Gotham Greens raises $310m in series E: ‘Our greenhouses are profitable… We’ve demonstrated we can be really efficient stewards of our investors’ capital’

The latest cash infusion will fund new greenhouses in Texas, Arizona, and Colorado, expand existing sites in Chicago and Rhode Island and fund the acquisition of FresH2O Growers, Inc., a 540,000sq ft grower in Virginia supplying the Mid-Atlantic region, said Puri, who said Gotham Greens will own and operate 13 climate-controlled hydroponic greenhouses, totaling 40+ acres across nine states, by 2023.

Sunlight is free: ‘Modern greenhouses, we believe, have the most proven unit economics and financial returns compared to other forms of indoor farming as energy costs are significantly lower’​

So with hundreds of millions of dollars now pouring into this sector, what has been learned about what horses to back?

It’s still relatively early days for commercial-scale hydroponics, which is deployed in a variety of settings from multi-storied vertical farms using artificial lighting, to vast ‘modern greenhouses’ harnessing sunlight such as those run by Gotham Greens, said Puri.

 But right now, he said, “Modern greenhouses, we believe, have the most proven unit economics and financial returns compared to other forms of indoor farming as energy costs are significantly lower. ​

“But that isn't to say that other technologies may not one day become more profitable and more robust. We're agnostic when it comes to technology, it’s just a tool. Our focus is on growing the highest quality crops in the most efficient manner.”​

Higher yields, increased automation, crop management​

With that in mind, he said, “Our greenhouses have evolved since 2011 in terms of economies of scale, climate control capabilities, irrigation, automation, crop management, which has resulted in higher yields. ​

“So climate control is fully automated, irrigation is completely automated, and then there's various processes of seeding and harvesting crops that are semi- or fully automated. The movement of the plants through the facility over the course of the plant's life is also automated through conveyor systems, and in some cases, there are certain tasks performed by a robotic arm, a washing or seeding or transplanting step. "But people are still incredibly important; a plant is not a widget that comes down and assembly line.”​

Critically, he said, “Our greenhouses are profitable. We’ve demonstrated strong unit economics and that we can be really efficient stewards of our investors’ capital and provide a strong return on investment. We’ve also been able to get lower cost debt financing as well, not just relying purely on equity financing.​

“The investment community is much more interested in controlled environment agriculture than it was 10 or even five years ago because of climate issues, supply chain issues, and the pandemic, which strained supply chains. Today there’s interest from pension funds, insurance funds, these types of large asset managers, as well as venture capital investors who are maybe more interested in some amazing technology that can break through and drive yields. There are different investors for different types of companies within the sector.”​

A couple of years ago, he said, “there was a bit of a herd mentality, where investors follow other investors and I think some investors, not all, believed that plants can be grown like widgets and come out perfectly every time, but the reality is, plants are living breathing, biological things and yields can be variable. But given the market conditions now, folks are more discerning, and I think there's a lot of smart money in this sector now.”​

‘There's a number of exit scenarios for investors’​

So what’s the exit for some of these backers?

“I think there's a number of exit scenarios for these investors,” ​said Puri. “It's selling to other equity holders, potentially a public offering, potentially mergers and acquisition with other large food companies or produce companies, or potentially mergers of different CEA operators. We think there's also interesting ways to monetize the real estate assets.”​

‘Technically you can grow anything hydroponically… but it doesn't necessarily mean it makes sense from a cost standpoint’​

As to the addressable market, this is a multi-billion-dollar opportunity where there won’t be one winner that takes all, predicted Puri, noting that hydroponics is best suited to crops such as high-value crops with a short shelf life such as leafy greens and herbs (where around 3% is currently grown via indoor farming), plus tomatoes, cucumbers and peppers.

“Technically you can grow anything hydroponically because it's just a nutrient delivery system, but it doesn't necessarily mean it makes sense from a cost standpoint. We're starting to see a lot of research and development and some commercialization also of strawberry production, which is potentially another bright spot for the hydroponics industry.​

“Beyond that, there is also increased R&D going into sensor technology in greenhouses, climate control technology, as you have to have the right temperatures, humidity levels, oxygen levels, and so on.”​

Once the new facilities and facility expansion projects are completed next year, he said, Gotham Greens will have pretty good geographical coverage (“we’ll be able to meet 90% of the US population within less than a day’s drive”) ​although it is still looking at “planting a few more flags and​ expanding the production capacity in the existing markets.​

“The majority of our product doesn't travel on our trucks more than 50 or 100 miles, given that we're based in these large population centers.”​

While Puri has been “approached by folks in other countries," ​and believe there is a compelling value proposition for this type of technology in many countries globally, "Our focus in the short term is the US market,” ​he added.

*The latest fundraising round includes equity and debt funding. It was led by BMO Impact Investment Fund and Ares Management funds. Additional investors include Commonfund, RockCreek and Kimco Realty Corporation, Manna Tree Partners and The Silverman Group.  

Gotham Greens​​ operates greenhouses from coast to coast, progressively layering in improvements to drive efficiency as it learns from previous builds, said Puri.

For retailers, the products – now priced at parity with conventionally-grown produce (“We’re not the cheapest but we’re not the most expensive either,”​ said Puri) – are offering greater stability and security of supply than products shipped from the west coast that are far more vulnerable to weather and supply chain disruptions.

“Retailers also like the fact that there is less handling of the product and fewer temperature changes because the supply chain is a lot less complex," ​he added.

"Product is being grown and harvested in our greenhouse, packed into our truck and then on to the supermarket distribution center or supermarket within a day, compared to the more conventional incumbent supply chain where that product may change hands up to half a dozen times between farmer, packer, shipper, broker, distributor and then ultimately to the retailer.”​

Consumers, in turn, see a ‘fresh,’ ‘local,’ and ‘pesticide-free’ positioning, and potentially lower risk of foodborne illness vs conventionally-grown produce that may have traveled thousands of miles and been handled multiple times before it reaches store shelves, although a recent recall from another player in this segment shows that there is no room for complacency on this front, said Puri.

“Many of the recalls associated with fresh produce are from groundwater that's been contaminated with waste from livestock, which is probably the biggest cause of these food safety incidents. But no one is immune from food safety issues.”​