SPAC listings are fueling indoor growing industry, but does it make sense?

With billions in funding, yet limited sales, the indoor growing industry is hitting an inflection point. 

A stunning $1.9 billion in funding poured into the industry globally in 2020, according to Pitchbook, which amounts to more than the industry pulled in over the past decade combined. Now, a roster of well-funded and unprofitable vertical farming companies are preparing to list publicly, including Aerofarms. It follows public greenhouse startup AppHarvest, which ignited consolidation rumors with an AI acquisition announced during its first-quarter results. 

“I think it’s terribly inflated. Even the Bowery valuation this last round was shockingly high,” says investor David Barber, who is also the co-founder of the nonprofit farm the Center for Stone Barns. “On the other hand, the addressable market is really large. The enthusiasm and focus on the sector is about food security, and how are you going to develop capabilities to feed people in any ecological condition?”

Barber, who says he chose to back Bowery because of its proprietary operating system, is far from the only investor placing his bet. The frenzy around funding these businesses has continued into this year, as debt financings and another $715 million in funding have been secured by startups, amid the anticipation of two more SPAC listings in the U.S. and a reported third in Europe. 

That’s a lot of expectation for an industry whose actual impact has been muted so far. The top 20 brands selling leafy greens grown indoors have about $135 million in U.S. retail sales from just 22,000 stores. None of the top brands have cracked more than 3,000 doors on their own—less than 3% of the nationwide grocery store footprint. Indoor farming company Brightfarms, which was founded in 2010 and sold a majority stake to billionaire-backed Cox Enterprises in October 2020, leads the pack with distribution in 2,500 stores.

“This is a capital-efficient way to scal—to tap the public markets,” says Aerofarms CEO and cofounder David Rosenberg, who is expecting his 17-year-old company to list in this summer, pending regulatory approval. “Whether we're in several hundred supermarkets or several thousand, we feel like several hundred was enough to prove the business model.”

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