ORIGINAL Super Apps in Latin America: A Nod to China With more and more VC firms becoming geography-centric, it’s important to grasp the fundamental differences between traditional VCs and emerging market investors. The emerging market investor sees dichotomy and acts. When mainstream investors choose to skim the froth of the developed-world venture scene, emerging market venture capitalists look towards the places where the valuations are still low, but where rapid and undeniable change is already underfoot. Enter Latin America, one of the most compelling emerging markets for venture capitalists seeking low valuations and seemingly uncapped growth potential. What is particularly unique about Latin America is the striking similarity its growth trajectory is to that of China’s digital era that led to the ubiquity of “Super Apps” like WeChat and AliPay. Ultimately, it will be the fintech boom in Latin America that will usher in an era of powerful apps and services that are a nod to the digital revolution that took place in China a decade ago. LATAM’s Digital Renaissance We are seeing what is nothing short of a digital renaissance in Latin America. Smartphone penetration previously lagged as local GDPs flatlined due to recessions, political unrest, and the absence of a vibrant innovation culture. In more recent times, countries like Mexico, Brazil, and Argentina have seen rapid growth in smartphone penetration as the number of middle-income households surpassed that of China. The CAGR of mobile internet penetration in LATAM is expected to be approx. 3.6% through 2025, over 6 times higher than that of China. From Guadalajara to Sao Paulo, Latin American cities are vying for the title: “The Silicon Valley of Latin America.” The Fintech Boom Despite this impressive growth in access to mobile technology, Latin America still lags behind developed nations in terms of access to banking and financial services. McKinsey estimates that at least 70% of the population in LATAM is unbanked; that is, without access to a bank account, credit card, or debit card. It is hard to imagine a society that relies on cash, especially given the volatility of many local currencies, but this is a reality that millions in LATAM face on a daily basis. However, in recent years, there has been an explosion in fintech companies operating in LATAM, with total fintech funding in LATAM growing from $44mm in 2013, to over $2.5B in 2020. Companies like Uala and Nubank are shifting the dialogue around neobanking and digital wallets, while Cuenca and Albo are bringing credit cards for everyone in Mexico. These companies have one major trend to thank: the rise of the smartphone. PUBLISHED : LATAM’S FINTECH GOLD RUSH IS CHINA-SIZED While traditional investors continue to skim the froth of the developed world’s overcrowded venture scene, VCs who analyze emerging markets are uncovering regions where valuations are low, and rapid changes are undeniably afoot. Emerging market VCs have identified Latin America—a place brimming with presently low-value enterprises that bear large growth potential—as a region whose rise will rival China's digital revolution a decade ago. And just as a fintech boom in China was what begat the country’s ubiquitous “Super Apps” like WeChat and Alibaba, a fintech boom in Latin American will also be what spawns its own globally-revered Super Apps. LATAM’s Digital Renaissance Previously, Latin America had lagged in smartphone penetration due to political unrest, recessions that flatlined local GDPs, and the absence of a vibrant innovation culture. But recently, as Latin America’s number of middle-income households surpasses that of China, smartphone penetration is growing rapidly in countries like Mexico, Brazil, and Argentina. Cities from Guadalajara to Sao Paulo now vie to be crowned “The Silicon Valley of Latin America” and it’s evident that a full-blown LATAM digital renaissance is underway. In fact, the numbers prove it—the CAGR of mobile internet penetration in Latin America is expected to be approximately 3.6% through 2025, over 6 times higher than that of China The Fintech Boom McKinsey estimates that at least 70% of the population in LATAM is currently unbanked; that is, without access to a bank account, credit card, or debit card. Thankfully, the recent rise of smartphones in Latin America will enable the region to catch up to developed nations in banking and financial service access, and offer millions of Latin Americans protection from the risks of using cash only in a territory with notoriously-volatile local currencies. Lately, there has been an explosion in LATAM-based fintech companies—total fintech funding in LATAM has grown from $44mm in 2013, to over $2.5B in 2020. Companies like Argentina’s Uala, Brazil’s Nubank, and Mexico’s Cuenca and Alba are all capitalizing on LATAM’s increased smartphone penetration, by acclimating Latin Americans to neobanking (banking without physical branches) and making payments