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

8/13/14Follow @mlamonica

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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.”

Martin LaMonica is a national correspondent for Xconomy covering energy and technology. You can reach him at mlamonica@xconomy.com or @mlamonica. Follow @mlamonica

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  • Arni Fullerton

    Arni Fullerton.

    Almost all Urban Settlements and their supporting
    infrastructure are being / were built on Prime Agricultural. One way
    to recoup this land misuse is to use the high multiplier (.?to?) of food
    density using climate shelters, plant tailored Led lighting, vertical
    layering and much more to extend the growing period to 24 hours from
    daylight only and year round from climate restricted seasonal hardiness
    zones.

    With imagination one can envision and evolution of the
    Urban Landscape where the skyline is all Greenhouses; basements / below
    grade areas are all Grow-ops and terraces, yards and even public common
    area such as setbacks are used for food and herb production.

    As
    these forerunner projects demonstrate there are ways to compensate for
    the increased use of energy with reduced transportation, multiple use of
    waste heat, renewable energy and amelioration of environmental
    impacts; reduced Health Care costs by moving to more personal
    involvement in in
    organic production of food from large scale, impersonal (not caring
    about the nutritional value of what it produces) Factory farming with
    its life taking pesticides.

    Also it could compensate for the
    under employment of our present, post industrialized, plus generations
    as we integrate basic, health giving, real food production work, distant
    learning along with other givens such as entertainment and recreation,
    all centered in and around one’s home and immediate Neighborhood.

    I
    am convinced that this economic transition will not only succeed but
    will be the final, necessary link to a Neo Home Centered Habitat. It
    actually existed for most of History through the ‘Middle Ages’ up to as
    late as latter part of the 20th Century in places like Nepal and even
    central England where I helped to plan a new City in the mid 1960′s.

    As
    an Architect-Urban Designer and Town Planner with over 50 years
    experience, I am presently acting as Project Developer and have a
    design concept for such a New Neighborhood on 3+ acres of Urban land
    within a City of 80,000 people on Vancouver Island (West Coast Of
    Canada).

  • Sam White

    Great article, Martin! You really bring all of the complicated moving parts of this industry into a nice picture of where things are heading.