Latest / Hydroponics Daily / Does Big Money Matter? The New Economics of CEA Investing

Transcript

Does Big Money Matter? The New Economics of CEA Investing · Hydroponics Daily

• 0:00
  Hello and welcome back to Hydroponics Daily, your go-to podcast for everything soilless cultivation.
• 0:07
  I'm your host, Dr. Russell Sharp, the founder of Utrema Limited,
• 0:11
  and at Utrema we make interesting fertilisers,
• 0:14
  novel biostimulants, and organic biopesticides, many of which can be used in
• 0:19
  hydroponics and controlled environment agriculture, which we're talking about today.
• 0:24
  CEA. Ignore the agriculture bit here there, it's got nothing to do with agricultural
• 0:28
  crops, it's all horticultural crops, leafy greens, strawberries,
• 0:32
  things like this, grown in multi-tiered systems, in warehouses.
• 0:36
  Controlled environment systems where you can't get any pestle disease coming
• 0:39
  in. Well, that's the theory anyway.
• 0:41
  LED lights, renewable energy, all part of CEA.
• 0:44
  And today I wanted to talk about an interesting interview that's been done with Dave Chen.
• 0:50
  Now, Dave Chen is a money man. He is the CEO of Equilibrium Capital,
• 0:55
  and that's a firm that has raised approximately 1.4
• 0:59
  billion dollars just for cea
• 1:03
  investments so he's an interesting person to listen to
• 1:05
  so he's had funding for companies such as little leaf
• 1:08
  revolgreens and perfection fresh and
• 1:12
  some of his topic some of his comments are
• 1:16
  very candid and are very controversial and i'm
• 1:20
  not saying i agree or disagree with them but they're really interesting
• 1:23
  and i think we should discuss them so he's talking about
• 1:25
  the financing of new greenhouse projects and he says you you're
• 1:29
  going to have to raise 50 to 60 million dollars if you want to set up a ce system
• 1:36
  and you better know what you do because the amateurs and the tourists are gone
• 1:40
  so it's only the professionals can survive now he has a really interesting take on this as well.
• 1:46
  Not only do you need that really high amount of money, it's become increasingly
• 1:51
  difficult to raise that money because since post-COVID there was a lot of money
• 1:56
  swilling around even before COVID and now those sorts of sources have dried
• 2:01
  up and also the investors will have heard about disasters from friends.
• 2:06
  If not themselves, or been involved with them with major failures in CEA.
• 2:12
  Because they're such a standout interesting topic
• 2:15
  there's been some high profile failures of them which we've talked about
• 2:18
  in the past on this so there's not a whole lot
• 2:21
  of people out there with an appetite for investing in
• 2:24
  these large-scale cea setups now
• 2:29
  what he also says is
• 2:32
  that you there's no such thing
• 2:35
  as a one acre CEA farm
• 2:39
  basically even the small grocery
• 2:42
  chains he says need to need more than one
• 2:45
  acre of production to fulfill their needs so you
• 2:48
  wake up one day and now it's five now it's ten
• 2:51
  and the construction costs are one to.
• 2:54
  Two million pounds per acre so scaling quickly
• 2:58
  becomes financially prohibitive if
• 3:01
  you're not baked in that scale from the get-go so that's
• 3:05
  really interesting so basically if you're a farm of
• 3:08
  around one acre or less which there are loads you
• 3:12
  know hydroponic farms hydroponic indoor
• 3:14
  growth facilities might not consider themselves cea they might be
• 3:17
  like microgreens and things they're just saying that's not going
• 3:20
  to be profitable unless you have a really one
• 3:24
  hell of a niche and he's advised crops such as vanilla wasabi and saffron and
• 3:29
  we've talked about those crops in the past on this podcast we've had episodes
• 3:33
  devoted to both vanilla wasabi and saffron but there are many other niche crops
• 3:39
  so i'm not too worried i don't agree on that because.
• 3:43
  Virtually every week, I come up with a niche crop that there is potential of
• 3:47
  for indoor hydroponic growing.
• 3:50
  Yesterday, sweet potato slips was a fantastic example of a business I'm sure would be profitable.
• 3:57
  And if you put your mind to it, you could be profitable in the UK,
• 3:59
  but certainly less than an acre. So on that point, I definitely disagree.
• 4:04
  Definitely agree with Dave when it comes to the
• 4:07
  the difficulties of breaking the
• 4:11
  leafy green market now it's a massive market just think
• 4:14
  about how many lettuces mcdonald's get through in
• 4:17
  a day and but the margins are
• 4:20
  tight and everyone's competed on this this area
• 4:23
  you know you've got all the cea growers you've got the outdoor growers and
• 4:27
  in america massive competition so definitely agree on this that it is a tough
• 4:34
  competition he says you need a holy trinity trinity and i fully agree with this
• 4:38
  one as well you need an operator who understands greenhouse economics 100 you
• 4:42
  need a grower who can deliver consistent quality,
• 4:45
  except again very very very difficult and you need a retail partner or salesperson,
• 4:53
  capable of moving products on and getting them into retail you've
• 4:57
  got to have a you've got to really have a pull from a retailer because if you
• 5:00
  don't have that it's impossible as i found when i tried to launch hydroponic