digitally. Latin America’s fintech revolution is shaping up to resemble China’s, in that it is initiated by the popular adoption of digital wallets, which allow money to be spent or transferred directly from a smartphone. ORIGINAL: Latin America’s fintech revolution is shaping up to resemble China’s, in the digital wallet: money that can be spent or transferred right from a smartphone. As digital wallets became more prevalent in LATAM, credit products followed suit, and a wealth of data began to become available to large fintech players across the region. Now, millions more people in LATAM are sending each other money electronically, taking out digital loans straight from their phones, and even investing their savings. Analysts have described the rise of fintech in China to be “irreversible”, as paying from one's smartphone became a habit that no one thinks twice about. While one can draw many parallels between what’s happening in LATAM and what happened in China, there exists one category of company that is still nascent in LATAM, but completely dominating in China: the “Super Apps”. Embedded Finance and the Dawn of the Super App in LATAM A super app is an app that allows users to access a multitude of services all in one place. Classic examples of this in China are WeChat in AliPay, but there are global comparables as well, like India’s Paytm, GoTo in Indonesia, and Kakao in South Korea. Latin America seems to have one too: Rappi. Valued at over $5.2B in 2021, Rappi offers credit cards, digital payments, grocery delivery, shopping, and a multitude of other handy services all in one app. Super apps make use of a critical trend in fintech: embedded finance. With the rise in digital wallets (thanks to mobile penetration), many companies are integrating wallets and financial services into their own ecosystems, creating a variety of integrated services that are all linked to a user’s native digital wallet / credit card. WeChat did this by integrating seamlessly into the lives of everyone, by embedding a payment system (WeChat Pay) into a Super App that combines texting, social media, and entertainment. Apps like WeChat are able to become critical elements of the cultural fold by becoming staples of a tech-enabled society: your go-to app for sending your friends texts, funny videos, and of course, money. VCs should keep a steady eye on LATAM, as new super apps emerge as a result of a growing digital economy and prevalence of embedded finance. A wealth of Asian knowledge and talent is flowing into LATAM as companies like Tencent (parent company of WeChat) and Softbank are backing some of the most exciting Latin American fintech companies. It is this critical moment in the history of Latin American innovation when guidance and expertise from the digital masters matters most. The Super App era is coming. PUBLISHED: In China, digital wallet apps like AliPay and WeChat Pay made paying with your smartphone into an offhand habit, and analysts credit this phenomenon for China’s since-irreversible fintech golden age, as it tilled the ground for other digital financial services like P2P lending and digital credit offerings to flourish. Digital wallets are now more prevalent than ever in Latin America, and as millions more of LATAM’s citizens are sending each other money electronically, generating a goldmine of user data, the region’s large fintech players have taken after their Chinese counterparts and begun offering ways to procure digital loans and invest savings—all from a mobile phone. But while there are parallels aplenty between LATAM’s fintech boom and China’s, there exists one kind of company that has dominated China, but found few equivalents in LATAM: the “Super App.” Embedded Finance and the Dawn of the Super App in LATAM A Super App is an app that allows users to access a multitude of services all in one place. China’s WeChat is a Super App—it offers its users functions like payment, online shopping, ticket-booking, gaming, texting, social media, and livestreaming—but there are Super Apps in other countries as well, like Paytm in India, GoTo in Indonesia, and Kakao in South Korea. Latin America is seeing the ascent of its first Super App: Rappi. Rappi, which offers credit cards, digital payments, grocery delivery, shopping, and a multitude of other handy services in one app, was valued at over $5.2B in 2021. Super Apps epitomize a critical trend in fintech: embedded finance. Because greater mobile phone penetration has enabled wider digital wallet adoption, companies can now embed multiple financial services into their existing ecosystems and evolve into Super Apps—WeChat lets you send friends text as well as money, Alipay lets you online shop and rent housing on credit, and Grab lets you hail cabs and make investments. The aforementioned apps are all based in Asia, but without question, Super Apps will soon proliferate in Latin America too. Prominent fintech investors in China and Asia-at-large seem to think