Bowery Farming: VC drought hits indoor farming unicorn Bowery with layoffs, steep valuation markdown

Vertical farming startup Bowery Farming has conducted multiple rounds of layoffs and has arrested its growth mode as its valuation plummets, making it the latest unicorn to show financial stress as it faces a cash crunch. In October, the startup made its second round of layoffs in less than four months. Bowery has also put off opening two new smart farms in Georgia and Texas that were originally scheduled to open in Q1 2023, according to public statements and a person familiar with the company's operations. Bowery held a first close of $85 million in late October for its Series D, for which it aims to raise a total of $220 million, per a regulatory filing published Friday. That's substantially less cash than the company raised in its $320 million Series C1 in 2021, according to PitchBook data, which was led by Fidelity Management & Research . Fidelity has written down the value of the company's shares by more than 85% less than two years after leading that round, which valued Bowery at $2.32 billion, according to PitchBook data and regulatory filings. Bowery took out a $150 million credit facility from a consortium of investors including KKR and Trinity in 2022 in order to grow its smart indoor farm network. This week, KKR raised doubts about the company's ability to maintain its side of their credit agreement, which could mean principal or interest payments are at risk. KKR's decision to mark the loans as "non-accrual" suggests the lender has reason to believe the borrower may have problems paying back its loan or meeting scheduled interest payments. Trinity made the same assessment in its third-quarter earnings released Nov. 1. In a sharp decline of the loan's estimated value, FS KKR marked down the fair value of its loan to Bowery to roughly 22% of fair value/cost as of Sept. 30. During the prior quarter, the loan was marked at 81% of fair value/cost. Trinity, which owns a smaller piece of the loan, had the loan at 99% of fair value/cost as of June 30. The lender decreased the percentage to 81% at fair value/cost for the third quarter. It's not unusual for lenders to value their holdings in the same loan in different ways. The decline in the fair valuation is a lens into how the lender assesses its debt investment in the company each quarter. It can also increase. A darling of the agtech world, Bowery raised more than $700 million from prominent VCs including GV , General Catalyst and Singaporean sovereign wealth fund Temasek . Founded in 2015, it has five farms in operation and partnerships with grocery chains including Whole Foods, Amazon Fresh and Albertsons. In a statement, the company said, "We are focused on the existing farm network that is open today, and we will open Georgia and Texas when we feel it's the best decision for the business." As the fundraising market dried up, investors retreated en masse from indoor farming. VC investment in the segment fell from $2.1 billion in the first three quarters of 2022 to $275.5 million in the same period this year-an 87% drop, according to PitchBook data. The VC fundraising pullback compounded the challenges facing indoor farms attempting to secure venture-scale returns. Indoor farms can require expensive labor and incur significant overhead costs, and this capital-intensive business would be even more difficult when interest costs on any debt are rising. Bowery's debt is floating-rate, so total interest the company is paying has risen since the loan was put in place at the start of 2022. Several prominent indoor farming companies, including AeroFarms , AppHarvest and Kalera , all filed for Chapter 11 bankruptcy protection this year. Bowery has fared better than those rivals: Its products haven't disappeared from stores and the company hasn't closed any of its existing farms. "Indoor farming is highly capital-intensive, and operators have relied on investors to fund facility startup and build-out costs as well as operational expenses," according to Alex Frederick, PitchBook's senior research analyst for agtech and foodtech. Michael Lynton, a board director at Bowery, said, "The foundation of the business is extremely sound from a production standpoint, from a costing standpoint, from a commercial standpoint, and we have excellent relationships with the retail industry and supermarkets over a wide array of retailers." An early sign of stress for Bowery came in the second quarter when the company changed its loan from cash to payment-in-kind interest. Now, rather than making its interest payments in cash, Bowery adds the unpaid amount to the total size of the loan. Borrowers may move to PIK when they are concerned about saving cash. In a win for concerned lenders eager to see full repayment of their loans, Bowery paid down $15 million of the credit facility in Q3 at par. "We're current on our payments and we're in good standing with our creditors," Lynton said. Two of Bowery's planned smart farm facilities, one near Atlanta and one near Dallas-Fort Worth, have yet to open despite having been originally scheduled to open in Q1 2023. At an all-hands meeting in October, Bowery's executive team told staff that they would be making a second round of layoffs, citing challenging economic conditions, according to a person familiar with the meeting. The layoffs have affected Bowery employees across robotics, software, marketing and operations roles, but the precise scope of the layoffs could not be learned. Bowery has advertised itself as the future of farming powered on 100% renewable energy and requiring 90% less water than traditional agriculture. It also developed proprietary variations on produce like "crispy leaf" lettuce. In 2022, Bowery acquired Traptic , a startup that developed a robotic arm for picking strawberries. Traptic's co-founder and CEO Lewis Anderson, who became Bowery's senior director of robotics following the acquisition, is no longer with the company, according to his LinkedIn. This article has been updated to include comment from Bowery. Featured image of a Bowery automated growing rack by ANDREW CABALLERO-REYNOLDS/Getty Images This article originally appeared on PitchBook News