Sustainable farming practices are becoming more than just a passing trend, as more people take note that humanity is using up the earth’s resources more quickly than they can be replaced. AeroFarms, one of the biggest startups in the vertical indoor farming industry, is tackling sustainability by growing nutritious food with less water and land use. They’re on the up-and-up as they prepare for an Aerofarms IPO through a special purpose acquisition company (SPAC) merger this spring.
Through a merger with Spring Valley Acquisition Corp, a SPAC, AeroFarms will become a publicly traded company on the Nasdaq exchange. The deal is expected to produce $357 million in gross proceeds: $232 million of cash in trust from Spring Valley and $125 million through a fully committed public investment in private equity (PIPE).
All of the current AeroFarms shareholders are expected to roll 100% of their holdings into the new company after the merger is complete.
- Founded in 2004, Aerofarms develops indoor vertical farms to produce healthy food with minimal environmental impact.
- AeroFarms is a Certified B Corporation, meaning they meet high environmental and social standards to “balance profit and purpose.”
- The company’s aeroponic technology is patented and said to use up to 95% less water than traditional farming methods.
- DreamGreens is AeroFarms’ non-GMO, pesticide-free retail brand of leafy greens available in the metropolitan New York region.
- AeroFarms is set to merge with Spring Valley Acquisition Corp, a SPAC, to reach a pro forma equity value of $1.2 billion.
- The newly merged company will trade on the Nasdaq under the ticker symbol ARFM sometime in Q2 of 2021.
Aerofarms: A company history
The co-founders of AeroFarms are CEO David Rosenberg, MBA, and chief science officer Ed Harwood, PhD.
Since 2004, Rosenberg and Harwood have been working to build environmentally responsible farms that have the potential to transform agriculture for good.
Rosenberg said in a BusinessWire press release:
“At AeroFarms, our mission is to grow the best plants possible for the betterment of humanity, and we are executing on this by taking agriculture to new heights with the latest in technology, innovation and understanding of plant science.”
The company is built around the issue that the human population is growing while arable land (aka land suitable for growing crops) is shrinking across the planet. AeroFarms has several working vertical farms, each with its own unique attributes. Their farms began in the Finger Lakes area of New York. Later, the company moved to Newark, New Jersey, where each of their farms are currently located.
- School Farm: At the Phillips Academy Charter School, students can harvest greens from their 50-square-foot garden. It was first seeded in 2011.
- Research and Development Farm: First seeded in 2013, AeroFarms’ 5500-square-foot facility is where the company can test and try new methods to improve taste, texture, color, nutrition, and crop yield. (This one used to be a nightclub!)
- Newark Farm: In 2015, a former paintball and laser tag venue became a 30,000-square-foot AeroFarms garden.
- Global Headquarters: The company’s largest farm is 70,000 square feet, where the first seeding was in 2016. AeroFarms took over a defunct steel mill and remade it into the largest vertical indoor farm in the world (based on annual growing capacity). The company says it can produce up to 2 million pounds of food annually.
AeroFarms has more than 250 invention disclosures and over 15 years’ worth of data from their research and implementation of farming practices. They have grown more than 550 produce varieties.
The company says their growing technology can use up to 95% less water than traditional field farming methods and 40% less water than hydroponics. Plus, the indoor farms have the potential to grow up to 390 times more crops per square foot, and they use no pesticides.
AeroFarms uses LED lights specifically engineered for each type of plant. They also monitor micronutrients and macronutrients for each plant to optimize their growth and nutritional value.
In April of 2021, the company announced the appointment of a new chief revenue officer, Gary Cohen.
Cohen, who has over 37 years of experience in medical technology at BD (Becton, Dickinson & Co.), said:
“AeroFarms is a force for good—I’m inspired by its mission and look forward to contributing to our global growth and expansion into new product categories.”
Aerofarms fundraising to know about
So far, there have been 10 rounds of Aerofarms fundraising, raising a total of $238 million.
- Seed Round: A February 2010 seed round raised $500,000 for the company.
- Series A: Also in February 2010, a Series A round for AeroFarms brought in $5 million.
- Equity Crowdfunding: April 2010 was an equity crowdfunding round.