so, as China’s Tencent and Japan’s Softbank are backing promising Latin American fintech companies with hundreds of millions of dollars, plus their invaluable fintech expertise. As LATAM’s digital economy grows, its embedded finance companies increase in number, and its fintech sector rides on the same swift, upward trajectory China’s once did, VCs should pay close attention to the region. They don’t want to miss the oncoming era of the Super Apps. ORIGINAL: Future of Consumer Finance - Flywheel Offerings Empowered by Embedded Finance “In the not-too-distant future, I believe nearly every company will derive a significant portion of its revenue from financial services.” - Angela Strange, General Partner at Andreessen Horowitz In the past few years, the rise of embedded finance has been prevalent in major household names such as Uber, Grab, and Shopify. So what is “embedded finance”? Embedded finance is the use of banking-as-a-service (BaaS) and API-driven banking and payments services to integrate financial services within other environments and ecosystems. In layman’s terms, this is when a business that does not traditionally offer financial services, such as a ride-sharing company or a retail company, offers financial products such as insurance, loans, debit cards, and much more to its customers. To understand why more and more companies are offering financial services, and why Angela Strange’s statement is slowly becoming true, we have to understand the benefits or value-adds that financial services bring to a company. Shopify serves as a great example in why layering financial services is beneficial for a traditionally non-financial services company. In 2016, Shopify, traditionally an e-commerce software provider, expanded into financial services with Shopify Capital. Shopify Capital helps eligible merchants secure financing and accelerate the growth of their business by providing access to simple, fast, and convenient working capital. With Shopify Capital, Shopify not only added another revenue stream, but also supported its merchants in growing and sustaining their businesses. In 2017, Shopify created Shop Pay, a seamless checkout process that allows fast conversions and a better buying experience. In a 2020 study of Shopify’s 10,000 largest merchants with Shop Pay enabled, the checkout-to-order rate was 1.72x times higher than those going through regular checkouts. With Shop Pay, the average order value of customers is 6% higher, and they buy over 35% more than customers without it. Fast checkouts are more likely to lead to sales while slow checkouts are more likely to lead to cart abandonment. The value proposition here is evident, as on average, more than 20% of a store’s customers already have Shop Pay. In 2020, Shopify expanded its existing rapid checkout method “Shop Pay” to include an incremental payment functionality (partnered with Affirm). This functionality allows consumers to pay in installments while businesses (merchants) collect the full payment less the fees. The installments help merchants offer their customers more payment choices and flexibility, while delivering a seamless checkout experience to boost conversion and overall sales. With this new functionality, Shopify observed a 28% decrease in checkout abandonment rates. In addition, Shop Pay Installments provided a 27% faster checkout time when compared to third-party solutions, and a 30% faster checkout experience to return installment users. PUBLISHED: SHOPIFY SOARED BY EMBRACING EMBEDDED FINANCE, AND YOUR BUSINESS CAN DO THE SAME “In the not-too-distant future, I believe nearly every company will derive a significant portion of its revenue from financial services.” — Angela Strange, General Partner at Andreessen Horowitz Uber, Grab, Shopify, and other tech giants have been overhauling their entire platforms for the purpose of integrating embedded finance—and what a smart move they’re making. Embedded finance—when non-financial services companies embrace API-driven, BaaS (banking-as-a-service) technologies in order to offer their customers financial products like insurance, loans, and debit cards—brings astronomical value-add to a company. Shopify is one company already being invigorated by embedded finance: In 2016, Shopify, known traditionally for its online store management software, made its first foray into financial services with Shopify Capital. Shopify Capital complemented its parent company’s core service well, providing eligible merchants on Shopify’s 1.7 million-merchant platform with easily securable working capital loans, which the merchants could then use to accelerate business growth. Shopify Capital has enabled Shopify’s store owners to sell more—and therefore pay higher fees to the platform, while also endowing Shopify with a new revenue source, collecting interest on loans. In 2017, Shopify began reaping even more rewards from embedded finance, by launching Shop Pay, its in-house answer to PayPal and Google Pay. As