Navigating Vertical Farming: Insights from NETLED's COO Niko Kurumaa
Unpacking the Four Pillars of Success in Vertical Farming: Commercially Proven Technology, Robust Financial Modeling, Strategic Partnerships, and Financial Prudence
Good morning readers; as the number of vertical farming projects flourishes worldwide, I had the chance to interview the COO of Finland-based company NETLED, Niko Kurumaa, during the Indoor AgTech event in late June in New York.
During our interview, Niko identifies four fundamental pillars in a vertical farming project: the utilization of commercially proven technology, robust financial modeling, strategic partnerships with retailers, and financial prudence through debt leveraging. The focus here isn't merely on technological innovation but its commercial applicability and efficiency.
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Coupled with precise financial projections and direct retailer engagement, these elements work together to reduce risk and establish credibility, which is particularly crucial for an industry in its nascent stages.
Let’s dive into it!
The 4 Essentials In A Project
While Niko Kurumaa, COO of NETLED, has not explicitly outlined the 'four essentials' in the notes provided, based on his statements, we can deduce that the four fundamental elements he prioritizes in a vertical farming project include commercially proven technology, robust financial modeling, strategic partnerships with retailers, and prudent financial strategies such as debt leveraging.
The first cornerstone, commercially proven technology, underscores the need for vertical farming to demonstrate its practicality and efficiency in real-world settings. For Kurumaa, it's not merely about deploying innovative technology; the technology's commercial viability, in terms of operational efficiency and cost-effectiveness, is paramount. With an industry as nascent as vertical farming, adopting a tech approach proven in a commercial environment reduces risks and lends credibility to the project.
Secondly, Kurumaa emphasizes the importance of robust financial modeling. Before any project can secure financing or investment, it must present a reliable and compelling financial model. Kurumaa's insistence on audited financial modeling showcases his understanding of the need for transparency and reliability in financial forecasting. Accurate financial projections are critical in demonstrating the project's potential profitability, thereby securing investor confidence.
Strategic partnerships with retailers form the third essential component in Kurumaa's approach. The relationship between vertical farms and retailers is vital in securing off-take agreements, which offer a predictable and steady revenue stream. Despite the complexities involved in fresh produce agreements, Kurumaa values direct engagement with retailers. This strategy aligns the supply chain, bridges gaps between producer and distributor, and helps maintain a consistent output flow, fostering stability in the business model.
Lastly, prudent financial strategies, particularly leveraging debt financing, form the fourth cornerstone. Kurumaa understands the financial hurdles in establishing a vertical farming project, such as high initial costs and potential risks. To navigate these challenges, he leverages debt financing through entities like Finnverra. This strategy helps to mitigate risks and initial costs while simultaneously promoting a more professional image of vertical farming as an investment opportunity. Kurumaa's method exemplifies a forward-thinking approach that seeks to balance risk and reward while providing a financially sound foundation for the project.
Adapting The Communication
How vertical farming is communicated to investors, retailers, and the public at significant plays a crucial role in the sector's development and acceptance? As Niko Kurumaa rightly points out, vertical farming must evolve beyond being perceived as just an enticing opportunity for venture capitalists. This implies that the communication strategy surrounding vertical farming must effectively showcase its sustainable potential, practical viability, and economic soundness. Changing this narrative is pivotal for attracting diverse investors, securing institutional support, and gaining public trust.
Communication must reflect this balance in an industry where fresh, sustainable produce output is as essential as the technological innovation involved. Kurumaa emphasizes the need to focus on the produce, which sets vertical farming apart from purely tech-driven sectors. This perspective must be communicated clearly to demystify vertical farming and encourage its wider adoption. Furthermore, a more professional and comprehensive communication approach can help facilitate meaningful dialogues with traditional financial institutions and potential retail partners, ultimately leading to stronger relationships and more robust business models.
"It's important to change the communication on behalf of vertical farms to make it more professional and not just a sexy investment for VCs."
Working With Traditional Financing To Navigate Funding Drought
Despite the challenges it may present in the early stages of a project, traditional financing is an aspect that Niko Kurumaa, COO of NETLED, emphasizes as crucial for the progression of vertical farming. This preference reflects his understanding of the inherent stability and credibility that traditional financing provides in comparison to more volatile forms of funding.
Kurumaa's strategy involves demonstrating the commercial viability of vertical farming projects to traditional banks. He can underscore the potential reliability and profitability by showcasing successful projects like those NETLED has implemented in Scandinavia. This approach provides a more tangible guarantee for banks and fosters a deeper understanding and acceptance of vertical farming within traditional financial institutions.
Furthermore, Kurumaa's willingness to work with traditional financing reinforces his commitment to maintaining a professional and business-centric approach to vertical farming. In an industry often portrayed as an attractive but risky venture for more speculative financing, his focus on traditional financing demonstrates a keen understanding of the need for long-term stability and robust financial planning. It provides a reassuring signal to potential investors, lenders, and partners about the seriousness and viability of the venture, thereby contributing to the broader credibility and acceptance of the vertical farming industry.