Episode 164
164: Michael Oster - Saffron Tech’s - 120,000 Flowers Into 2 Pounds of Saffron: A Vertical Farming Breakthrough
Ever wondered how a seasoned executive from the oil and gas industry ends up leading a vertical farming startup? I sat down with Michael Oster, CEO of Saffron Tech, to explore this fascinating journey.
Michael's transition from the corporate world to the innovative field of vertical farming is a testament to adaptability in business. With decades of experience in oil and gas, real estate, and M&A, he brings a unique perspective to Saffron Tech. The company is pioneering the indoor cultivation of saffron, the world's most expensive spice, with potential applications ranging from culinary use to pharmaceuticals.
We delved into the challenges of scaling up startups, particularly in the agricultural technology sector. Michael emphasized the importance of careful planning, realistic financial modeling, and securing off-take agreements before major investments. He shared valuable insights on balancing ambitious goals with practical considerations, drawing from both successes and setbacks in his career.
Our conversation also touched on the geopolitical implications of saffron production, the potential for saffron-based pharmaceuticals, and the intricacies of building a commercial-scale vertical farm. Michael's leadership style, focused on leading by example and leveraging a small but highly skilled team, offers a blueprint for startup success in challenging industries.
Curious about the intersection of traditional business acumen and cutting-edge agricultural technology? Listen to this episode to gain invaluable insights from a leader who's bridging these worlds and revolutionizing saffron production.
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Key Takeaways
5:03 Board member roles and responsibilities explained
8:08 Saffron's unique properties and market potential
14:00 Challenges of scaling up agricultural startups
17:35 Balancing passion and practicality in business
21:42 Learning from failed real estate project
26:47 Mitigating risks in high-risk ventures
Tweetable Quotes
"Just to give you a perspective, you need 120,000 flowers growing to create £2 or a kilo of dry saffron. That's a lot of space. That's a lot of flowers."
"We're producing the highest quality of saffron if you compare it to the different bands. In all categories of the active ingredients, we're producing a higher quality than the top notch saffron."
"We're in a business that has high risk by design. The last thing you want to do is add to that with bullish assumptions. So we try to minimize them in a way that we'll have room for some failure and still be very successful."
Resources Mentioned
Website - https://saffron-tech.ag/
LinkedIn - https://www.linkedin.com/in/michaeloster01/
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Mentioned in this episode:
2025 US Indoor Farm Report
http://verticalfarmingpodcast.com/report
Transcript
Just to give you a perspective, you need 120,000 flowers growing to create £2 or a kilo of dry saffron. That's a lot of space. That's a lot of flowers.
Harry Duran:So, Michael Oster, CEO of Saffron Tech, thank you so much for joining me on the Vertical farming podcast.
Michael Oster:Thank you for having me.
Harry Duran:Where are you calling in from?
Michael Oster:I'm calling in from Israel.
Harry Duran:It's 8pm here, 8pm and it's noon where I'm at. So I think that's the beauty of post Covid. Now everyone's used to dealing with remote video recording and Zoom probably helped make a lot of that possible. So it's not as strange as it used to be.
Michael Oster:A hundred percent. Between Zoom teams Google Meets, we sort of the only struggle we have is which one to choose.
Harry Duran:So I like to start these conversations off on a high note. What's the best thing that's happened to you this week?
Michael Oster:Best thing that's happened to me this week is that my daughter. So we live in Israel now, but returned to Israel after 22 years in Dallas, Texas. So I'm the same time zone I was on the same time zone you're at. And this week my daughter who's studying in umd, University of Maryland, came to join us for the summer. So. Okay, that's the best thing that happened to me this week.
Harry Duran:How was your time in the States?
Michael Oster:Amazing. I was an expat for a oil and gas company that was acquired 22, 23 years ago, joined them, spent 15 years with them and another seven years doing other stuff, mainly real estate, a little bit of energy related projects, but they were some of the 22 best years of my life. My kids were born there.
Harry Duran:So anything you missed from the States?
