“You Can’t Eat Technology.”
tl;dr: My old company, Smallhold, raised a lot of money by branding a mushroom farm as a technology company to justify it. We built an extremely popular mushroom company and brand, but failed to make critical decisions at key moments to sustain the business. This led to a minority investor taking control and making necessary but — in my opinion — poorly executed cuts, which severely damaged the new category we created in grocery retail and dismantled a circular economy business that provided living wages to farmers. We could have taken a slower, more sustainable growth path, but we chose the fast lane.
Nearly six months ago, I resigned in protest from Smallhold, a company I co-founded seven years ago with my (now former) best friend. Today, it emerges from Chapter 11 bankruptcy as shadow of the company we once envisioned. The new owners, a private capital group, had made an ill-fated investment into our struggling mushroom farm company, which management had been mostly pitching as a technology business. While some of their restructuring decisions were expected and even necessary, others were not, and ran contrary to the principles upon which we built the company.
Together with a team of over 100 passionate farmers, operations team members, technologists, salespeople, and marketers, my cofounder and I created a new category for specialty mushrooms at the national retail level. We grew from a 20-foot shipping container under a bridge in Brooklyn producing 100 pounds — NYC’s first organic farm, ever — to producing around 40,000 pounds of mushrooms every week across three cities nationwide. We also became a focal point of the COVID mushroom zeitgeist, were featured in every major national news outlet, and produced hundreds of thousands of pounds of organic mushroom compost for farms and gardens across the country. At its peak, Smallhold generated around $17 million in annual revenue — up from just a few hundred thousand a few years earlier — and had a post-money valuation of roughly $90 million, supported by $58 million in angel investors, institutional VCs and debt. We sold nationally in Whole Foods, as well as in Erewhon, Sprouts, and many other retailers. It’s safe to say we made gourmet specialty mushrooms — oysters, lion’s mane, etc — a “thing.”
But: We never turned a profit, losing well over a dollar for every package we sold.
A Little Background on Specialty Mushrooms: These include fungi like shiitake, lion’s mane, oysters, and king trumpets. For the past century, national US grocery stores only stocked white button mushrooms, which are grown and sold as a commodity, mostly by a few large companies. Specialty mushrooms, though, have a short shelf life and require different growing, shipping, and merchandising conditions. Smallhold launched seven new products simultaneously while building the necessary supply chain and farming infrastructure on a national scale in under three years. It was an exhilarating journey… but we spent an enormous amount of money.
Since I resigned on Valentine’s Day 2024, I’ve had the privilege of speaking with many of my former team members, vendors, producers, and other farmers who are at various stages of creating their own mushroom farms or related businesses. While Smallhold created significant value by shipping millions of pounds of waste-neutral organic produce (much of which went to offset American meat consumption), it also left a gaping hole when the new owners took it bankrupt shortly after I quit.
At first, when the new investors bought out our majority shareholder and took control of the company, I was supportive. We desperately needed someone to step in and push our team to make the tough but essential decisions that management had been avoiding for far too long. We already had a well-developed plan, approved by HR and legal, to reorganize and streamline the business. This included allocating around $500k for severance and PTO for our 100-person team. The budget was modest but fully prepared and accounted for in the bank. Our approach was clear: We were burning about a million dollars a month, or a $250k a week. A plan was made with roughly 6 months foresight to reduce the workforce, cut unnecessary technology expenses, close our half-empty 36,000 square foot farm in LA, and slash our $30k/month headquarters office costs, while taking the company into a special type (Subchapter 5) of Chapter 11 bankruptcy specifically designed to support small businesses. If we did things quickly and efficiently, we could use 2 weeks ($500k) of our newly neutralized burn to treat our team fairly on their way out. This last part didn’t happen.
The entire team was keenly aware that Smallhold’s path wasn’t tenable. We had, for months, been holding weekly meetings with both leadership and the board in which we repeatedly missed most of our capacity and margin targets. We’d been under tight budget restriction on and off for two years, and there was no sign of it easing up. It was obvious to everyone, regardless of their involvement in management decisions, that action was needed. But none came. Still, we were setting up interviews for glowing segments in major outlets such as Martha Stewart Cooks and NPR’s Marketplace like nothing was wrong.