a payment system tailored specifically to the needs of Shopify sellers and buyers, Shop Pay expedites its parent platform’s checkout process, and the faster the checkouts, the higher an online shop’s sales. By 2020, the 10,000 largest Shopify merchants using Shop Pay were enjoying a checkout-to-order rate 1.72 times higher than that of merchants who didn’t enable Shop Pay. Additionally, customers using Shop Pay purchase 35% more on average, and have 6% higher cart values than non-Shop Pay customers. Shopify’s further experimentation with embedded finance—creating its own payment system—has clearly paid off. In 2020, Shopify partnered with Affirm—the consumer microloan fintech company—to create Shop Pay Installments, which enables Shop Pay users to pay for purchases incrementally. After granting its consumers the flexibility to make purchases in installments, Shopify saw a 28% drop in checkout abandonment rates. Shop Pay Installments has also prompted Shopify store customers to increase their AOV (Average Order Value), abandon carts less often, and make more frequent purchases. Each successive embedded finance add-on of Shopify’s has provided another revenue boost to its merchants—and ultimately to Shopify itself. ORIGINAL: With this incremental payment functionality, Shopify is able to increase AOV, reduce cart abandonment, maximize buying power, and drive recurring purchases, which ultimately leads to higher revenues for sellers. In the same year, Shopify also introduced Shopify Balance which acts as a business account that provides cashback and discounts on everyday business spending. The account provides a one-stop-shop interface where merchants can get a clear view of cash flow, pay bills, track expenses, and much more. The value-add in Shopify Balance resides in the added layer of stickiness and support for merchants. Through these financial offerings, Shopify provides the tools that set merchants up to not only sustain but also grow. As merchants become more successful, they not only provide a higher GMV but also utilize more and more services that Shopify provides. This directly impacts Shopify’s top line revenues. By layering on multiple financial offerings, Shopify is able to retain its existing customers while attracting new ones. Shopify’s Revenue Shift from Subscription Solutions to Merchant Solutions As seen in the table above,Shopify’s merchant solutions as a percent of total revenue increased from 45% in 2015 to 69% in 2020. Although Shopify doesn’t provide the exact breakdown of revenue per merchant solution, it mentions that the company principally generates merchant solutions revenues from payment processing fees via Shopify Pay. Merchant solutions revenues are directionally correlated with the level of GMV that Shopify’s merchants process throughout Shopify’s platform. Because Shopify’s business model is driven by its ability to attract new merchants, retain revenue from existing merchants, and increase sales to both new and existing merchants, financial services offerings have played a crucial role in Shopify’s growth. By providing additional financial services, Shopify is able to support, grow, and retain merchants, ultimately leading to an increase in revenue. Shopify is not the only company that is adopting embedded financial services. Other examples include: Uber and Lyft offering debit cards for its drivers, Tesla offering insurance, and Grab offering investment solutions. These are great examples of how companies have layered financial services into their core offerings to not only diversify their revenue streams but also add stickiness to their core offerings. Now that we have outlined why embedded finance is on the rise, and the value-add it brings, I would like to talk more about the future of consumer finance: flywheel offerings, which could be empowered by embedded finance. Flywheel offerings capture the dynamic of implementing strategy through many individual measures aligned in one direction and reinforcing each other, as more results accumulate, the momentum of the flywheel builds and builds. In other words, a business that adds new offerings that synergize with existing ones, whether it is to add stickiness, increase customer LTV, or even attract more customers, is essentially moving towards building the flywheel business model. PUBLISHED: A flywheel is a rotating device which, after being given an initial input of energy, will begin spinning faster and faster on its own with ever-less effort. Similarly, a flywheel business model involves a business initially implementing many measures to propel its growth, which then reinforce one another and generate momentous sales increases that become ever-easier to maintain. For many businesses, the flywheel-establishing measures could be new payment and banking services for customers, which will increase customer retention, customer growth and revenue. Grab, for example, began as a taxi booking app, then added offerings to jumpstart