on Nov 9 2015
Each type of plant needs specific colors of light to grow well, to be the right size, the right shape, the right flavor, and to grow at the right speed. Every plant is different; for example certain plants need more red light and others more blue light. We create the right mix of colors to grow each type of plant perfectly.
We sell specifically to indoor farmers who need complete control over their grow environment. They need control of the temperature, humidity, and light levels to ensure predictable yields every single day of the year. This requires the right color of light and the right amount of light every hour of every day. Our lights are different because they give farmers that consistency and predictable yield using much less energy. When you need to run lights 24 /7 365 days a year, even the slightest energy efficiency results in huge savings and higher profits for farmers.
In many locations, energy costs can be as high as total profits for indoor farmers. Before our lights, indoor farming was reserved for the highest margin cash crops because most farmers just couldn’t afford the electricity costs.
Currently, most lights on the market are conventional fluorescent or high pressure sodium. Our photosynthetic LED lights are 50-60% more efficient than fluorescent and sodium and 35-50% more efficient than other new LEDs. Not only are we much more efficient but thanks to our remote phosphor technology our lights last five times longer than any other grow light on the market.
Our customers are large commercial facilities. They tend to have multiple acres of greenhouses with all types of crops like lettuce, tomatoes, basil, arugula or flowers. An average facility might have hundreds or thousands of lights burning every day.
We have two different marketing segments. One consists of already-built facilities just looking to upgrade their existing light infrastructure. The other is new construction to which we sell as they’re designing the facilities.
Agriculture is the oldest business in the country, everyone still relies on trade shows for buying and selling. The public commonly perceives farmers as behind the times on technology, but commercial farmers are always hunting for the latest tech to improve yields and lower costs. This includes: new nutrients, greenhouse design and lighting, and CO2 generators.
The two most important aspects for farmers is how well lights grow their crops and at what cost. Our lights are better for plant growth, last 5x as long, and use 50% less power. For farmers, as long as we create the correct photosynthetic light, the nuances of technology matters little against cost or efficiency. So our sales pitch relies completely on the numbers.
While our lights typically cost more, they’re 50% cheaper to run than the competition. Our LED fixtures cost about twice what a high pressure sodium fixture costs, but with electricity savings most farmers payback the difference within three years. If a customer lights their crops over 12 hours per day that payback time drops even further.
It’s not just the energy savings. Our lights last ten years vs. 2-5 for other lights which means farmers not only buy 80% fewer lights they also save the labor costs of replacing 1,000 lights per acre every 3 years.
We’re more efficient in every sense.
At 12 hours per day and $0.12 per kWh farmers will save approximately $225,000 dollars per acre every year by using Transcend Lighting instead of High Pressure Sodium and would save $50,000 per acre over competing LED fixtures.
The size of indoor commercial farms can vary. Small greenhouses can be less than an acre and large farms can have hundreds of acres of greenhouses.
We win when farmers test different lights. Farmers typically buy a variety of high pressure sodium lights, fluorescent lights, and LED lights, then test them over a number of growth cycles to see how the plants respond. For food production, we are winning just about every application we’re going after. Per watt of energy we always come out ahead and the only time a farmer has opted out of Transcend lights is when they want a much higher powered product.
Our current fixture (230 watt LED) is a good substitute for the 600-watt high pressure sodium lights. Those few farmers that require 1000 watts would just buy more LED lights until we’ve built a larger substitute in the coming months.
Most of our sales have come from trade shows and referrals within the tight knit farming community. Recently many of the publications have featured our lights. Our sales have mostly come from inbound leads interested in a light that can really save 50% on electricity costs.
We launched in January and the first customers are just getting completed test results from our lights after nine months. The feedback is overwhelmingly positive. The industry is audibly abuzz with the fact that Transcend lights are the highest performing fixtures available. Our plan is to ride this wave, continue to bolster our trade show efforts, and encourage farmers to share their experience.
The sales cycle for indoor agriculture is changing fast. The old model relied on recurring revenue from bulb sales stocked with normal distributors like feed and supply stores. These bulbs were designed to last 1-2 years and be replaced, while every fixture was standardized to accept any bulb, Philips in GE and vice versa.
