Indoor Vertical Farming & Venture Capital: A Pro’s View On How To Get Your Vertical Farm Funded

Below is an excerpt from a lengthier interview to be published this October for Issue 11 of Urban Ag News.

 

What a thrill it was to sit down with venture capitalist and ecologically responsible investor, Will Kain of Rusheen Capital Partners for lunch on a warm Santa Monica afternoon in August. RCP is the brainchild of visionary, Jim McDermott (see his latest venture, Fulcrum BioEnergy).

Mr. Kain graciously agreed to meet to discuss the current state of institutional capital flowing into the nascent indoor vertical farming industry, specifically technologies incorporating controlled environment agriculture or CEA. In its most basic definition, CEA is the growing of plants within a closed or semi-closed environment utilizing light emitting diode (LED) technology, irrigation, heating, ventilation and air conditioning (HVAC), and nutrient and substrate methodologies. Hydroponic, Aeroponic and Aquaponic growing techniques and the proven science behind indoor vertical farming answer the challenge of the planet’s finite water, resource and land uses. It is estimated by the year 2050 Earth’s population will increase from 7 billion inhabitants presently to nearly 10 billion. Traditional agriculture is an unsustainable proposition.

Currently, residing in Venice with his wife and dog, Mr. Kain is living the dream,California Style. This is a rather different lifestyle than his upbringing in often maligned Cleveland, Ohio. The added pain of living through so much local sports team sadness has been “a difficult cross to bear” he concedes between bites at The Lazy Daisy Café on Pico.

Entering the work world from the University of Virginia, Mr. Kain spent five years “on a traditional Wall Street track” at UBS Investment Bank, before landing atNano H2O, the water desalination firm, as one of the company’s earliest employees. Nano H2O would later be acquired by South Korea’s LG Chem in May of 2014. It was with Nano H2O however that he finally found his groove with the understanding that Nano’s technology would make a real and positive difference in the lives of thousands of people…and for a water-challenged planet.

Let’s not mince words; Mr. Kain is looking to save the world. His goal is simple: Find and invest in those technologies and companies who will markedly ‘improve efficiencies’ and reverse the ecological damage and environmental harm modern agriculture and industry have wrought upon planet earth in the 21st century. Small effort considering Mr. Kain’s focused eye is upon the unproven indoor vertical farming industry. In fact, in mid-2015 there are less than 50 commercial-scale indoor vertical farms in the United States. Those seeking entry into the indoor vertical farming business are challenged with high capital entry costs and everything from unproven business models and grow configurations to a lack of knowledgeable and credentialed master growers and established industry policy and regulatory guidelines.

Admittedly, the sports-minded Mr. Kain understands there will be winners and losers in the vertical farming game, optimistically stating “There are going to be a lot of winners. This is not a winner-take-all business.” Such optimism, however, is tempered by the recent bankruptcy of ‘plant factory’ Mirai Ltd. in Japan ($10mn in losses) and rumblings of another well-funded, US-based vertical farm headed for the chopping block. Insiders know it was hubris and poor management rather than a lack of market demand or adequate technology or a profitable business model that led to the demise of these once-promising companies. As in the dot-com era, there are some poseurs providing a daily dose of reality…and efficacy…to indoor vertical farming.

I asked Mr. Kain a number of questions focused primarily on where his energies (and capital) are directed and what advice he would give to those seeking to enter the indoor vertical farming business either as investors or operators:

UAN:

Tell me how you became interested in this industry and what is your overall sense of the viability, “layers”and geographic “hot spots” for potential proliferation of VFs?  

WK:

My interest emanates from my most recent experience prior to Rusheen; I was the Vice President of Corporate Development for a company called Nano H2O. We made reverse osmosis membranes for water desalination. That means we made filters that turned seawater into drinking water. Being in the desalination business, you are in the business of managing water scarcity. You don’t have to go very far to understand that agricultural uses take up 70% of global freshwater withdrawals; that’s a staggering number. We understand that water scarcity is a problem that’s coming home to roost in developed countries now, not justdeveloping countries where water scarcity has been an issue populations have been dealing with for years and years.

As you dig into the water story, other resource inefficiencies associated with traditional agriculture [surface], among which about 30% of greenhouse gas emissions come from agricultural sources. You read about groundwater contamination, overuse of chemical fertilizers, the harmful effects of pesticides, herbicides, fungicides, etc. What really occurred to me was the understanding that there is a need for resource efficiencies [in agriculture] as the world grows from 7 to nearly 10 billion people (projected within the next 35 years).

 

-By Jim Pantaleo

 

Jim Pantaleo works to develop all aspects of indoor vertical farming and writes as an industry advocate.