- Venture Round: In October of 2014, the company raised $36 million in venture funding.
- Series B: In December 2015, the company held a Series B funding round to raise $20 million. Wheatsheaf Group was the lead investor.
- Series C: In May 2017, AeroFarms held its Series C round for $35 million, led by Newark Venture Partners.
- Grant: The Foundation for Food and Agriculture Research provided a Seeding Solutions grant of $1 million in September of 2017, an amount matched by AeroFarms.
- Series D: Seven investors contributed to the AeroFarms Series D funding round in October 2017. Meraas led the $40.5 million round .
- Series E: July 2019 brought another $100 million through a Series E round led by Ingka Group, which is IKEA’s parent company. Pre-money valuation was $400 million.
- Venture Round: In April of 2020, the company held a venture funding round led by the Abu Dhabi Investment Office (ADIO). At that time, the ADIO also invested in three other agricultural tech companies.
Path to the AeroFarms IPO
Executive leadership of both the blank-check firm Spring Valley Acquisition and the vertical farming company AeroFarms expressed optimism about the future of AeroFarms and its potential for growth as a publicly traded company. Spring Valley formed in 2020 with the express purpose of acquiring a company in the sustainability industry with a billion-dollar-plus valuation.
Spring Valley’s CEO Chris Sorrells noted:
“Our goal was to partner with an industry-leading, best-in-class, sustainability-focused company and we are ecstatic to combine forces with AeroFarms, the market leader in vertical farming, to accomplish this vision.”
Sorrells has over two decades of experience with sustainability-focused startups and has been involved in more than 30 investments in the sector.
Financial advisor to AeroFarms on the proposed transaction is JPMorgan Securities LLC. For Spring Valley, Cohen is the financial advisor on the deal.
The terms of the proposed merger between AeroFarms and Spring Valley Acquisition Corp include:
- A resulting pro forma equity valuation of $1.2 billion
- $357 million in gross proceeds for Aerofarms
- $232 million in proceeds from Spring Valley’s cash in trust (assuming that there are no redemptions)
Another $125 million will originate from a fully-committed PIPE investment. Key investors involved in the PIPE are various institutional investors, along with AeroFarms insiders and Pearl Energy Investments. (Pearl is the sponsor of Spring Valley Acquisition.)
What is a PIPE investment? Private investment in public equity occurs when an institutional investor buys a company’s stock directly, below current market value. It helps the company achieve funding quicker, but it does dilute the value of company shares.
When is the AeroFarms IPO date?
The AeroFarms SPAC IPO is expected to close officially during the second quarter of 2021. Upon closure of the merger, AeroFarms plans to nominate two existing Spring Valley directors for the board of directors: Deborah Frodl and Patrick Wood, III.
Spring Valley will likely vacate other board positions to be filled by AeroFarms nominees that have yet to be named.
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What investors should know heading into the Aerofarms IPO
When it comes to indoor vertical farming, AeroFarms doesn’t have the market completely cornered. Some of their top competitors include Bowery Farming and Plenty. With AeroFarms currently limited to the Newark area, the reach for their DreamGreens retail brand is also rather limited.
The total addressable market opportunity for the farming and retail leafy greens products is $1.9 trillion, which could be tremendous for AeroFarms. The fact that AeroFarms already has a strong retail presence with their DreamGreens brand is a good sign as well.
The company has a decade and a half of experience in indoor vertical farming, which evidences their staying power. As world leaders become more focused on helping to preserve the planet, the market for these types of farms may continue to bolster.
AeroFarms has a projected 2021 revenue of $4 million, which Motley Fool reports would give the company a valuation of 300 times their annual revenue (based on the expected $1.2 billion valuation).
The technology of vertical indoor farms makes logical sense on a populous planet. The agricultural technique can increase food production capacity as the population grows and provide a more sustainable form of farming. Providing nutritious greens year-round will be beneficial to Newark and any other locations AeroFarms may expand to.
And if they plan on making waves in the market, they must expand.
CEO David Rosenberg said in the merger’s press release, “Our business is at an inflection point where we will scale up our proven operational framework and begin our expansion plans in earnest.” With the AeroFarms IPO date looming, it’s plausible that the vertical indoor farming company will grow to new heights of success on the public market.