Michael Oster:Number one, if you ask my wife, she'll answer differently. But my number one is Amazon Prime. We got real spoiled. And yeah, DFW has a very good logistics center. So the average, I wouldn't say the average time is six hours, but yeah, good deliveries, that's one thing. And no, we happen to be big cheerleaders of Texas. It's a Lone star state. Loved structure there, love the people there. It was good, it was a good time, but it was time for us to go back home.
Harry Duran:Yeah, you were born and raised in Israel.
Michael Oster:Born and raised in Israel to British immigrants. That's where some of my accent comes from.
Harry Duran:Okay.
Michael Oster: Harry Duran:Okay.
Michael Oster: Harry Duran:Okay, so let's talk a little bit about how you ended up in farming company prior to getting started. What had you been working on prior to starting Saffron Tech?
Michael Oster:So I have a small real estate business in the US Partner and I own some multifamily. We have a little bit of. I have a little bit of an energy consulting arm following my 15 years with an oil and gas company and a lot of executive type experience. So mainly management. Anywhere from M and A activity to CEO of certain companies. That's my history. And about a year, just over a year ago or. Or maybe, yeah, February of last year when my wife and I decided that we're going back to Israel but didn't make the move yet, I was restarting my connections in Israel. And the founder of Saffron Tech happens to be a business colleague and a friend. And he asked me if I would join the board of Saffron Tech, which I did at the time. And then eight months later, when we were actually here and given the direction, he wants Saffron Tech to go in, which is continue the R and D, but in parallel become a commercially viable company, he asked me if I would consider being CEO becoming CEO, which I gladly took. So it's my first Israeli project.
Harry Duran:Talk to me a little bit about when you came on as a board member. Is this a role you've held in the past? I'm always curious because we're in the process of building one ourselves and how you see that responsibility as a board member, how involved you are when you're a board member, based on your past experience, if that's different than this one.
Michael Oster:So it's interesting. Board members vary from, and I'm saying sort of like as someone who was an executive in a large public company and we had board members and someone who is a board member on a couple of companies. Now, board members sort of vary from very, very active. And that's usually sort of the ones that are sort of more involved on the financial aspect of the company or the growth aspects of the company, depending on what type company it is, et cetera.
Harry Duran:Yeah.
Michael Oster:And assuming they have the prerequisites for it or. And again, it depends on the size of the company. But generally speaking, when you think what a board member is, they're supposed to strategically drive the company and help the CEO execute the Business plan. So, yeah, if it's creating the business plan, they're helpful in that. And if it's driving the strategy or the execution of the business plan, then obviously helping in that. And then there's always board members that are there because they have extremely good connections but are not necessarily active. So, yeah, you know, one connection that they do is worth millions for the company, and that's great. And then there's, you know, depends on the situation, but there's board members that are not very active. I joined Saffron Tech at a stage where. And we could talk about the company, of course, but I don't know if you have our website and any of that. But I joined Saffron Tech when it was sort of deep in the R and D stage and I wanted to go commercial, but afraid to go commercial. So a little bit of guidance there, I think, on my end. And now, again, when I'm here, the help I get from my board is either connections or consulting on sort of the larger transactions we're about to enter into or fundraising or whatever the case may be. Obviously, you don't want to. A, you don't want to make decisions by yourself. It's irresponsible as CEO, I'm saying. And B, you want to sort of bounce things off. Forget the irresponsible part of it. From a point of view of really a sounding board, a help that you can get. My chairman is helping me now with a potential large commercial transaction that we're about to do in Morocco. These are things that sort of people from the relevant worlds can be helpful. And that's what board's about, in my opinion.
Harry Duran:When you first joined as Saffron's board member, was that your first introduction to the world of Saffron and controlled environment? Agriculture. Indoor.
Michael Oster:Correct. 100%. Like, I had no clue. And I. You spoke to me about oil and gas and even there, you speak to me more about the downstream rather than the sort of the exploration, the upstream. It became to me about oil and gas. I'm okay. You speak to me about M and A of any type. Deal, Any type. Large transactions, public companies, private companies, you know, merges, acquisitions, stuff like that. Yeah, no problem. You speak to me about real estate over the last seven years also. No problem. Even that depends. Everything's niches. Agriculture? No. Vertical farming. Certainly not startup with a vertical farming. No. And Saffron? No idea.
