Plenty United co-founder Matt Barnard says the company can vastly outproduce an outdoor farm on a per-square-foot basis for lettuce. PHOTO: PLENTY

By JACOB BUNGE and ELIOT BROWN
Feb. 13, 2017 5:30 a.m. ET

SOUTH SAN FRANCISCO, Calif.—In a renovated warehouse by San Francisco Bay, plastic towers sprouting heads of lettuce, arugula, and herbs rise 20 feet to the ceiling, illuminated by multicolored LED lights that give the room a futuristic feel.

A group of tech entrepreneurs and investors including billionaires Jeff Bezos and Eric Schmidt are betting this facility, 100 miles north of California’s “salad bowl” produce-farming epicenter, can redefine how vegetables and fruits are grown for local consumption.

If all goes to plan, the 51,000-square-foot warehouse run by startup Plenty United Inc. will yield as much as 3 million pounds of leafy greens each year. In the coming months, the company plans to begin marketing produce bred for local tables rather than shipping durability.

“We’re growing for people, not trucks,” said Plenty co-founder and Chief Executive Matt Barnard, the 44-year-old son of a Wisconsin cherry and apple farmer whose background is in tech and investing.

Plenty is among a wave of startups seeking to shift part of the $49 billion U.S. retail produce market from sun-kissed crop fields to giant warehouses, old factories and repurposed shipping containers. These indoor facilities are tricked out with sensors that measure temperature and moisture, automated systems that pump in water and nutrients, and strips of LED lights to provide energy—with no need for sunlight or soil.

Companies like Plenty, AeroFarms LLC and Freight Farms Inc. have raised tens of millions of dollars, spurred by declines in the cost of LED lighting and heating and cooling systems. The startups aspire to produce for nearby restaurants and grocery stores, whether during the sizzling summers of New Mexico or the frigid winters of Minnesota.

Shifting centuries of crop-farming science indoors isn’t easy. The costs of outfitting high-tech farms, as well as pricey urban real estate, make it difficult to match the prices of field-grown products.

Indoor farms can have less environmental impact than conventional agriculture, backers say, though the difference is hard to fully assess. Plenty’s systems reuse water, largely avoid pesticides, and can reduce the fuel needed to power tractors and deliver products; but the climate-control systems and LED lights add to power consumption. The company wouldn’t disclose costs or allow photos of its systems.

Some farming startups have retooled their approaches. New York-based BrightFarms Inc. in 2015 shelved plans for a Washington, D.C., greenhouse and a separate rooftop farm in New York due to costs and the time required to secure permits. FarmedHere LLC, based in a former box factory in suburban Chicago, that same year shut down for six months to overhaul its model.

Even tech giant Alphabet Inc., the parent of Google, tried its hand at growing grain indoors, but shut down the project in 2015 after it failed to be energy-efficient enough.

Plenty believes it can lower costs by farming in big warehouses on cheap land outside city centers, and improve efficiency by using a technique called machine learning that enables computers to review huge data sets and make decisions.

To get its initial warehouse up and running, Plenty raised $26 million from high-profile names including funds that invest on behalf of Mr. Bezos, Amazon.com Inc.’s chief executive, and Mr. Schmidt, Alphabet’s executive chairman. Investment firms including DCM Ventures and Finistere Ventures LLC also pitched in.

Plenty, founded in 2014 as See Jane Farm, will need to raise much more capital to fulfill plans to run 60 farms outside major U.S. cities and more than 300 globally.

‘If these guys are able to crack the code, my sense is there are really very few limits.’ —Plenty United backer Scott Brady

Some agricultural investors say large-scale indoor farms will struggle to balance capital-intensive operations with the low prices consumers expect to pay for lettuce and other greens.

“The warehouse concept is one where you still have environmental issues around heating and cooling, which can be extremely expensive,” said Todd Dagres, general partner with venture-capital firm Spark Capital. Spark invested in Freight Farms, which outfits shipping containers with greenhouse gear to raise produce in smaller-scale farms that Mr. Dagres said are more efficient.

On a recent day, Plenty’s warehouse was still under renovation, buzzing with construction workers. On dozens of towers, lettuce and herbs grew from spongelike plastic that substitutes for soil and receives mineral-infused water. Hand-size sensors take in information on light, humidity and temperature.

Mr. Barnard said Plenty can today produce more than 150 times as much lettuce per square foot a year as an outdoor farm, and with 1% of the water. He declined to specify expected prices for its products, but he said this year Plenty should be able to raise and market heirloom lettuces and herbs at the same cost as field-grown versions.

A head of green-leaf lettuce retails at an average price of 98 cents a head, or $1.79 for organic lettuce, according to the latest data from the U.S. Department of Agriculture.

Plenty aims to offer other crops like herbs and strawberries and tomatoes in future years. The company, which said it is talking with Bay Area chefs and specialty grocery stores, plans to soon test-market its first varieties in the region.

“If these guys are able to crack the code,” said Scott Brady, a partner at Mr. Schmidt’s investment fund, Innovation Endeavors, “my sense is there are really very few limits.”