An Urban's Rural View

Beginning-farmer loans aren't the only way to get started in agriculture. Venture capital, the seed money behind many a Silicon Valley startup, is available, too.

Available, that is, for "high-tech" urban agriculture, like a hydroponic lettuce or kale farm on a rooftop or in an abandoned factory. New ag enterprises of this sort can raise tens of millions from investors, according to the Wall Street Journal (http://www.wsj.com/…).

Why does this kind of farming interest venture capitalists? Because the potential payoffs are big. "The idea," the Journal says, "is that urban farms promise year-round supplies of greens, with less spoilage and lower transportation costs than soil-raised produce from California or Mexico."

What everyone is relearning, though, is that high risk goes hand-in-hand with high reward. Some urban-agriculture startups are "running into challenging business realities," the Journal says.

Several months in, one has decided urban rooftop farming is a "foolish endeavor" that costs too much and takes too much time to get permits. It's now doing greenhouses in the suburbs instead.

Another has given up on aquaponics because "it's a much simpler process to use organic nutrients than to manage a school of fish and all that biology and chemistry."

A third shut down its farm in a former box factory for six months and went back to the drawing board.

You could have predicted this. No doubt, some urban agricultural entrepreneurs will fail; a high percentage of all new businesses fail. Some venture capitalists will lose their investment; nothing new there, either. It comes with the territory.

Farming is by definition a high-risk business: Every year farmers roll the dice on a new crop, often with borrowed money. Venture capitalists are by definition willing to finance risk takers, but only if there's enough potential for reward. For many established farmers, even, the rewards are at best erratic.

The rewards are especially elusive for beginning farmers who grow food the old-fashioned way--in soil, in the country. That's why they don't attract venture capital. It isn't because they're "low tech."

Smart venture capitalists understand the technological complexity of soil science and plant breeding. They just can't make money off it by backing new farmers. They think they can by investing in urban hydroponics. The high-tech talk is marketing sizzle.

We are fortunate to live in a country where people with new ways of doing things can sometimes get the financial backing to try them out. That's not the case everywhere. In Japan, for example, venture capital is scarce and new businesses relatively few.

It will be interesting to see whether the rewards in high-tech urban farming justify the tens of millions venture capitalists are investing. The Journal article suggests the road to profitability may not be as smooth as enthusiasts thought.

Urban Lehner can be reached at urbanity@hotmail.com

(ES)