Startups Take a Shine to Urban Agriculture; Can They Reward Investors?
Using a smartphone, Jon Friedman can run a whole network of high-tech, urban farms. His company, Freight Farms, developed an app that allows farmers to control the growing conditions of truck-sized shipping containers filled with racks of hydroponically grown veggies.
Before starting Freight Farms, Friedman and co-founder Brad McNamara had no background in food. But once they looked into how the industrial agriculture industry works, they thought they could make a difference by enabling more locally grown, organic food. “It was a problem that grew on us. We fell in love with the idea of solving it,” Friedman says. “We wanted to make urban agriculture a viable industry that could scale.”
And that’s the big question: can tech startups make urban agriculture take root and scale beyond its tiny base now? A number of them, like Boston-based Freight Farms, are trying. In some cases, entrepreneurs are drawn by a desire to make agriculture more sustainable or simply to work in food, an industry everybody can relate to and interact with.
Investors, meanwhile, see the macro trends: the world’s populations are becoming more urban; any innovations that can grow food with less water and land than outdoor farming has potential to at least partially feed cities. The number of venture investments related to agriculture and food this year is on pace to be more than twice the number of deals in 2012 and deal sizes are growing, according to data from the Cleantech Group.
But when it comes to urban agriculture, the jury is still out on whether it fits well with the venture capital funding model. “I just don’t know if it’s a venture play because it’s really hard to scale and be disruptive,” says Troy Ault, the director of research at the Cleantech Group. “We haven’t seen one be wildly successful in the typical venture-exit sense.”
That’s certainly not for lack of ingenuity. New York City-based Bright Farms has developed a greenhouse that can grow tomatoes with one-tenth the land and one-seventh the water than a traditional farm uses. Its hydroponic growing system doesn’t use heavy soil, so it’s built greenhouses on supermarket rooftops, in one case using the excess heat from store bakeries to lower the system’s energy usage and carbon footprint, the company says.
A few companies have developed ways to grow food in shipping containers or converted warehouse spaces. In addition to Freight Farms, there is Atlanta-based PodPonics, which touts its proprietary LED lighting and software for optimizing the growing conditions of different vegetables, such as lettuce, basil, or kale. Maplewood, MN-based Garden Fresh Farms grows both greens and fish for local supermarkets and restaurants using aquaponics, a symbiotic system that uses fish waste as fertilizer.
PodPonics, Garden Fresh Farms, New York City-based Edenworks, and Bright Farms are essentially food suppliers. Others, meanwhile, are developing technology and equipment for other urban farmers to use; those companies include Freight Farms and Dallas-based Greentech Agro.
There are even a couple of startups seeking to help consumers grow their own food indoors. Grove Labs, which works out of cleantech incubator Greentown Labs in Somerville, MA, is using sensors and smartphone apps to teach people how to grow their own vegetables indoors. Similarly, Detroit-based SproutsIO, which has roots at the MIT Media Lab, is developing an automated, hydroponic home-growing system.
The economic argument for urban agriculture is that locally grown food greatly reduces transportation costs, which represents about half the cost of food. Also, greenhouses and other controlled environments produce consistently high-quality food that isn’t susceptible to droughts, pests, or other disruptions. On the other hand, energy costs are higher 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.”
Trending on Xconomy
By posting a comment, you agree to our terms and conditions.