Harry Duran:Yeah. So what did you see in those early days when you came on as a board member? How much of it was a learning curve? To understand what was happening, because you had to understand, obviously the business model to see if that had viability, but then also understanding the business and the industry itself.
Michael Oster:Correct. So it takes time. The more you get fed with data points that you can learn, the better. But at the end of the day, you got to sort of hone in to why you're doing this or why does the company exist, why does the company think it's going to do well? And I'll touch the specifics just in context of Saffron, but sort of the first question you ask yourself is, okay, vertical farming, we've had many ventures come and go because they failed, whether on energy cost, whether on market entry, rather a million reasons why. And it took me a while to understand, but. And then. So what's different about saffron? And sort of. So the first thing you find out is that saffron is basically, it is the most expensive spice in the world. It's called the red gold. Its price varies from, I don't know, 500 a pound on the very, very cheap end to $40,000 a pound on the very expensive end. So it's a gig. And a lot of it depends on quality, origin, time of purchase versus growing in the field, et cetera. But it is definitely not a commodity in the normal sense of when you talk about things like that. And then, okay, so that's point number one. Point number two is what are the potential applications? So again, and that's a general theme, I think, or something you need to check when you're looking into a startup or looking into a business or looking to acquire a business. So what are the potential applications? So now again, specifically on saffron, everybody knows it as sort of the expensive spice, but some who know a little more have seen the medicinal value of saffron. So, yeah, anti, anywhere from antidepressant to anti ADHD to anti aging in a way to antioxidant, if it's applied as a cosmetics. But food supplements has now, in my opinion, in a slow way so far, but has started to erupt. And you go into pretty much any vitamin store or anywhere you can buy food supplements. And now there are many food supplements that are saffron based or saffron extract based. So it's definitely entered into that world. Our vision is to go one step further, which will take time, clinical trials, fda, all the nine, or when it comes to going into the pure pharma world, in other words, if we can find ourselves five years from now, seven years from now, six years from now replacing, you know, Ritalin or Ciprolex or any of those types of medicine that work on the same parts of the brain, that help but without the chemicals in them, more the natural way than, you know, it's a huge win for mankind. So I think like in everything else, you need a very, very. On the one hand, you need a clear vision and a clear business plan for the next five years, which I think we do. But on the, on that's on the one hand and on the other hand you have to have that achievable dream. And then when you have the combination of those things, then suddenly, and I'll go back to the question that you asked me before, you know, suddenly the vertical farming put aside. Okay, the vertical farming as a whole and the potential risk rewards there, whether it's cannabis, whether it's green leaves, whether all that, it's a whole different picture when it comes to saffron.
Harry Duran:Yeah.
Michael Oster:Because of the potential, because of the high, not high yield from a point of view is, I mean we spend a lot of money to create 1 kilo or 2 pounds of saffron. Just to give you a perspective, you need 120,000 flowers growing to create £2 or a kilo of dry saffron. That's a lot of space, that's a lot of flowers. So it has to have that upside. And I believe that in our case it has that upside. In other words, we're going to be producing or we are producing on a very small scale right now because we have a pilot plant in here in Israel. But we're producing the highest quality of saffron if you compare it to sort of the different bands. And right now saffron is examined on an ESO basis. That's the testing and ours is in all categories of the active ingredients. And I won't bore you with the details, but it's crocin, procrocine, saffron. In all those categories we're producing a higher quality than the ISO one, than the top notch saffron. So then when it comes to that, then again using the fundamentals going back, you know, any type of business, at the end of the day, you know, it's the capex you need to invest, it's the opex, the sustaining of the business, what it means and all that, that's all very important. And it has to at the end of the day give you a good ROI or a good return on your investment. And that happens either if your costs are very low or if your value is very high product that you're selling is high value. So that's how we approached it. And yeah, that's what I've learned along the last six.
