“I come across many vertical farming concepts. There are some very interesting developments going on in the market. Especially for investors, because vertical farming is future-focused,” says Jobbe Jorna, Founder and Managing Partner at Upstream Capital. The Amsterdam-based organization advisory boutique is specialized in helping companies realize their full potential with performance improvement and corporate finance.
“Multiple investors are looking into (inter)national vertical farming projects. There’s abundant liquidity but a lack of solid business cases.” According to Jobbe, as a result of the pandemic investors are becoming increasingly critical, also in the Netherlands. They take more time for a thorough analysis, walking through the entire process teaming up closely with stakeholders. In the end, this is only beneficial for farmers because it contributes to the design, build, finance, maintain and operate a solid foundation to build a successful farm upon.
Sharp review of business cases
Jobbe says that there are three common mistakes that he comes across frequently when reviewing business cases. Firstly, farmers need to develop a strategic competitive advantage with sufficient upside potential. The business case has to be scalable. Secondly, the value proposition has to be validated, tested, and ready-to-market. “Don’t put too much R&D into it, Bear in mind, an idea does not immediately make a working concept. Let alone a winning go-to-market proposition that can be achieved,” Jobbe adds.
“Investors want to see a rock-solid value proposition with upside potential and a powerful management team with strategic business partners, backing up the company. Most investors don’t go onboard if there isn’t a worthy team with a strong and proven track record.” Finally, farmers should look outside the box as in horizontal integration within the value chain, long-term off-take contracts. In the past, we successfully realized sustainable energy projects in greenhouses driven by long-term contracts at a middle price. In this way, we can secure the business case against crop price fluctuations. As a result, the business case attracts more interest from potential financiers, in the wide range of business angels and investors to banks.”
Cultivation is your core, says Jobbe, then start with the end in mind. Who is the end customer, what are the current needs, and what are tomorrow’s needs? Rethink the value chain and develop your own eco-system of strategic partners. Farmers need to their homework. Start in time, as it’s more challenging than people think. You need to have a rock-solid business plan in place prior to approach potential investors.
Jobbe says that when a business plan is solid enough, farmers should put together a game plan before going out and start to approach potential investors. “If that’s done too early, your process, time and wallet for that matter will take a sufficient hit. When growers are in a negotiation phase with investors, they should follow a structured approach. Keep your options open, your eye on the ball as the negotiation window is a moving target and always respect your walk-away point. Especially now, during the pandemic, growers should not be seduced by an unfair proposal.”