Urban farming startups sprouting like weeds

Local is the new organic. Consumers not only want food that is natural and pesticide-free. They want it grown close to home.

That’s why a surprisingly large number of urbanites are raising chickens in their backyards, for the fresh eggs. It’s also why a growing number of VCs are now investing in the urban farming or farm-to-table movement.

“We like to invest in areas that are critical, and there is really nothing more critical than food,” said Renata Quintini, general partner at Felicis Ventures, which recently participated in a $2 million seed round in Grove Labs.

Somerville, Mass.-based Grove provides an indoor gardening system that aims to make local, healthy food accessible to everyone, no matter where they live. Grove is currently developing a hardware and software system that lets consumers grow fruits and vegetables at home, year round. The company believes its home farming appliance, which is about the size of a refrigerator, can help offset global food shortages by allowing families to grow up to 50 percent of their own produce.

“People who care about food will naturally gravitate toward Grove, including young families who want to show their kids where food comes from,” Quintini said. “Right now, with a standard sized Grove unit, you can grow enough lettuce to eat salads almost every day of the week for two people.”

She is also impressed with the size of the opportunity. After all, everybody eats. So the total addressable market is in the billions, she said.

The challenge, of course, is convincing consumers that they should spend money on a costly appliance for growing their own food, when they can just go to the local supermarket and get whatever they want.

Quintini insists many people want to grow their own fruits and vegetables, but it requires too much work and skill to do it themselves. But that, she insists, is exactly the pain point Grove addresses.

“With Grove, anybody can grow a perfect head of lettuce or a perfect tomato, because the technology does it for you,” she said. “That is why the Grove app and operating system is so revolutionary. You don’t need to have a green thumb to eat really well. That’s never really been done before.”

BrightFarms is another startup intent on bringing fresh, locally grown food to the urban masses. The New York-based company builds and operates hydroponic greenhouse farms located near big-city supermarkets, eliminating time, distance and cost from the food supply chain. The farms operated by BrightFarms are typically on the rooftops of urban buildings. The company has raised $11.6 investors from investors, including NGEN Partners and Emil Capital Partners.

Peter Grubstein, managing director at NGEN Partners, led his firm’s investment in BrightFarms. He said that urban grocery stores, and their customers, are clamoring for more locally grown produce.

“If a head of lettuce takes seven days to get from Salinas, Calif., to New York, that means it has to be picked when not properly ripe and it means you can’t keep it on your shelf for an extra seven days,” Grubstein said. “So if you are a grocer, you have to throw out 40 percent of your produce that expires on the shelf.”

BrightFarms is on a mission to improve the eating experience for urban consumers. Grubstein said that if you pick something and eat it that day, it has a higher vitamin and mineral content and it tastes much better compared to something that was picked a week ago.

“We can make fresh taste better than not fresh,” he said.

The company is packaging and branding the produce it grows under the BrightFarms name and is partnering with several grocery chains, including Mariano’s in the Chicago area.

Still, Grubstein admits there are many hurdles ahead for the company.

“BrightFarms will never disrupt the entire market until more people are excited to give up their rooftops to tenant farmers,” he said.

He explains that rooftop farming is expensive because of the labor involved of moving produce from the roof to the ground floor. The operational side is also difficult because most city rooftops are cluttered with air conditioning ducts, ventilators and other obstacles. And then there are issues around the irregularities of sunlight and how much sunlight is on the roof.

“But ultimately we will be able to disrupt farming with produce that is fresh and cheap and available to the inner cities,” Grubstein said.

However, Grubstein, who focuses exclusively on sustainable investing, is a little wary of mainstream VC interest in the food sector.

“Many people think because they eat, they therefore understand farming and food,” he said. “I think you will see a lot of big missteps made here because it’s a complicated industry.”

For instance, he is not a fan of venture-funded startups like PodPonics and Freight Farms that are using LED technology to grow produce inside large shipping containers. He said many of these so-called farm-in-a-box companies are struggling because the power generation costs are too high to grow food economically.

“We’ll start to see some companies go out of business in this space,” he said.

Grubstein adds that venture investors in the urban farming space shouldn’t expect to get rich anytime soon. “With food, you are not going to get the multiples you’d get with a great mobile app,” he said.

John Giannuzzi, managing general partner at Sherbrooke Capital, is betting that his investment in Farmigo is the outlier.

Farmigo provides farm-to-neighborhood access to local produce that bypasses local supermarkets. Customers can order produce, meats, seafood, and grains through the Farmigo site, and can pick up their locally grown food within 48 hours of harvest at a community organized location, such as a neighborhood elementary school. Farmigo recently raised $16 million in Series B funding led by Formation 8 with participation from previous investors Benchmark and Sherbrooke.

Giannuzzi said he invested in Brooklyn, N.Y.-based Farmigo “because the desire to get local products has indexed higher than the desire to get organic products.”

Although several other venture-backed startups, such as GoodEggs and GrubMarket, are delivering locally grown food to consumers, Giannuzzi is convinced that Farmigo has an advantage.

“What sets Farmigo apart is the single drop-off location in a given community,” he said. “If the community has 50 orders that come in during the week, Farmigo has just has one location for delivering, as opposed to 50 individual drop off locations. The incremental costs of those other 49 locations are astronomical.”

GoodEggs has been in freefall after laying off 140 employees and is now rethinking its model. Another farm-to-table delivery startup called GrubMarket recently raised $10 million but is also reconsidering its growth model.

“Competitors like GoodEggs are struggling because they went too fast too soon and they realized this home delivery model is very hard,” Giannuzzi said. “Home delivery has crazy costs.”

Another Farmigo advantage, he says, is its technology platform. The business began as a software company that allowed farmers to manage their crops and inventory. That means Farmigo can see, for instance, how many pumpkins its farmers will be harvesting in a given week, and we can convey that in real time to its members. It can avoid inventory outages or having to scramble to bring on other pumpkin farmers to meet the demand

“The opportunity here is to disintermediate the traditional grocery store,” Giannuzzi said.

Tom Stein is a Palo Alto, Calif.-based contributor. He can be reached at tom.stein@yahoo.com.

Photo of Renata Quintini courtesy of Felicis Ventures.