its flywheel, including payment, wallet, insurance, food, wealth management, rewards, and other services. Grab’s new offerings took advantage of the app’s large user base and kept customer acquisition costs low, provided additional layers of convenience to retain existing customers, and made Grab’s overall platform more attractive to new customers. Behemoths like Grab and Shopify have been able to quickly adjoin financial service offerings to their platform, by leveraging their storied reputations to form partnerships with larger finance companies. But how can smaller businesses, which can’t draw big partners, also offer new financial services to their customers? ORIGINAL: The more a snowball rolls downhill, the bigger it gets. In this case, the additional snow is the additional offerings a company is introducing. Just to give a quick example, Grab is a company that started as a taxi booking app that eventually moved into offering payment, wallet, benefits, insurance, food, wealth management, rewards, and so much more. Because Grab already had a large customer base to work with, the new offerings it introduced had low customer acquisition costs, attracted new customers and retained existing customers by providing additional layers of convenience. Over time, by layering on more and more core offerings, the app was eventually able to grow into a so-called “Super App”, or an “All-in-One App” that consumers can use for virtually everything that they need from day to day. However, this growth through new offerings is done by forming partnerships with larger established companies, and not every company that wants to offer new services has the ability to land big partners. Here is where embedded finance comes into play; Companies that enable embedded finance are offering white-label financial services that are easily integrable with a business’ existing stack. With these plug-and-play offerings, businesses that are looking to add financial services can “shop and choose” which functionalities they are looking for. For example, a company is looking to add loan offerings to its original business. Instead of going to a traditional bank, they can go to Lentra, a company that specializes in approving and providing loans, and offering white-label banking services via easily integrable APIs. By partnering with Lentra, a company that enables embedded finance, the original business can provide the loan offerings 6x faster to market, and save on hiring engineers. The benefits don't end there; visit Lentra’s website for more. If the same company wants to offer additional financial services, such as a checking account or debit card, they can go to a company like Treasury Prime, which specializes in card offerings and account management. If the same company wants to offer even more services such as buy now, pay later functionalities, they can go to companies like AfterPay, Affirm, and Klarna. You get the point, any business, no matter the size, can shop for the financial services they want, easily integrate it with its existing stack, and offer it to their customers. This plug-and-play functionality is very important when it comes to developing a flywheel of services and products. Companies no longer need to form large partnerships with big names in order to roll out financial products and services. Even a smaller company with limited funds can roll out a flywheel of offerings for its customers. The versatility, efficiency and functionality of embedded finance will eventually make every company that wants to be a consumer finance company- a consumer finance company that can offer a wide range of financial services. PUBLISHED: Luckily for these small companies, new fintech platforms have emerged to offer white-label financial services that are easily integrable with any business’ existing stack. Thanks to these plug-and-play offerings, nonbank businesses wishing to provide financial services can “shop and choose” the functionalities they want to supplement their base service with. A nonbank company looking to add loan offerings no longer needs help from a traditional bank, and can instead go to Lentra, a company whose APIs allow any business to quickly start approving and issuing loans. By using Lentra, a small nonbank business can forgo hiring its own engineers or pleading with banks, and integrate a loan service 6x faster. If the same small company desires to offer additional financial services, such as a checking account or debit card, they can look to Treasury Prime, whose API allows a company to quickly set up card offerings and account management. If our small company wanted to launch buy now, pay later functionalities as well, there’s AfterPay, Affirm, and Klarna. In essence, any business big or small can now shop among the many new plug-and-play fintech providers out there, and easily begin offering customers whatever financial products or services it wishes. The versatility, efficiency and functionality of today’s