VCs Plow Money Into Indoor Farming, But Open Fields Might Be More Ripe For Innovation – Crunchbase News

When a hurricane in Florida and a virus in California killed a promising lettuce bounty late in 2022 and earlier this year, some hobbyists turned to indoor farms to supply their winter fuel of hearty salads.

Indoor farming is something venture firms have deemed the future of agriculture. Armed with temperature control, hydroponics and controlled environments, indoor farms can better shield crops from weather disturbances and pests.

With its potential to disrupt one of the oldest of human endeavors, indoor farming has emerged as a venture capital cash crop in recent years. Indoor farming startups alone captured around 20% of the total $4.5 billion venture investors plowed into agtech startups in 2022, Crunchbase data shows.

But the limitations of indoor farms — which often confine themselves to growing leafy greens in small quantities — hamper their potential to grow. The vast majority of food is still grown on open farms (52% of the U.S. is open farmland), and most investors continue to concentrate their efforts on applying cutting-edge technology to these famously low-tech and tech-resistant operations.

The potential — and problems — of indoor farming

Of the top five raises to agtech startups in 2022, according to Crunchbase data, four were dedicated to indoor farms — we covered Gotham Greens’ $310 million raise in September and Soli Organic’s $125 million raise in October.

The five largest fundings for indoor farming startups last year went to:

Indoor farming saw its best venture funding year ever in 2022, per Crunchbase data, while most industries suffered.

But there’s a slight problem: Indoor farms currently can’t produce much more than lettuce, spinach, salad greens and (some) tender herbs. Any produce that isn’t a tender green is typically still grown in vast fields open to the elements. That means wheat, corn, soy and other staple crops that provide the vast majority of the world’s sustenance don’t currently stand to benefit from indoor farming’s innovations.

“The issue, of course, is that very few crops can successfully be grown indoors yet,” said Matt Ryan, CEO of Soli Organic. “For the most part, things are grown much more expensive indoors than outdoors. There is a future for many, many crops to continue to be grown outdoors.”

But indoor farms have taken well to some of Silicon Valley’s greatest hits, like cloud technology, automation and AI. In the open environment, this kind of technology has a harder time scaling to battle the elements. No farm is a one-size-fits-all data point — different vegetables and different farm sizes require unique solutions to fix the myriad of problems that exist in the open field.

“Most VCs spend their time chasing small problems, or fake problems, or potential …” said Jason Pontin, an agtech-focused partner at DCVC. “We face these huge global problems, right? We are running out of runway to fix them.”

Indoor farming has long been heralded as the future of food. It uses less water and fewer resources than traditional farming. The indoor, closed environment allows for greater control on how to care for plants for healthy growth. And indoor farms are sometimes known as vertical farms or urban farms because many of them can be housed in cities (or even grocery stores), reducing shipping costs and preserving freshness.

However, vertical farms inherently grow smaller-batch yields compared to expansive open farms. Their uniform layouts don’t always account for growing other vegetables such as peppers that could, theoretically, grow in a hydroponics environment.

High tech and open farms don’t always mix

Corn and soy farms, which have the most acres, have often been quick to adopt new technology around automation and efficiency. But smaller crop farms have been left behind.

“Some of the best [crop] breeding organizations don’t even put time or effort into some of the minor crops. They just focus on corn and soy because they can make a lot of money on it,” said Jacqueline Heard, CEO of pesticide startup Enko Chem. “They tend to be a little more traditional, but they’ve never been given access to a lot of technologies that can really be transformational to them.”

There’s also the issue with technology itself. Around 20% of farms in the U.S. have poor or no access to broadband internet — and farms in the rest of the world have even less. That makes certain technologies heavily dependent on the cloud — like robotics and AI — a hard sell for many of the world’s farmers.

“I think there’s a social justice element to it as well. We need to make these calories cheaper and more broadly available, and we need to do so in techniques that all farmers in India have access to in a meaningful way,” Pontin said. “You can’t be selling really poor people incredibly expensive agricultural products and expect them to be broadly used.”

Nevertheless, AI and predictive analytics will be crucial to the future of open farms, even if current infrastructure doesn’t allow for it. There was once a time farmers could use The Old Farmer’s Almanac to get weather predictions. But historical averages are no longer an accurate assessment of growth, and climate change has all but thrown that playbook out the window.

For companies such as ClimateAI, which, in part makes weather predictions to help users unlock better yield potentials, that means making inroads in the industry.

“We have found that one of the biggest challenges in the agtech space is trust-building,” said Himanshu Gupta, CEO of ClimateAI. “Silicon Valley has often tried to solve problems by coming in and overriding those with on-the-ground experience, especially farmers. As a result, farmers are often distrustful of agtech companies’ promises.”

Startups tapping into open farms

Some of the promising startups that cater to open farms come from the biotechnology side. Enko Chem, a Connecticut-based crop protection startup, creates pesticides and weed killers that don’t harm the crop or water supply. The company raised $10 million in Series C funding in January, per Crunchbase data.

There’s also Inari, a seed gene-editing startup that aims to make crops more resilient and improve yield while also reducing water usage. The company says it can increase soybean yield by 20% and corn yield by 10% while using 40% less water.

“We are not going to be able to feed the world fairly and healthily and sustainably without addressing the large crops and the large sources of protein,” Pontin said. “So I guess my answer is: I’m all for vertical farming. Knock yourself out. But for me I want to get rice, wheat, soy, corn and protein.”

Illustration: Dom Guzman