Bowery Bags $7.5M to Break Into Fast-Growing Indoor Farming Market

[Updated 2/23/2017 11:21 am] City real estate comes with premium prices, so the best way for developers to get the most out of limited space is by building skyward. The same approach holds true in urban agriculture. As vertical farms catch on in more cities, new agtech startup Bowery is entering the market backed by $7.5 million in funding. [Updated headline and text with correct funding amount.]

First Round Capital led the seed round of investment for Kearny, NJ-based Bowery, which has spent the last two years developing technologies and testing crops that can grow in its urban-situated farming system. Growing indoors in vertical stacks enables Bowery to boost yields, producing more food than could be grown on an equivalent-sized field, says Irving Fain, the company’s co-founder and CEO.

But more than just improving yields, Fain says sensors and software allow Bowery to control environmental factors that affect a plant, which in turn enables the company to improve a plant’s health and growth, and even adjust its flavor to a customer’s tastes.

“They say ‘We want to get a mustard green that’s a little bit spicier,’ and we can certainly do that,” Fain says.

Indoor farming is not a new idea. Hydroponics, the practice of growing plants indoors in a solution rich in minerals and nutrients instead of soil, dates to the 1920s, according to the University of Arizona. But the costs of operating an indoor growing facility have made large indoor farms prohibitively expensive. For example, climate controls and lighting are energy hogs, accounting for two of the largest expenses associated with these operations. Now, new technologies that use less energy, require less water, and automate many processes are lowering the cost barriers to indoor farms, allowing a wave of new startups such as Bowery to launch their businesses.

Fain, who was the co-founder and CEO of New York-based loyalty marketing software company CrowdTwist, points to LED lighting as the biggest cost barrier to fall. These lights, which consume less energy and produce less heat, ease the burden on climate control systems. Bowery has also developed proprietary software that uses sensors to monitor plants and collect data across its farm. Machine-learning capabilities enable this system to identify the environmental conditions best for a plant and make changes accordingly, Fain says.

As operating costs have come down, both startups and investors have shown more interest in indoor farming. Novel farming systems, a category that includes indoor farms, accounted for $247 million invested across 43 deals in 2016, according to the annual report on agtech funding produced by online investment marketplace AgFunder. In 2015, that category accounted for $158 million invested in 23 deals.

By revenue, indoor horticulture is roughly 4,000 times more productive than outdoor farming—gains realized by year-round production, higher yields, and higher retail pricing, according to a report from Agrilyst, a New York indoor farming software company. Lettuce, for example, can be harvested four to five times a year when grown conventionally outdoors. By comparison, indoor farmers can harvest their farms an average of 18 times a year, Agrilyst says. The most common crops grown indoors are microgreens, herbs, vine crops, and some fruits. Greens are the highest revenue-generating crop after cannabis, according to the report.

The indoor farming space is diverse, ranging from small units designed for the home, such as the cabinets marketed by Somerville, MA-based Grove, to large warehouse farms such as the one operated by startup Plenty in South San Francisco. Plenty told the Wall Street Journal that it aims to produce up to 3 million pounds of leafy greens annually in its 51,000 square-foot warehouse. Those greens will then be shipped to local chefs and specialty grocery stores.

Bowery tested 80 crops before settling on its current product line of six leafy greens and herbs. From its hydroponic farm in New Jersey, the company plans to shrink the supply chain by selling greens wholesale to grocery stores and restaurants in nearby Manhattan. That’s a similar approach taken by other indoor farming startups in the New York area, which is becoming an indoor farming hotbed. Edenworks, which started with a research facility in Brooklyn in 2013, plans to open a 12,000 square-foot commercial production facility for growing microgreens and baby greens, according to the Agrilyst report. The company culled its employees from sectors such as applied mathematics, engineering, and robotics, and it has developed its own hardware and software to capture and analyze plant data in the growing facility.

Meanwhile, BrightFarms, also based in New York, is scoping out more cities where it can deploy its indoor farming model. BrightFarms raised $30 million in a Series C round of investment last September, the largest indoor farming deal of the year, according to AgFunder. The company has supply contracts with grocery store chains serving markets near its farms located outside of Philadelphia, Washington, DC, and Chicago. A 160,000 square-foot farm in Illinois, opened last summer, is the newest BrightFarms site.

Fain won’t disclose the size of Bowery’s New Jersey farm, other than to say that it’s a warehouse-sized operation. But he contends that his company’s technology sets it apart from other indoor farming startups. While customizing flavors in produce might be Bowery’s most distinguishing capability, right now, the company is only offering that feature to its restaurant customers. Produce supplied to grocery stores will have the same standard flavor profile, Fain says. That produce will be priced at or below the price of packaged greens on the market today.

With the new capital, Bowery plans to add to its current headcount of 12, as well as start another farm. Besides First Round Ventures, the investors backing Bowery include Box Group, Lerer Hippeau Ventures, and Tom Colicchio, a chef who is using Bowery-grown greens in two of his New York restaurants.

Photo by Bowery.

Frank Vinluan is editor of Xconomy Raleigh-Durham, based in Research Triangle Park. You can reach him at fvinluan [at] xconomy.com Follow @frankvinluan

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