• 5:04
  sand fire i had a brilliant kick-ass product i had a product that was the best
• 5:10
  that could be supplied even from better than x than imported material it was a.
• 5:17
  It wasn't grown in Israel or Morocco or Mexico, but the supermarkets just wanted
• 5:24
  to continue with their crappy sticky stick, like twigs.
• 5:28
  And so someone who has those links to the supermarket who can get the product
• 5:34
  in is critical before you even set up, I think.
• 5:37
  And economics is key because you can't scale if you don't, if you're making
• 5:42
  a, making a loss, you know,
• 5:44
  just as I find on you know meta and google ads if i'm i can scale but if i'm
• 5:49
  losing money i just scale my losses and that's your problem in cea you can scale
• 5:54
  your losses very quickly it doesn't matter you know any sort of business it
• 5:58
  could you could be doing you know insect cultivation which is.
• 6:02
  Very popular at the moment but you if you scale too quickly you'll just scale
• 6:06
  your losses he also mentions that the the environment for selling to supermarkets
• 6:11
  has changed whereas in the past,
• 6:13
  supermarkets were prepared to deal with small growers because they
• 6:16
  had to because there was only a number of small growers for
• 6:19
  leafy greens or cabbages and things like this
• 6:22
  whereas now if you want if you're a small grower your
• 6:25
  only way of working with those is to
• 6:28
  form a cooperative and you find that in in the
• 6:31
  us and north america there are a lot more grower crop cooperatives
• 6:34
  than there are in the uk and in europe
• 6:37
  so maybe down in spain the cooperatives are popular
• 6:41
  but in the uk they're not so yeah that's
• 6:44
  that's some salient good points there and a
• 6:46
  really good point is that it's not just about logistics and you
• 6:49
  know a collective sales position it's also
• 6:52
  about marketing and you know you think about some of the biggest cooperatives
• 6:56
  like sunkist then and then the the cranberry growers it's all about making sure
• 7:04
  that that brand is well known and getting brands to be recognised in the fruit
• 7:09
  and veg aisle of a supermarket is very difficult.
• 7:12
  But once you've done it, it's a massive win because people will remember it.
• 7:16
  That's why I said dicing growing strawberries is a great.
• 7:20
  Marketing effort because you know
• 7:23
  dyson is a well-renowned high-tech high
• 7:27
  quality brand it's recognizable the logo
• 7:30
  so it makes perfect sense to brand it and then
• 7:33
  also collective promotions and retail strategy
• 7:36
  but he also makes a great point that it relies on
• 7:39
  people doing away with their ego you subsume your
• 7:42
  ego and say the collective is bigger and better and for
• 7:45
  a lot of people in industry that
• 7:48
  is hard in business ego plays a massive part and
• 7:52
  you know we you know i when i sell to
• 7:55
  certain farmers or growers ego is
• 7:58
  the biggest driver than their natural price
• 8:02
  and product quality and in fact i have some of my
• 8:04
  best products they've they've sold well because it
• 8:07
  boosted people's egos bizarre but yeah never underplay
• 8:10
  the the power that ego has when
• 8:13
  it comes to business and business dealings and you
• 8:17
  know some people might might be in their best interest
• 8:20
  to form a cooperative and and even if
• 8:23
  they're not in direct competition with their neighbors but they
• 8:26
  their ego won't let them so a really interesting interview there i think the
• 8:31
  interview was was undertaken by ryan douglas of ryan douglas cultivation so
• 8:36
  very interesting points there i thought i'd cover that because it's more of
• 8:40
  a business topic and it's more big business.
• 8:44
  And yesterday we talked about a very, very niche, small scale growing using,
• 8:49
  you know, shop or propagation material. So it's a very yin to the yang on this
• 8:53
  one. So thank you very much for listening.
• 8:55
  If you're in CEA and you like this podcast, please follow us,
• 8:59
  share this with the other people in your multinational organization so they
• 9:02
  can enjoy it and leave us an Apple podcast review because that helps share the
• 9:07
  podcast with the wider audience.
• 9:09
  Horticultural community if you're not on
• 9:12
  apple podcast don't bother leaving a review because it doesn't help with that
• 9:15
  but do make sure you follow us and check out utreema.co.uk many
• 9:19
  of our fertilizers biostimulants and organic biopesticides
• 9:23
  are used in cea farms around the world
• 9:25
  and in the uk we can't talk about it because that's
• 9:29
  confidential and we don't have the permission of those customers to share
• 9:32
  our knowledge but we are the brains behind a lot of the products
• 9:35
  that are used in these facilities so if
• 9:38
  you've got any comment any problems challenges whether
• 9:41
  it's pest disease physiological issues nutrient issues then please do get in
• 9:45
  touch because we're more than happy to help you solve any issue or if you want
• 9:49
  to boost growth in any particular way we're also happy to help any obscure crop
• 9:54
  the more obscure the crop the matter okay thank you very much for listening
• 9:58
  to hydroponics daily and until tomorrow goodbye.