Turning Failures into Foundations: The Next Era of Vertical Farming

Vertical farming is often hailed as a revolutionary leap in agriculture, enabling the production of fresh, pesticide-free produce in controlled environments, unaffected by weather or geography. By utilizing cutting-edge technologies like vertical farming, hydroponics, and precision LED lighting, it claims to maximize yields while drastically reducing water and land use. With the global population set to exceed 9 billion by 2050, it’s positioned as a critical solution to sustainably feed the world.

This, or some version of it, is the narrative often told about vertical farming—but is the reality as promising as the pitch?

While not entirely untrue, the reality of vertical farming has proven far more complex and challenging. Let’s explore where the industry stands today and what the next generation of vertical agriculture companies might bring to the table.

Following a wave of excitement and massive funding between 2018 and 2022, the reality is catching up, and the bills are now due. A string of high-profile collapses has highlighted the industry's challenges:

  • AeroFarms (USA): Despite raising over $238 million in venture capital since its founding in 2004, AeroFarms filed for Chapter 11 bankruptcy in June 2023, citing market and financial pressures. The company has since restructured.
  • AppHarvest (USA): Headquartered in Kentucky, AppHarvest secured over $600 million in funding but filed for bankruptcy reorganization in 2023 due to ongoing financial difficulties.
  • Infarm (Germany): Once Europe’s largest vertical farming company, Infarm raised over $500 million but declared bankruptcy in 2023. It subsequently withdrew from major markets, including the UK, France, and Germany, citing unsustainable operational costs.
  • Kalera (USA): After raising substantial capital through a SPAC merger in 2022, Kalera faced severe financial difficulties, heading toward bankruptcy less than six months post-merger. The assets were acquired in 2023 by a Private Equity fund.
  • Bowery Farming (USA) The company, once considered a leader in vertical farming with over $700M in funding, announced the cessation of operations in late 2024.

Other companies that have recently faced struggles include Fifth Season (USA), Iron Ox (USA), Upward Farms (USA), Agricool (France), Future Crops (Netherlands), and Glowfarms (Netherlands), further highlighting the widespread challenges in the industry.

So what went wrong?

Missing Focus, Low-Margin Crops, and Misaligned Funding: The Triple Threat That Toppled Vertical Farming Upstarts

Attempting to tackle multiple high-risk challenges simultaneously—such as building a consumer brand, developing unproven technology, and managing complex operations—spreads resources too thin. Without a strong foundation in any one area, these companies struggled to execute effectively. Unlike other industries with modular, pre-existing systems, vertical farming required companies to innovate nearly every technical component from scratch. Rather than integrating into existing supply chains like wholesalers or cooperatives, many opted to invest heavily in creating costly consumer brands—ultimately leading to overwhelming operational and financial challenges.

Many companies zeroed in on leafy greens because they are relatively easy to grow indoors with fast cycles, making them appealing for proof-of-concept. However, leafy greens not only have low margins due to competition from traditional farming and limited consumer willingness to pay a premium, but they also generate low revenue per square meter, requiring much larger farm sizes to achieve profitability compared to higher-yield crops like tomatoes.. This focus overlooked higher-margin crops that could have justified the high costs of vertical farming.

Venture capital (VC) funding is designed for high-growth tech startups, often emphasizing rapid scaling over long-term sustainability. Vertical farming, however, turned out to be a capital-intensive, slow-burn industry that requires significant upfront investment, operational scaling, and refinement. Family Offices (FO) or infrastructure-focused investors, who take a longer-term, patient approach to returns, may have been a better fit for the industry

While the struggles of the first wave of vertical farming companies may seem like cautionary tales, they also offer valuable lessons for the next generation. By addressing the missteps of their predecessors emerging ventures have the opportunity to reshape the industry.

The next generation of vertical farming companies is poised to reconfigure its approach along several critical axes to overcome the challenges of the past. These strategic adjustments focus on selecting the right location and market, narrowing operational scope, optimizing crop choices, aligning capital structures while increasingly relying on an emerging ecosystem of specialized technology suppliers.

This emerging ecosystem of specialized suppliers enables the next generation of vertical farming companies to concentrate on achieving operational excellence while relying on trusted partners to provide the essential technical building blocks. These include advanced operating systems developed by companies like Hexafarms, Source, Sera, and IUNU, as well as full-stack hardware solutions from providers such as IGS.

