The slide below is from one of the decks I reviewed this week.

I see this in various forms way too often, and this is a good example. In this case, the startup has done a five-year set of projections starting with actual numbers from 2022 and half of 2023 (remainder projected) and then forecast out 2024, 2025 and 2026. See if you can spot the red flag. It’s the S&M line (Sales and Marketing). This slide and that line leads to a few questions, and some of them would lead to a few more.

1) What accounted for the lift from 2022 to 2023? Was that sales, marketing or both? Was it for people or for marketing campaigns and how much for each? Increasing from $238k to $1.74M is a huge lift for a single line item in one year (especially because the deck is being used in August 2023, so 2/3 of the year with the lift is almost over). Who is the executive that is going to build the sales and marketing team, and have they built a team that big that fast before? Have they managed sales and marketing teams before? If not, expect a lot more questions from investors.

2) Then look at the 2024, 2025, and 2026 numbers for revenue. From 2023 to 2026, the forecast is projected to go from $8.5M to $21.6M in revenue, yet S&M only goes up by $120k. You’re asking an investor to believe that you can achieve 150 percent growth in revenue with a 6 percent growth in S&M expenses. That is not going to pass the sniff test without a few more details. If you’re going to be paying sales reps and putting them on a $2M quota, you’re expecting to get six to seven new sales reps worth of quota attainment without having to hire new people or run extra marketing campaign costs. That is a big ask. Things might get uncomfortably warm during this set of questions.

Bottom line, this type of spreadsheet will be seen as a top-down exercise. It may be enough for an early-stage fund raise (the startup in question has raised $5-7M over eight years with the most recent close from about three years ago.) The next raise is likely to be in the $5-10M range and you should expect the investors to start to ask more detailed questions as the round size goes up. To avoid tough questions on the financial slide, just make sure to tie bottoms-up and tops-down numbers so that they tie together with ratios and numbers that make sense and fit investor expectations. You can find a Google Doc I built to help with this exercise here. Building a good financial slide is important because you want to spend time discussing your big vision and long-term potential with investors more than the details of the financial slide. You can fund raise better off vision then diving deep on the numbers.

A lot of startups and those in agtech have found value in this information on my post about it on social media. Jacob Reynolds said “I appreciate the real-life example vs. theoretical. Always makes for a better post and relatable to others in a similar positions!” Sharing this kind of information is one of the ways that the Center of Innovation and Technology works to support and drive change in agtech.

Last year’s FIRA USA event in Fresno was a great first effort. Next month, we are going to have three different demo areas in the Salinas Sports Complex, and the automation solutions will be available for demos all three days of the show. Take a look at the aerial layout that includes an orchard demonstration area along with a drone pavilion (yellow pentagon in the top left), a vineyard demo area (purple circle in the top right) and the vegetable demo area (green triangle in the bottom right).

All three of these areas will include multiple startups, and there will be multiple demo sessions over the course of the three-day event from September 19-21. Thank you to the startups for providing some great feedback as we work through this much larger and longer demo area than last year.

The vegetable demo area will be done in 40″ and 80″ rows. The vineyard demo will be a comparable setup to a vineyard for demonstrations (but will leverage some metal pipe and camouflage netting thanks to Clint Cowden and the Hartnell College team for doing the assembly and installation work). The orchard demonstration will be a series of potted trees in a similar configuration to a live orchard.

All of this is being done to put together the best three-day automation show possible and to get as many conversations between growers and automation providers started as possible. Past experience tells us creating these conversations in a live “in the dirt” location with the machine demoing live is the best way to discuss AgTech for both growers and startups. We look forward to starting a lot of them in a couple of weeks. Hope to see a lot of you in Salinas.

Visit Fira-USA.com for more information.

On a recent episode of Business of Agriculture podcast, Damian Mason, Adam Bergman and I discussed Controlled Environment Agriculture (CEA). I remain bearish on CEA and Adam remains bullish. As always, a bit of disagreement makes for great podcast fodder. We covered a lot of ground.

Here are the highlights:

1) CEA was one of the hyped sectors of AgTech (along with alternative proteins), and the $7B that went into CEA over five years (2/3 vertical farming; 1/3 green house) is turning into a terrible investment in real time. Primary factors that caused the bad investments─media missed the fact that all CEA products have to compete with existing growers and supply chains (it was never a green field opportunity), investors did a poor job of due diligence and a lot of folks thought this was a tech play (it’s not, it’s a distribution play that needs to focus on taste and price).

2) The most interesting battle may not be between CEA and conventional soil growing. I predict it will be between green house and vertical farming. I believe that green house is in a huge advantage position in this battle with patient capital, years of optimizing product and economics, and a much lower operating cost structure (they use sun, vertical farming has to pay for electricity, and that cost is only getting higher).

3) The most interesting owner of the vertical farming assets may not be the original owner. It may be the third owner (after a second owner that gets the asset for a deal but doesn’t have a business model, the third owner gets it for an even better deal and has a business model).

4) Future vertical farming startups need to focus on two sets of unit economics─unit economics of the facility (how much it costs to build and operate) and the unit economics of the resulting SKU at the retail level to the customer (it needs to be at or below similar product with existing shelf space.  Incumbency has its advantages).

5) There are use cases for vertical farming like growing strawberries in the Middle East locally where it’s hard to grow outdoor product and shipping comparable product via long-range air travel. But it’s unclear how big the go-forward opportunity will be given the current and likely future bad outcomes for a lot of the $7B already invested. How many more checks will investors write in this space?

Listen to the full podcast episode here.