Harry Duran:Thanks for that overview. That was extremely helpful. What I find interesting also is that you've got this background in MN in running businesses and having a lot of exposure to probably seeing what's worked and what doesn't, seeing failures of businesses. I'm curious, from your perspective and your experience, where do you see companies that are similar to Saffron Tech, you know, that are getting started with a product or with an idea? Where do you see that they stumble and they fail and they end up not having to deliver on what their promise is based on your experience.
Michael Oster:So I don't think, I mean I'm not a startup expert by any means. You've heard that through my resume. But even in my old world, when you check something in a lab, okay, whatever that is, diamond, and I don't mean check the lab, the quality, I mean when you test something out, synthetic diamond, producing a new type of gasoline in our refinery at the time, checking out a new process because we think it gives you more yield and in our case when we are producing this on a R and D scale first. So it's basically a lab size, little sort of compartment or in controlled environment rooms going on to a pilot scale like we have, which again is sort of like I would say it's about 100 of a size, of a decent size commercial scale. So 100, that's the pilot. What people fail on, to answer your question, is the scale up. In other words, if everything is fine, you assume that scale up is going to be a copy paste, just multiplication. It's wrong on an, on a capex basis, it's wrong on a yield basis, it's wrong on an OPEX basis. And when I say wrong, by the way, you can be surprised sometimes to the positive, but many times to the negative. And your picking robot is not doing the same job when it comes to the mass and when it comes to. When you put more, using my example again, more plants into the same square footage. So the idea, or to avoid that, you got to take leaps. But you can't take too big of leaps. Therefore, you know, somebody could have said and I'm. And somebody can say the opposite of what I'm about to say. Now I'll tell you what I mean, somebody would say when you're done with R and D, go ahead, just build a commercial plant. Well, I can tell you that's A mistake. Of course you have to build a pilot. I am saying now I'm we're raising money now for building our first commercial plant. And somebody else will say no, you should still do forget the R and D side. But somebody else will say well when you go to commercial you should assume a degradation of A, B and C and you should assume diseases in your plants that you haven't assumed before. There's always something to be said to taking the leap of faith or not taking the leap of faith. That was a long way of answering your question. When somebody takes that leap of faith without enough basis data, that's when they fail or when they're hyper focused on just getting a product out but without understanding the business value of it. I mean you can create, you can do vertical growing. I'm using lettuce, happens to be something that works in certain places. You can do vertical growing of lettuce but the end product is not worth enough to be to justify the capex and it won't work. So that's sort of the in a nutshell where using still ag but you could do that on anything. That in a nutshell is sort of a fundamental issue that any startup comes into.
Harry Duran:It seems like since you're enthusiasm when you talk about these issues and how you like working through these problems and figuring this stuff out. Has this always been a passion for you? Like understanding business and understanding what works, what doesn't and figuring out and getting in there and you know, rolling up your sleeves and seeing how you can make businesses.
Michael Oster:So the answer is yes and no. The answer is yes. I always liked to get dirty where I could in whatever it was I was doing. But it's very different in each type of business that you go into. So to me now basically sorry for that. These are types of noises that I'm sorry I have a yeah, no worries child who doesn't care for more.
Harry Duran:That's real life though.
Michael Oster:The what?
Harry Duran:That's real life.
Michael Oster:That's real life. Oh, it's real. Where were we? Train of thought.
Harry Duran:Just how you come across like you're basically your passion for this, you know.
