Indoor Farming Faces Funding Squeeze

“From venture capital and private-equity firms to celebrities such as Justin Timberlake and Martha Stewart, many meal tickets backing the indoor growing of fruits and vegetables have experienced wilting returns.

 

What not long ago amounted to billions in U.S. venture capital pouring into indoor farming -- $2.1 billion in 76 deals in 2021 -- has dropped to millions. After falling to $277 million last year, activity has dried up so far this year to five deals totaling $57 million, data tracker PitchBook says. The bubble-bursting coincides with bankruptcies of Plenty, which had been backed by SoftBank, Walmart and One Madison Group, and at least five other indoor-farming businesses.

 

"These companies need a lot of capital expenditures, and it's hard to get it right," said Kirenaga Partners founder David Scalzo. His venture firm invested $10 million in Plenty early on and lost it when the indoor grower filed for bankruptcy earlier this year.

 

In 2023, real-estate investor Realty Income said it would team up with Plenty to develop up to $1 billion on facilities to lease to the indoor farmer. In March, Plenty filed for bankruptcy, and, last month, Realty Income told analysts that its investment so far was limited to $40 million in financing for a Virginia farm. Plenty exited bankruptcy last month.

 

Investors and creditors became enthused about indoor farming as concerns about long-term food security intensified amid a growing awareness of climate volatility. Rising populations are occupying land once used for farming, and a wealthier society wants higher-quality food. Advances in LED lighting, sensor technology, robotics and machine learning made the souped-up vertical greenhouses used in indoor farming possible.

 

Profits have been tough to come by, however, because the hardware-intensive indoor facilities are harder to scale than, say, software developers. Increasingly costly multilevel facilities have relatively high energy costs as they grow commodity crops largely undifferentiated from those of field farms, Scalzo said.

 

"But as venture investors, we always know that scaling is a risk," he said. "What works in a lab or as a prototype might not be able to be produced at large scale in an economical way."

 

Eventually, virtually every community will have its own indoor farm, partly due to technological advancements made possible by past investments, Scalzo said. But Kirenaga and most other venture players are likely done investing in indoor farming for the foreseeable future.

 

"Moving forward, the industry will largely be financed by private equity, real-estate investment trusts, insurance companies and other pools of capital that need a 10% to 15% annual rate of return, rather than the 30% plus that venture capital wants," Scalzo said.

 

The Duke of Westminster's Grosvenor Food & Agtech investment arm had been both an equity owner and lender to microgreens grower AeroFarms when it entered bankruptcy in 2023. It subsequently led the acquisition of the business as it left chapter 11 later that year and remains a major backer.

 

Grosvenor Managing Partner Stephan Dolezalek said institutional investors often join early investors as new technologies gain momentum, fueling a bubble on the way up, but quickly stop funding when markets retreat or when initial returns are disappointing.

 

"When these big investors pull out, other investors also reconsider and suddenly you see a number of companies go belly up, casting doubt on the whole sector," Dolezalek said.

 

He sees similarities between the indoor-farming bubble and those in such industries as electric vehicles and clean technology. "We got pilloried for losing hundreds of millions of dollars at the time, but ultimately we built hundreds of billions of dollars in value," Dolezalek said.

 

AeroFarms used bankruptcy partly to reduce its footprint, consolidating New Jersey production that received backing from Goldman Sachs in 2015 into a Virginia farm. With that farm profitable, AeroFarms plans to expand to a second microgreens facility in the western U.S. or Canada in coming months, said Molly Montgomery, AeroFarms' CEO.” [1]

 

1. Indoor Farming Faces Funding Squeeze. Yerak, Becky.  Wall Street Journal, Eastern edition; New York, N.Y.. 30 June 2025: B5.