Eventually, our crew found out about the changes, but not through any official announcement. Instead, one day, the LA farm team’s work supplies just… didn’t arrive. It was a mess.
For two years, I had been advocating for new management at Smallhold. In 2021, I stepped aside from my role as COO to make way for an operations professional with more experience in national logistics and construction. But the company kept pushing forward, promising technology returns on mushroom farm margins. Now, we were facing the consequences that most of us had seen coming.
When the new owners did bring in new management, it naturally was someone they were familiar with. But it quickly became apparent that they didn’t fully understand the business, let alone our values. They appointed the former COO of Burger King Brazil as interim CEO and a restructuring officer as CFO, whose job was to keep creditors at bay while cutting expenses.
The new team adopted our Chapter 11, subchapter 5 bankruptcy plan but decided to eliminate the $500k in severance and PTO. While I know they believed they were acting in the best interest of their investment, I strongly feel that this decision — along with the early interim appointment of a fast-food executive — was not aligned with Smallhold’s core values as a farmer-forward, sustainable agriculture brand. This approach contradicted the principles of a sustainable B-Corp that had always championed regenerative agriculture and living wage work. Shutting down all of our farms, replacing high-quality mushrooms in the packaging with lower-quality produce without informing consumers, dismissing farmers little to no notice, and denying them severance and paid time off were actions that objectively undermined the brand’s integrity and mission.
Of course, my team and I aren’t absolved of responsibility. Our senior management and board failed to make critical decisions at key moments, which could have kept an otherwise promising brand afloat. Our inability and frequent unwillingness to act left us paralyzed for two years and caused a ton of internal stress. The cuts made by new owners were necessary, if often poorly informed. We should have admitted much earlier that we weren’t a “technology” company, especially after our complete recapitalization and valuation reset to $20 million, which wiped out most of our investors and the core team’s equity. In the end, we couldn’t agree on a direction, even though it was painfully clear to everyone that we needed to accept reality: we were a Mushroom Farm.
I understand why it was hard to break this mindset. My cofounder and I, both ambitious futurists determined to create a sustainable food alternative for a climate-challenged future, originally pitched Smallhold as a technology company that grew mushrooms — not the other way around. We staked our careers on the (correct) assumption that the specialty mushroom market would be huge, and we wanted to be the dominant national brand (we were). This really should have been enough to wet any investor’s whistle. But for a nascent produce category with little infrastructure, this also meant significant construction and capital expenditures.
We naively believed that if we could expand fast enough — capture market share and drive market expansion through consumer education of new fungi on Whole Foods shelves, building farms in key cities across the country — the revenue would follow. It did, but the profit margins didn’t. All that tech and infrastructure bogged us down and made things too complex. Classic, really.
As a VC-backed company, you either quickly dominate the market to set the margins yourself (like Uber) or accept that you’ll need to compete on price (like everyone else). When the latter happens, things get real. In this sense, Smallhold’s story is similar to many other VC-backed startups in recent years, particularly in the agriculture space: the money dried up, our unit economics were weak due to all the bloat, and we wound up as the last horse across the investor portfolio finish line. If we had acknowledged earlier that Smallhold wasn’t a technology company, we might have survived with some cash and a way out of the rut. But as a colleague from another now-defunct vertical farm once told a roomful of my colleagues:
“You can’t eat technology.”
Our story diverged from the typical startup crash trajectory in one key way: Smallhold’s waste streams were inherently good for the planet. The byproduct of growing mushrooms, which are decomposers usually found on dead trees, is organic compost. And the trim from our mushroom packing line was actually value-added healthy mushroom bits, easily used in many other products. Our team was paid a living wage, and our packaging was compostable. The company platformed environmental artists and avoided traditional advertising strategies, relying on goodwill towards our B-Corp to drive sales and educate consumers.
After 18 consecutive years of accelerated education in business strategy, mycology, capital expansion, agriculture, and entrepreneurship, I’ve come to realize that some things shouldn’t be subjected to speculative investment and debt. This is a truth I learned about five years into Smallhold’s rocketship trajectory, and I’m sharing it with you now:
Food — especially good, wholesome, environmentally-friendly, and circular-economy food — needs to be at least partially sacred.
