Deal Memo – Eden Towers (July 2021)

NameEden Towers
AboutCommercial vertical farming for sustainable produce
HeadquarterPerth, Australia
Raise DescriptionSeed Crowdfunding
Security TypeFully Paid Ordinary Shares
Current Round Size$3,000,000
Pre-Money Valuation $10,000,000
Current Price per Share$1.00
Crowdfund PlatformBirchal
Existing InvestorsFounders’ capital (30%)
Eden Towers Pte Ltd (70%)1
Key CompetitorsStacked Farm
Invertigro
Sprout Stack
Related Webinars

1 Fully owned by Christian Prokscha, co-founder of Eden Towers.

The Startup Investigator Scorecard

Characteristics of Good Problems:18/ 3060.0%
Characteristics of Ideal Solution:21/ 3070.0%
Traction to Date:13/ 2065.0%
Business Model Defensibility:10/ 2050.0%
Chracteristics of Founding Team:19/ 3554.3%
Total Overall Score:81/ 13560.0%
Overall Scorecard
Peter Thiel 7 Questions (Product):21/ 3560.0%
Berkus Method (Risk):13/ 2552.0%
Supplementary Scorecard

TL;DR

Eden Towers is a vegetable producer specializing in leafy greens and herbs using commercial vertical farm technology in Australia. It does not build vertical farming technology in-house, but access an established technology through a partnership with Intelligent Growth Solutions (IGS) which is based in Edinburgh, UK. It plans to build commercial vertical farms capable of supplying >60 tons per annum across all major capital cities in Australia, starting from Perth.

Clear Target Market with Potential for Expansion

According to the offer document, the traditional food value chain from farm gate to plate involves margin sharing and handoffs between multiple middle men.

Eden Towers plans to utilize vertical farming technology to set up production and packaging facility closer to the market i.e. within 30km off the CBD to reduce the farm-to-plate distance. For Stage 1, it plans to produce and sell leafy greens and herbs which already has a proven operating parameters. The serviceable available market (SAM) for Stage 1 is ~$700M in Australia.1 They are expected to explore and develop the technology to produce Stage 2 crops in partnership with IGS in 2022-2023, which will potentially increase the SAM to over $3B.

Business Model is Clear but Unproven

The vertical farming technology used is designed for commercial scale. Each tower is designed to have 36 levels, 12m high with 72 trays of 6.2sqm grow area providing a total of ~446sqm of grow area. Eden Towers plans to use a configuration of dual-tower, which means each facility will have a minimum grow area of ~890sqm sitting on ~400sqm of footprint only. See below a model of the economics of the commercial facility.

Extracted from the Offer Document

According to the above model, the business model can be very profitable when scaled across Australia, with a gross margin of ~40% and EBITDA margin of ~30%. The cost of the technology and facility will be amortized across the facility lifetime and is not included in the analysis.

Vertical Farming Technology is Superior and Commercially Tested

The vertical farming technology used by Eden Towers is developed by Intelligent Growth Solutions in partnership with James Hutton Institute in Edinburgh, UK. It uses the concept of Total Controlled Environment Agriculture (TCEA) in its approach to indoor farming, meaning farming is completely independent to external factors like weather and this is done by maintaining optimal growing conditions throughout the development of the crop indoor. IGS successfully built the first indoor vertical farm demonstrator facility at the James Hutton Institute near Dundee, Scotland. See below a virtual tour of the facility and its technology.

IGS Crop Research Facility at Dundee, Scotland

Eden Towers in partnership with IGS has built a small prototype in Perth (only a single 6.2sqm growth tray) which is able to produce 1.5-2 tons a year. The prototype produced its first harvest in March 2021 and sold its produce in small amount to catering/restaurants in Perth. The prototype was able to validate the quality of the produce to a certain extent. Customers have demanded for more supply but the current capacity is limited. There was no survey of taste test or customer reviews to confirm validation from customers.

Limited Potential for Moat

The vertical farm technology that Eden Towers will be using seems superior than current competition in the market due to its design for scale. However, a competitor can easily copy the current business model i.e. secure a partnership with a vertical farm tech provider, identify facility location, build vertical farms and secure sales agreements selling high quality, organic and price competitive vegetables. It is also easy for customers to switch from one supplier to another. However, as it scales, it might benefit from economies of scale, improve cost efficiencies and be more competitive in pricing.

Founding Team with Strong Background in Management Consulting

The founders Christian Prokscha and Julia Prichodko are a married couple with background in investment and management consulting. They have worked together in various ventures and most recently helped developed startups in the fresh food market in Indonesia. In the last 3 years, Christian was running a family office with large interest in agriculture which included palm oil, animal protein and non-animal protein farming. He saw a huge push into sustainable agriculture and decided to start Eden Towers. James Cronan is leading the ESG strategy implementation while Doug Elder leads the technical implementation of vertical farm technology. Doug is currently supporting the team remotely in the planning phase and will be a dedicated resource to lead the commissioning and production of the Perth facility. The team has a list of advisers from backgrounds like architecture/design, agtech M&A (Singapore), venture capital (Singapore) and board advisors for ASX listed companies.

Summary

Overall, Eden Towers has the technology backing and relevant experiences to execute it’s plan of developing the first vertical farm commercial facility in Australia, starting in Perth and then expanding to the other major capital cities. The technology is well tested and continuously improved by world class agriculture research. There are uncertainties in whether Eden Towers:

  1. Can secure relevant permits quickly
  2. Complete construction of the facility on time within budget
  3. Set up auxiliary infrastructure such as supply requirements and product delivery smoothly
  4. Secure sales agreement with major retailers and the food services providers like catering, restaurants, hotels etc.

If the commercial facility in Perth can be successfully delivered, the valuation for the next raise to expand to the eastern states is expected to be much higher.

1 https://www.abs.gov.au/statistics/industry/agriculture/value-agricultural-commodities-produced-australia/latest-release#main-features

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The Startup Investigator

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