Freight Farms’ Friedman. “Where we succeed is where there is an unstable food supply system and we can give them consistency,” he says. “It may not be ideal for someone in South America, but a lot of places don’t have very consistent growing climates.”

Restaurants and supermarkets are willing to pay for high-quality produce from locally grown urban farms, which justifies their higher prices. But that’s a relatively small market, notes Peter Grubstein, managing director at venture firm NGEN Partners. His firm, which led a $4.9 million Series B funding round for Bright Farms this year, has been looking at food and agriculture for years, but Grubstein isn’t convinced many urban-ag companies are “venturable.” In many cases, there isn’t differentiated technology in the growing systems themselves, he says.

“It can probably work in a boutique-y way—for example, if you have a [growing] container right next to the restaurant so you have a high-margin off-take [agreement] and no transportation costs,” he says. “But if you’re really trying to get into mainstream agriculture and get into more nutritious foods, then protected ag has its problems.”

Grove Labs’ co-founder and CEO Gabe Blanchet argues that Grove, for one, is a technology company, not a food grower or supplier, so its business is well suited for venture capital. It took a while to find the right investors for its $2 million “seedling round” earlier this year, but the startup’s investors, including Upfront Ventures, saw the potential of tapping into consumers’ desire for healthy food. “We’re a technology and product company, which means that we can scale in a way that’s agreeable with the venture model,” he says.

How this new crop of urban agriculture startups fare as businesses will depend on the demand for locally grown food, and whether they can use technology to make their food prices lower. The fortunes of equipment suppliers, meanwhile, will depend on how quickly the now-niche market for building-integrated agriculture grows in the years ahead.

Agriculture, overall, is an industry that’s just starting to be touched deeply by digital technologies. That might explain why so many entrepreneurs see food as ripe for innovation. “Technology is creeping into a lot of areas of our lives,” says Greg Hernandez, vice president of operations at restaurant and food-delivery startup The Melt. “And one of them is food.”

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