In a surprising turn of events that has rippled through the agritech community, Smallhold, an innovative US-based company known for growing specialty mushrooms through vertical farming, has filed for bankruptcy. This development, which came to light on February 18, 2024, after a filing in the US Bankruptcy Court for the District of Delaware, has revealed the company’s dire financial straits, which were previously undisclosed.
Smallhold, a Brooklyn, New York-based startup founded in 2017, made a name for itself by operating indoor mushroom farms in strategic locations including NYC, Los Angeles, and Austin, Texas. The company’s approach to agriculture was futuristic, utilizing patented technology to meticulously control the climate within their farms, ensuring temperature, humidity, and other environmental factors were optimized for mushroom growth.
The company’s vision and technological prowess had earned them a nationwide expansion in the US, most notably with Whole Foods stores. Their specialty mushrooms also found their way onto the shelves of other retailers such as Sprouts, Safeway, and FreshDirect. Despite these apparent signs of success, court documents have painted a different picture, one of a company struggling to stay afloat amidst a challenging financial landscape.
**Financial Challenges and Market Dynamics**
The bankruptcy filing has brought to light the fact that Smallhold was in “substantially worse financial shape than previously disclosed.” The documents further detailed the company’s decision to cease operations at its farms in Texas and New York, resulting in workforce reductions. At the time of the filing, Smallhold had 81 employees.
The narrative behind Smallhold’s financial woes points to a broader issue faced by the industry: a significant downturn in the venture capital fundraising market. This, coupled with a fresh mushroom category that has remained largely flat over the past year, has created a challenging environment for Smallhold to secure the necessary funds to continue operations.
Smallhold’s predicament is not isolated within the indoor agriculture sector. The past year saw a string of bankruptcies from companies specializing in controlled-environment agriculture, including leafy greens grower AeroFarms, high-tech greenhouse operator AppHarvest, and indoor farm robotics startup Iron Ox. The high costs associated with running these technologically advanced farms, along with difficulties in achieving positive unit economics, have been significant factors leading to these shutdowns.
**Corporate Changes and Future Strategy**
Amidst financial turmoil, Smallhold has also experienced major changes in its corporate structure. Monomyth Group, a private equity firm and originally a minority investor, took a controlling interest in the company on February 7. This shift in ownership led to the resignation of both Smallhold’s founders from the board of directors.
As the company navigates through bankruptcy proceedings, it has announced that its Los Angeles farms will continue to operate. This decision is part of an interim business strategy that aims to serve as a bridge while Smallhold explores restructuring alternatives to address its financial challenges.
The company’s cofounder, Andrew Carter, announced his resignation just days before the bankruptcy news broke, but he did not mention any financial struggles or impending bankruptcy. Despite the setbacks, there is a glimmer of hope that the closures of the Texas and New York farms are only temporary as the company seeks to restructure and potentially revive its operations.
Smallhold will continue to function as a debtor in possession, as per sections 1107 and 1108 of the Bankruptcy Code, with a hearing scheduled for February 21. The industry and investors are keenly watching to see how Smallhold navigates this challenging period and whether it can emerge with a sustainable business model that can withstand the volatile venture capital landscape and the intricacies of the specialty mushroom market.