The two limiting factors that are most vital to feeding the growing global population are soil and water. Controlled Environment Agriculture (CEA) conserves both of these resources and can be the answer to feeding more people, using fewer inputs. Many are looking to place capital into companies working in this emerging market from high-net-worth individuals to institutional investors.
The question remains, where to invest- land, operating farms, or new technology? For an investor to meet their financial objectives, understanding and identifying the various risks is important. Every investor whether providing debt or equity has the same concerns:
The first one being, Preservation of Principal. Secondly, Generating a Return on Investment. Thirdly, Maintaining Liquidity. And lastly, Making investments that promote sustainability goals (optional).
The technology used in field farming tends to be proven and well understood by investors experienced in placing capital into these agricultural operations. When investing in newer growing technologies like greenhouses or vertical farms the due diligence process can be more complicated, because the indoor growing technologies are novel and more complex.
The “devil is in the details”, understanding the technology, operations, and the business model is important and a thorough amount of research is suggested before writing that check. A thorough amount of research is suggested before writing that check. Farming is fraught with investor risk from commonly “known risks”, to the hard to predict “unknown risks” as shown in the Risk Matrix presented in Figure 1 below. Luckily as risk increases, in general, the probability of an occurrence is reduced.
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