“The industry benefitted from a lot of early-stage funding that has since dried up. Companies that are successfully executing and delivering on milestones should have access to additional capital to further fund growth,” says David Verbitsky, Managing Director at Nomura Greentech.
Early investments into CEA were largely focused on addressable markets and the potential of technology. “The focus was previously all on technology, such as robotics, sensors, and AI. Investors were concerned about data analytics and technology implementation. Less focused on core growing operations and unit-level economics. There is now a shift back to growing and putting plants first. Indoor Ag companies are growers first and foremost. Technology is a tool to improve operational efficiency and unit-level economics, not a means unto itself,” says David.
As the Head of AgTech & Sustainable Food at Nomura Greentech, David has more than 15 years of experience in the world of finance, specializing in the Food and Agriculture sector. Nomura Greentech has a mission of empowering companies and investors who are contributing to a greener, more sustainable future; providing strategic advisory services including M&A, as well as equity and debt capital raising to companies. Nomura Greentech has provided financial advisory M&A and helped raise capital for several indoor farming companies to date.
After a string of bankruptcies, is vertical farming on the other side?
From 2022 to the end of 2023, a string of bankruptcies and restructurings have rocked the vertical farming industry, with reports in early 2023 estimating a 91% drop in venture capital investment in the industry since 2022. The question is now, are we out of the woods yet, or should the industry continue bracing itself?
David points out that the market still has great potential, a compelling story to tell, and consumers who are ready for local, healthy food. Data shows that CEA as a product or grocery category is growing due to consumers’ appreciation for freshness and a longer shelf life. From a financial standpoint, the CEA sector is also branching into different forms of capital such as infrastructure and equipment-backed debt, in addition to equity.
“In the US and Canada, we are seeing indoor farms building their brands and when consumers have tried CEA products, they look for them again in grocery stores. Sales data has shown strong same-store sales for the category. What we don’t know yet is if there is a preference for brand, or just for the broader CEA category. If you have two brands of CEA crispy lettuce, the data shows the lowest price goes first,” notes David.
While many naysayers question the profitability of vertical farming, David expects that many companies will become profitable in 2024 which can trigger additional investment into the sector as well as the setting of industry standards.
“Standardization will be key for the sector’s maturity. The best technology will be adopted by a wider variety of players to help them reach profitability and secure a larger footprint,” David says. “Becoming profitable will give these farms much more control over their destiny and we are here to help CEA do that.”
For more information:
David Verbitsky, Managing Director and Head of AgTech & Sustainable Food