white-label embedded finance providers allow even smaller companies with limited funds to pivot to a lucrative multi-service, flywheel business model. Soon, every nonbank company that wishes to evolve into a consumer finance company, and experience sustainable revenue growth, will have the power to. ORIGINAL: Future Farms in Emerging Markets In 2020, global agriculture technology companies raised just over $5.1B in venture capital, up 35% from 2019. Even during the pandemic, high profile investors and celebrities flocked towards agtech startups, pouring record amounts of capital into the future of farming. This recent boom in agtech investment is driven by new digital farming technologies, chemical and bioscience developments, and the construction of high-tech farms around the world. The number of dedicated agtech investment funds is also growing, with almost 40% of these dedicated funds emerging within the last 5 years alone. Interestingly, the construction of high-tech farms has been a frequent target of venture dollars in recent years. Vertical hydroponic farming company Plenty has raised over $540M to date, with backing from Jeff Bezos, SoftBank Vision Fund, and Driscoll’s. Hydroponic agriculture, while not a recent development, may remain one of the most promising agtech opportunities with significant long-term growth potential, especially in emerging markets. Hydroponics is widely considered to be the most “futuristic” method of agriculture available. Skipping soil entirely, hydroponic farmers grow vegetables by submerging the roots of their crops directly into liquid nutrient solutions. In doing so, they minimize the dreaded drying-out of soil and ensure that their crops are receiving a custom nutrient cocktail that can be varied for any stage of growth. Within the last few decades, hydroponic farmers have taken control to a whole new level by bringing the plants into indoor, synthetically lit greenhouses where plants grow in large hydroponic pools without pesticides. Vertical systems, too, allow for space optimization and the creation of large warehouse farms. Even though hydroponic techniques have been around since the seventeenth century, the practice only became a high-tech discipline within the last 50 years. Scientists in the 70s nerded out over lofty visions of “future farms”: indoor lettuce factories with a glossy space-age finish. Now, the hydroponics market is valued at an estimated $9.5B with an estimated CAGR of over 13.5%. PUBLISHED: FARMING IN THE FOOD AND WATER-SCARCE FUTURE Both high-profile investors and celebrities like Serena Williams have been putting large sums of money into AgTech investment funds, with almost 40% of these dedicated funds arising in just the last 5 years. In 2020, even amidst the pandemic, global AgTech companies managed to raise a record-breaking $5.1B in venture capital, up 35% from 2019. This sudden fervor for AgTech is a response to recent innovations in digital farming, advancements in chemical/bioscience, and increases in global high-tech farm construction. Among the most promising areas for new AgTech investment is hydroponic agriculture—the soil-free cultivation method that’s popularly known for growing cannabis, but could in fact revolutionize farming, aid in ending water scarcity, and sustainably feed entire nations. One vertical hydroponic farming company, Plenty, has already raised over $540M, and counts Jeff Bezos, SoftBank Vision Fund, and Driscoll’s among its backers. Though hydroponic agriculture originated in the 17th century, it has evolved into one of today’s most sophisticated and high-tech farming methods. And while currently unresolved infrastructure issues are preventing its universal adoption, hydroponic agriculture is an AgTech opportunity poised for significant long-term growth, especially in emerging economies. Hydroponics is a method of cultivation that forgoes any planting in soil, and instead involves submerging plants’ roots directly into liquid nutrient solutions. Hydroponic farmers can therefore spare crops from the drying-out of soil, and ensure that crops receive a custom nutrient cocktail—whose ingredient ratios can be optimized across different stages of a plant’s growth. But the hydroponics process doesn’t only grant farmers greater control over growing processes, it also gives them the freedom to optimize the environments their crops are grown in. In the last few decades, hydroponic farmers have been successfully nurturing plants in indoor, synthetically-lit greenhouses, where plants can grow in large, pesticide-free hydroponic pools, spared from the unpredictable ravages of the outdoors. Additionally, hydroponic cultivation can be done in vertically-built farms, which use space and water far more efficiently than traditional farms—making hydroponics seem quite alluring in a world of ever-fewer resources. Research substantiates the immense promise offered by hydroponic agriculture. A 2015 study by the NIH showed that hydroponic