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Avoiding future failures in the CEA industry

The difference between risk and uncertainty in agtech investments

“Part of the reason that there have been so many agtech failures is that investors did not receive the subject matter expertise that they needed to make smart investments,” says
Daniel Plant, Executive Economist at Plant Dynamics.

Daniel came into the CEA space with a background in applied economics rooted in mathematical modeling and statistics, having since positioned himself as a consultant to investors and technology companies in controlled environment agriculture.

Daniel Plant

Plant Dynamics helps to make the vertical farming concept more focused on the problems that it can solve through transparent and logical analysis of the production economics for its various players, including developers, investors, and technology providers, whether they are start-ups or more established firms.

“At Plant Dynamics, we assist technology companies in commercializing their technology, defining their market and strategy, and building partnerships,” says Daniel.

Plant Dynamics also works with established technology firms to help them understand new trends and scout start-ups. Further, Plant Dynamics has significant experience in helping investors and entrepreneurs enter the CEA space. “Moreover, we have helped governments, hedge funds, private equity investors, management consultancies, and banks. Our work is always viewed as refreshing as outstanding questions finally get answered.”

The company’s services are divided into three main areas. Defining unit economics and clarifying the market opportunity based on fundamentals. Guiding both start-ups and established technology providers through the dynamic technology landscape for partnerships and acquisitions. Lastly, leading new industry entrants with unbiased facility design, scalable growth strategies and project underwriting to secure capital.

The advisory team at Plant Dynamics works closely with all project stakeholders to conduct objective analyses with actionable results that enable projects to proceed based on efficiency and productivity factors, rather than hopeful narratives. The company’s hands-on approach is a source of pride for the company and has resulted in continued trust from the industry in the company, which has now been involved in dozens of projects spanning various stages from concept to cashflow stabilization.

“Our approach at Plant Dynamics is data-driven, not opinion-based. Projects that come through us are known to be credible and have a high probability of success. The transparency of our work makes it easy for others to underwrite the project. Everyone understands the universal numerical language of efficiency and productivity,” says Daniel.

When working with CEA stakeholders, Plant Dynamics is often involved in every aspect of the project such as facility design, business modeling, bid evaluation, team building, permit application, contract negotiations and continued support throughout the project’s life cycle.

Industry failures mostly avoidable
As Daniel explains, most of the failures in the CEA space are avoidable provided that stakeholders are working with accurate microeconomic information. The macroeconomic story that we need to be more resource efficient is compelling but those concepts do not make a business model.

Too many stakeholders have relied on market sizing and financial forecasting analyses free of a fundamental understanding of the inputs and outputs. The industry is littered with reports that grossly overestimated companies' actual potential. In one example, a leading financial data firm has been in the habit of giving indoor farming companies and IPO probability in the 90%-plus range only to see the companies announce bankruptcy mere weeks later. The quality of the information out there is distorting markets.

“We’re seeing an explosion in agtech on the supply side with the rate of technological development is far exceeding the adoption rate, with this growing gap due to the disconnect between farm-level operations and technology providers,” says Daniel. “Bridging this bridge requires an economic lens and the right business model as farmers think firstly in terms yield improvements and then they search for efficiency gains.”

The key to success, according to Daniel, is the translation of technological advancements into tangible benefits, respecting market principles with a plant-centric approach. The technical model asks the question of how to maximize the productivity of the plant. The economic model finds the scenario that maximizes the internal rate of return. Then you can get into financial engineering. Most vertical farms have this process completely backward, says Plant. In its role as a full-scope consulting and advisory firm, Plant Dynamics helps partners place themselves in the nexus of these three success factors.

“Our role is to ensure that technology is in harmony with these principles to ensure performance, competitiveness, and scalability. Achieving the right economics in this field makes it a fulfilling business by providing something essential to society,” Daniel says.

Despite the industry’s struggles and growing pains in recent years, Daniel is very optimistic about capital expenditure in the industry thanks to a key lesson he has learned in his past seven years in the industry: people love plants and people love living in cities: “as long as the technology exists, the desire to combine a short urban commute with vegetable production will not dissipate.”

While past mistakes may be casting a shadow on the industry, Daniel is confident that urban agriculture and CEA will persist for years to come: ” The concepts of resource efficiency and automated vegetable production could hardly be more compelling – there is always a way to do it right if the entrepreneur is interested in unbiased and quality information. The technology or the market is not the cause of failure. There are no mysteries and therefore no need to speculate. The mistakes are caused by an unwillingness to do one’s homework. So, that’s what we do for our clients.”

For more information:
Plant Dynamics
Daniel Plant
[email protected]