Dealflow | June 16, 2023

Deal spotlight: Collapse of AeroFarms augurs a reckoning for vertical farming

Jessica Pothering
ImpactAlpha Editor

Jessica Pothering

ImpactAlpha, June 16 – AeroFarms has gone from the poster child of farming’s high-tech urban future to a cautionary tale. The Newark, NJ-based B Corp has for two decades promised to reengineer the food system with indoor growing methods that conserve resources and space and dramatically shorten food supply chains. It raised at least $238 million from investors, including from the government of Abu Dhabi for its pledge to grow food in the desert. Prudential Financial’s impact investing unit backed the company for its promise of job creation in Pru’s hometown of Newark.

AeroFarms declared bankruptcy last week in federal bankruptcy court in Delaware. The news follows its failure to go public last year as investor interest in special purpose acquisition companies, or SPACs, evaporated.

The company says it “expects to emerge stronger in coming months.”

Tough run

AeroFarms’ bankruptcy is the latest in a string of bad news for vertical farming ventures, which have raised billions of dollars from investors. Germany’s InFarm raised more than $600 million before laying off 50% of its staff in December. California’s Plenty raised nearly $1 billion from Softbank, Walmart and others; it closed its San Francisco farm and laid off workers. Orlando-based Kalera was delisted from Nasdaq for poor performance this year, paused several US farms, and sold its international business. France’s Agricool was bought in distress by VIF Systems. Pittsburgh-based Fifth Season shuttered in October. Cincinnati-based 80 Acres laid off half of its workers. The list goes on.

Unit economics

Consultant Henry Gordon-Smith called vertical farming’s path into the “trough of disillusionment” back in 2021. The farms’ hefty energy footprints have a major impact on operators’ timelines to profitability.

“These farms are still incredibly expensive to build and, while demand is rising, the sector is still immature in its capacity to build large farms on time and deliver on projected unit economics,” he wrote.

Scotland-based Intelligent Growth Solutions is bucking the trend. It is actively hiring and building a new facility in Dubai. Founder David Farquhar is critical of players who are “trying to do everything themselves.” He has called on operators to “grow up, start telling the truth, and publish real data.”

Says Gordon-Smith: “Stakeholders must exercise due diligence, conduct thorough feasibility studies, and commit to making specific and measurable sustainable commitments.”