Yes, I know this is “how you play the VC game.” I’ve been playing it since I graduated from college, hopping from one startup to the next with varying degrees of success. At Smallhold, we truly thought we could give VC a “jagged little pill” that might change its trajectory to platform regenerative agriculture. And we were mostly wrong.
We failed. We failed because VC bets are inherently speculative, and if you want to ride that dragon, you need to be a literal dragon rider. I couldn’t ride the VC dragon. Neither could my cofounder. At least not then. And that’s okay. You see, we absolutely need to drive innovation, and venture capital is a powerful tool for that in the right markets. But when the bust cycle hits — which is always more extreme with VC — the people who suffer most are often those who matter most:
- Farm workers are left jobless by distant investors seeking to salvage some return on their investment.
- Consumers are left with higher prices and less access to healthy food, such as organic mushrooms. Smallhold now fills their clamshells with mushrooms shipped too far to stay fresh.
- Agriculture entrepreneurs, inspired by Smallhold’s example, are left holding debt, scrambling for new customers, and justifying their work to investors.
- 3rd parties who supplied Smallhold, some of whom continue to do so post-bankruptcy (despite failing to receive payment for delivered products), are left taking financial hits — many of them being farmers, as well.
So with that in mind, what if we reset our expectations for “Impact” investment in agriculture?
Some thoughts:
- Founders: Don’t deceive yourselves. If you want to make lasting change for the better in this world — aka “make your dent” in a climate or health-positive way — the most statistically viable path for you is slow and steady. Sure, get hyped. But don’t pull the wool over your own eyes. When you sign a term sheet, that’s a promise — even if it’s a crazy one. If it’s a promise to generate a 10x return on a sustainable farming business model, ask yourself if you’re sure you can keep it. Like, sure sure. If you want, you can call me first if you think the answer is “yes.”
- VC associates and analysts: If you want to actually make “good” in this world, push your firms to include other metrics in their evaluation of farming and farm technologies. Learn how farming actually works. Seriously, learn how crop cycles run, how growing conditions affect densities and yields, and dig deep on commodity-specific economics. If someone promises you they’ll make a 10x return in 5 years on technologically-grown lettuce — a commodity crop tied to the price of diesel and grown cheaply in places like Mexico — take a step back and ask yourselves, “is this physically possible?”
- Partners: don’t expect SaaS returns from founders on specialty or commodity crops! Yes, even with industrial robot arms tending crops. If you want a bigger, more predictable return, here are plenty of great agriculture technology companies that can deliver: John Deere, Kubota, Trimble. But if you want to invest in sustainability, you need to set expectations around the fact that we’re still early on the adoption curve, and most markets haven’t been actively encouraged to support new sustainability standards yet.
- GPs: Question your ethics. If you’re in this to make a buck, great. You can still call yourself “impact” — but what are you impacting, who? How? Have you spoken with them? What do they need to support their growth besides money? You can still be ethical and make money. You don’t have to invest in farming! If you do, do it knowing that it’s a volume business fraught with externalities that are hard to harness.
- LPs: You hold the Ultimate Power. By all means, hold your portfolio funds accountable to their investment strategies. But at the end of the day, if you support an Impact Investment fund that invests in agriculture, hold them accountable across the board: make sure they meet their targets, and that those targets are supported in how they structure new deals. Push for triple bottom line accountability. In a world of concentrated wealth, we need you and your colleagues to push us in the right direction. Invest in founders and companies that offer sane returns in this space. And if you want a bigger return, maybe look somewhere else, to be honest.
If we truly want to make a difference with impact investing, we need to collectively redefine our concept of “return” to include the expectation of a genuine triple bottom line: people, planet, and profit.
Deep down, and clearly reflected in the spreadsheets from Smallhold’s bankruptcy, I believe that if we had aligned our expectations around these three pillars, we would have succeeded in all of them. Instead, we played the only game we thought was available to compete with big agriculture, and in doing so, we all lost something authentic and valuable for the world.