production of lettuce led to over 1,000% more yields than conventional production. Even more astounding, plants grown hydroponically required 13 times less water than plants grown in soil. Though hydroponic horticulture only started evolving into a high-tech discipline in the 70s, an effect of space-age scientists nerding out over lofty visions of indoor lettuce factories, today’s hydroponics market is valued at an estimated $9.5B, with an estimated CAGR of over 13.5%. ORIGINAL: Research substantiates the benefits of hydroponic agriculture. A 2015 study by the NIH showed that hydroponic production of lettuce led to an over 1,000% increase in yields. Even more shocking was that these plants used 13 times less water than the plants grown in soil. Given the food insecurity and water crises that ail many emerging markets, hydroponics seems like a no-brainer...at first. In fact, many countries have already made use of hydroponic agriculture to combat the difficulties of growing in their native environments. Scandinavian countries are using hydroponics to grow lettuce in the frigid winter, while vertical farms in Israel allow farmers to defy the hot and arid climate and churn out vegetables year-round. Japan has seen an increase in hydroponic farms since indoor farms are more conducive to a steadily aging workforce. While it sounds like hydroponic agriculture is well-utilized by these examples, the reality is quite the opposite. It’s estimated that the U.K produces over 54 million pounds of hydroponic produce annually, a mere drop in the 8.75 billion pound bucket of produce grown annually in the UK...And that is the world’s largest hydroponics market. Hydroponic agriculture has some extreme limitations that are often difficult to overcome, especially in emerging markets. First and most notably, hydroponic farming requires a hydroponic farm. The sheer infrastructure costs of these farms is one of the most common barriers to entry. Even though most hydroponic farmers are able to cover the initial capital expenditure through profits from selling their crops, the risks involved and slow break-even timeline is not feasible in many developing countries. This doesn’t mean hydroponics isn’t possible in these places, but that it needs to be scaled down and most likely, moved outdoors. Sunlight is an ample substitute for the pricey LED lights that dangle from the ceilings of American urban farms, but there still remains another drastic challenge: the energy requirement. The same NIH study extolling the benefits of hydroponics also illustrated that hydroponic systems required 82 times more energy than soil agriculture. The energy draw from artificial lighting, water pumps, and temperature control can make growing hydroponically cost ineffective, especially when growing cheap plants like lettuce. The key takeaway from the NIH study and decades of high-tech farming is that hydroponics isn’t always profitable; However, many emerging markets today have access to cheaper electricity than Americans do. PUBLISHED: Across the world, countries with native climates unfriendly to agriculture have begun using hydroponic technology to circumvent growing difficulties. Scandinavian countries are using hydroponics to grow lettuce throughout frigid winters, while Israel is erecting vertical farms so its farmers can defy the hot and arid climate and produce vegetables year-round. Japan has also come to embrace automated hydroponic farming, in light of the nation’s farmhands aging out of its workforce en masse. While the above examples present our world as verging on a hydroponic agriculture revolution, there is still a long, long way to go before that happens. Presently, even the 54 million pounds of produce grown via hydroponics yearly in the U.K.—the world’s largest modern-day hydroponics market—make up just a drop in the bucket of the U.K.’s 8.75 billion-pound annual harvest. Why is this? Given hydroponic agriculture’s potential to sustain plant growth in harsh climates, provide yields during water crises, and even eradicate food insecurity, its immediate implementation by countries everywhere should be a no-brainer, right? Unfortunately, there are still colossal barriers to entry for starting a hydroponic farm, especially in the emerging countries where they’re needed most. The NIH’s study revealed that although hydroponic agriculture uses far less land and water than soil agriculture, it also uses a staggering 82 times more energy. Given the massive infrastructure costs that a farmer must shoulder to buy and power a hydroponic system’s LED lights, water pumps and temperature controls, current hydroponic endeavors are high-risk, have slow break-even timelines, and remain downright unfeasible in most developing nations. However, there are a multitude of ways to make hydroponics systems both profitable and sustainable in emerging economies: Hydroponic farmers can run smaller-scale operations, avoid growing cheap, cost-ineffective crops