Finding Fertile Ground: What will the next generation of Vertical Farming look like?

Location Matters: Choosing the right location is critical for the success of vertical farming. Markets that value shorter supply chains, food security, freshness, and premium-quality produce are ideal, particularly when combined with large, densely populated urban centers like New York or Tokyo, which enable economies of scale and efficient distribution. Supportive government policies, such as Singapore’s “30 by 30” initiative, and regions with limited traditional agriculture, like the Gulf states, further bolster the viability of vertical farming—illustrated by the $680 million joint venture between Plenty and the UAE’s Mawarid Holding. Furthermore, access to affordable labor and energy, especially in areas with abundant renewable energy resources, is essential for achieving economic sustainability and scaling operations effectively.

Embrace constraints: To succeed in the next wave of vertical farming, companies must adopt a sharper focus, excelling as hyper-efficient operators that leverage a growing ecosystem of specialized technology providers for essential building blocks, rather than trying to manage every aspect in-house.

Prioritizing Boring B2B Over Shiny Consumer Brands: Branding in fresh produce is notoriously tough, with only rare successes like Chiquita bananas and Pink Lady apples. A sole focus on a B2B strategy—supplying produce to retailers, foodservice providers, and distributors—offers a far more practical path. By integrating deeply into existing supply chains and leveraging the expertise of downstream partners in branding and distribution, vertical farms can simplify operations, reduce costs, and focus entirely on efficiency and high-quality production tailored to business clients’ needs.

Control the input factors: Smart automation, implemented where practical, can reduce labor costs while maintaining precision and efficiency in tasks like planting and harvesting. Choosing locations with access to affordable energy or securing Power Purchase Agreements (PPAs) for renewable energy can significantly lower operational costs. Additionally, optimizing the sourcing and use of raw materials, such as nutrients and growing media, can further improve cost efficiency. By strategically managing these inputs, vertical farms can enhance sustainability and profitability while building resilience against fluctuating resource prices.

Rethinking the crop mix: High-margin crops like berries, mushrooms, medicinal plants, and exotic produce thrive in controlled environments, offering distinct advantages such as consistent quality, extended shelf life, and year-round availability. These crops command premium prices and cater to lucrative markets like pharmaceuticals and gourmet chefs, where reliability and quality are paramount. By focusing on value-driven production, vertical farms can better offset high operating costs and establish a stronger competitive position in the agricultural sector.

Aim for a diversified capital stack: The first wave of vertical farms relied heavily on venture capital (VC), which demands rapid scaling and quick returns—often misaligned with the industry’s capital-intensive and slow-growth nature. Instead, the next generation should pursue a mix of patient capital, such as private equity or infrastructure funding, which supports steady scaling, debt financing like government-backed loans or green bonds for cost-effective large-scale projects, and strategic capital from partners with access to distribution networks and industry expertise to enhance market integration and scalability.

The recent struggles of prominent vertical farming companies, while sobering, offer invaluable lessons for the emerging generation. This next wave must learn from the missteps of their predecessors, strategically selecting high-value crops, embracing automation, and securing diverse, patient capital. By focusing on operational excellence in a growing ecosystem of specialized technology providers, vertical farming can move beyond the hype and deliver on its promise of a sustainable and resilient food future. This evolution is not merely about growing produce; it's about cultivating a smarter, more efficient, and ultimately more successful approach to feeding a rapidly changing world.

As a European syndicate investing in the next generation of food and beverage innovation, Cash & Carry is eager to connect with vertical farming companies—whether focused on achieving operational excellence or developing essential technical building blocks to empower operators. Reach out to us at hi@cashandcarry.cc.

A special thanks to Eldad Arnon for his invaluable insights that helped shape this article. Eldad, formerly Director of Product at Infarm, later founded Tupu, a Berlin-based vertical farming company focused on mushrooms, where we had the privilege of being small investors. While Tupu unfortunately didn’t make it, we sat down with him for a post-mortem and a deep dive into the broader industry—conversations that formed the foundation of this piece.

He’s currently open to new challenges—so if you’re looking for someone with deep expertise in product, operations and scaling vertical farming solutions, reach out to him!