We’re pioneering a new model with LED lights. Rather than rely on a traditional bulb Transcend is a fully integrated semiconductor system with a heat sink and electronics and reflectors. Each of our lights has different optical characteristics, different light output, different color qualities, it’s more of a full-system-sale. Currently we work directly with big farms to design lighting systems specific to their needs. As LED evolves and more farmers insist on the technology, wholesalers and distributors will become accustomed to the tech and unique design and actually be able to sell and install our system themselves.
Farming is growing up, the entire industry is evolving vertically and our lights are perfect for this. Most lights on the market burn super hot, and must be kept a long distance from the plant leaves. Transcend lights rely on much cooler LED bulbs which can be placed inches from the plants, above plants, next to plants, below and behind plant beds. Our lights are the right temperature and have the installation flexibility necessary for vertical farming in ways that flourescent and sodium lights just don’t.
The typical sales cycle is between six and nine months because it takes this long to properly test the lights. We started selling to commercial farms in January, so our first customers have now tested the lights for a full sales cycle and are now converting into big projects. We have three LOIs for $960,000 worth of projects: a project in Canada, a project in Massachusetts, and a project in the Netherlands.
Between Q1, Q2, and Q3, we’ve more than doubled our pipeline of new customers quarter on quarter. In the last three months we’ve seen 8customers begin trials with our lights. If all of these trials convert, we’ll be looking at many millions in new sales.
We charge $600 per light. A typical one acre farm uses 1,000 lights, which means $600,000 in sales. Our cost of production for each light is $358 and our margins are just over 40% which is fantastic for our first production run.
That’s a good question. Part of my background is international manufacturing of lighting fixtures. I’ve audited 75 factories in China over the last five years, and also have a firm understanding of the manufacturing options here in the U.S. It looks like we can get our cost of goods sold to $190 per fixture, at volume.
Such low costs will require a steady sales volume and forecast to ship container after container from China. Such supply risk doesn’t make sense for us at such an early stage, so we’ll bite the bullet on margins for now. 40% is a good start and as soon as volume picks up we know exactly where to go to lower costs and achieve 60-65% margins.
The indoor farming market currently spends billions every year on all types of lights. LED lighting fixtures are projected to sell about $500 or $550 million worth of lights in 2015. The demand for LEDs by established farmers is doubling every two years, so by 2020, the market is projected to be $3.5, $3.6 billion dollars.
These numbers are only reflective of the established market. There 20,000 acres of indoor farming here in the US and hundreds of thousands of acres worldwide. We see a hundred billion market as the industry expands and the efficiency of indoor farming is adopted everywhere.
Our market is growing in two ways: the industry is turning to the efficiency of LED lights, and indoor farming in general is expanding. Because of the cost savings all these established farms are considering new lights for the first time. There are also dozens of new indoor farms being built in the U.S., that cover hundreds if not thousands of acres being installed over the next couple of years.
Our niche - LED lights - is quickly emerging in horticulture. There are a few venture-backed companies that started before us and are doing quite well. But they still rely on a variety of lights to generate the proper photosynthetic spectrum. Our advantage is the patent-pending technology that creates photosynthetic light with just blue LEDs which last longer and use less energy.
First, we developed the technology ourselves which gives us a big head start. We filed a provisional patent a little over a year ago, and converted that to a full patent and PCT for international patents around the world. We have multiple different claims that cover our wavelength conversion system which allows us to swap different spectral components for different plants and different plant phases. We’re well protected on our technology for creating photosynthetic light with blue LEDs.
Blue LEDs are increasing in performance and decreasing in price in a very predictable way. There’s a complement to Moore’s Law for LEDs called Haitz’s Law. Essentially LEDs are becoming brighter and more efficient at a lower cost every year, which means our lighting fixture performance is increasing every single year, even if we don’t invest in research and development. We have protectable technology that’s already more efficient than our competitors, and every year that efficiency is widening the gap between us and them.
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