like lettuce, swap expensive LEDs for sunlight by stationing farms outdoors, or—most efficaciously—take advantage of the fact that electricity is significantly cheaper in emerging markets than in advanced ones. This “electricity arbitrage” solution is already being pursued by India, whose electricity costs half as much as America’s, and by Saudi Arabia, whose electricity only costs one-third as much. Both these countries have devoted significant time and funding toward expanding hydroponic production in recent years, and other emerging countries will soon follow suit, as global issues of food insecurity and water shortage grow more pressing by the day. In the coming years, there will be rapidly growing market opportunities in the design, construction, and operation of hydroponic farms around the world. ORIGINAL: Even more promising is the future of “urban farms,” vertical (indoor) farms that are located within dense cities. In densely populated countries like India, urban farms can drastically reduce the carbon emissions from producing and transporting food hundreds of miles from farm to plate. These emissions account for approximately 1/5 of all carbon emissions in India. Urban planners and agriculture scientists have collaborated on theories of how a vertical farm can be integrated directly into a bustling metropolis. These ideas also fall victim to the aforementioned cost-benefit hurdles that plague even the smaller farms today; However, as hydroponic technologies are made cheaper through optimization and innovation, these urban megafarms show immense promise. For hydroponics to become truly transformative and ubiquitous in emerging markets, it needs to become cheaper and more accessible . Growing lettuce in high-tech indoor farms can lead to slow break-even timelines of over five years. This is largely why most hydroponic growers, even in the United States, opt for growing high-profit, finicky crops, like cannabis. In the same vein, growers worldwide have become distracted by premium crops that require smaller yields to achieve quick and reliable profitability. While there is nothing wrong with growing strawberries and pot, hydroponics has an unrealized future potential: feeding entire nations. As more and more venture dollars go towards funding the future’s farms, it is critical that investors eschew the hyped up million-dollar strawberry farms, and consider the companies that are building the next-gen farms to feed the future. Electricity in India costs approximately half as much as it does in the United States, and electricity in Saudi Arabia costs only one third as much. Both of these countries have greatly expanded their hydroponic productions within the last few years. As more emerging nations devote more time and money towards addressing food insecurity and water shortages, there will be a rapidly growing market opportunity in the design, construction, and operation of these farms. PUBLISHED: An even more promising development in hydroponic agriculture is the advent of “urban farms,” vertically-constructed, indoor farms located in dense cities. In a place like India, where transportation of produce from rural to urban areas requires hundreds of miles of travel and generates 1/5 of the country’s carbon emissions, urban hydroponic farms could obliterate carbon footprints. Urban planners and agricultural scientists have collaborated to formulate optimal ways for integrating vertical farms into bustling metropolises. Presently, all the proposed solutions for hydroponic farming in major cities are undermined by the same cost-benefit hurdles that impede hydroponic development across emerging nations. However, were investments to be made in hydroponic technologies to accelerate their optimization and downsize their costs, towering urban megafarms could usher in a considerably greener future of farming. Hydroponic agriculture is primed to become a transformative and ubiquitous farming method—especially in emerging markets—but first it must be made cheaper and more accessible. Currently, growing just a common crop like lettuce in a high-tech indoor farm carries a slow break-even timeline of over five years. Consequently, most hydroponic growers, even in developed nations like the U.S., are compelled to play it safe by growing either trendy, small-yield premium crops like strawberries, or finicky, high-profit crops like cannabis. And while there’s nothing wrong with growing strawberries and pot hydroponically, a preoccupation with the short-term profits those crops yield will prevent hydroponics agriculture from realizing its paramount potential: feeding entire nations, using but a sliver of the water, land and emissions currently required. As more and more venture dollars go towards funding the soil-free, vertical farms of tomorrow, it is critical that investors in hydroponics eschew the overhyped million-dollar specialty farms, and examine those companies building the next-gen farms that will be feeding