Michael Oster:Yeah. So I've always had the thrive, the drive to fix issues that come my way. Okay. But what I think is the most intriguing part for me now is to. Yeah, you know it's very easy to fall in love with something which I have fallen in love with this concept, with this company, with this technology, with the growth protocol that we've created with not becoming too political but 90% of saffron in the world is produced by Iran. So you can go into geopolitical aspects and it's probably the number two after oil, wherever their funds go to, that's from saffron. So, you know, as an Israeli, I have sort of an interest to. To bite it. So there's obviously that. But yeah, depending on where you are, the obstacles can be tremendous and the obstacle or the obstacles could be relatively easy. They. When you talk about a business like ours building the first facility, it requires planning, it requires engineering, it requires getting bids on the. On everything that you need and obviously all that. But it also requires on the other side, the ability to do extracts. So we can go into the niche, the ability to have an offtake agreement. If you don't have a good offtake agreement for the product that you're producing, then the financial model that you're building, I mean, there's a term that we use that Excel can take. Anything you can put in whatever number you want into an Excel you can put, will do the calculation. It will give you your IRR and what you need, but at the end of the day, you also need to perform. So we're going through a rigorous process of sort of, you know, not just dreaming, but finding justifications. Now, that doesn't mean you're not betting here. We are betting. We are betting that it will work 80% of what we're planning. We're betting that the pricing will be. We think it's very conservative. We're betting on. We're betting on off takers. We're betting on the. What I told you before, about the yield of the flour and the ability to sell it. And so there's a lot of moving parts and we, there's things that we're focusing on, like I told you now, which is the commercial plant. There's things that we've put on a little bit of a side burner, which is what I was telling you about, the pharma side. In other words, tissue culture and other stuff, agronomy and chemistry and stuff like that, that we're putting sort of on a slower level right now. And we'll expand it again once we go commercial because A, our state of mind will be such, B, will have the product, the fundamental saffron that will be able to. That will enable us, if you will do all these clinical trials and stuff like that. So it's really knowing how to balance between, you know, the real challenges that you have for this step of the game and the potential challenges you'll have later. Down the road.
Harry Duran:That makes a lot of sense. I'm curious, Michael, with your experience, obviously you've had wins and maybe even some losses through your experiences over the years. And obviously you learned from those and learned what not to do and what doesn't work. Without getting into specifics, is there a story that comes to mind from something that maybe didn't turn out the way you planned, but turned out to be a valuable lesson at the end of the day?
Michael Oster:Not in the Saffron world, but. A year and a half ago, my partner and I wanted to do a logistics project in the outskirts of Austin, Texas.
Harry Duran:Okay.
Michael Oster:And it was a grounds up and we. There were too many obstacles. The interest rate were going up. It was not double digits for construction loans, but it was pretty high. The fear of the equity, both ours and our investors to go into something like that. So we worked hard for four months doing feasibility studies, doing analysis, justifying it makes sense, it's good. The market is just outside Austin. Booming market. Austin text booming market. Makes sense. And we ended up not doing the project. The war in Israel broke out, so a big part of us sort of mentally wasn't focused. We ended up not closing that deal. And it was very disappointing. And hindsight, I do not regret not doing it. And for a different reason. I mean, not for different reason, but for the fears we had. In other words, the six month delay in the execution of the project could have caused us complete turmoil, doubling the need to inject the equity because the banks today are less patient, or six months ago, which would be six months later on the project, were less patient. They wouldn't have necessarily extended us more time. I've seen it in my old world, in the multifamily world on a regular basis where people took bridge loans at four and a half percent, which was low, and then they found themselves, you know, 18 months later needing to do a recap at a much lower valuation. So that was an example, that's the most recent example of something that I was disappointed and hand side happy that I failed or didn't do.
Harry Duran:Lesson learned. Right. So I figure, or I'm wondering if over the years, you know, we talk about the importance of getting the numbers in the spreadsheet too. But how much of this, as you start to have experience, decades of experience, do you start to develop like an intuition, you know, because sometimes it's not all black and white. Right?
Michael Oster:Correct. So I would say that, you know, the number one, first of all, how do you do it? You basically put in sort of downside case protections. Okay. So you create a. If you have a model that has. I've learned in life that a CapEx project takes, and it depends in what world. Right. But a, generally speaking, if you're getting from your contractor, from your subcontractors, from your developer, from your, whatever it is, from the authorities, you're getting an idea of time. You should add 30% to that time. Okay. If you're getting a budget and if that budget has a, I don't know, a 10% contingency, you better put another 20. Now the reason I'm saying that is I'm not saying all projects come in over budget and over time, but a lot of them do. And the ones that don't come in, the ones that come in within budget, within, within, within the timeframe that you did, you're going to get a better return on and that's great. So the projects that come in under budget and in the time that you planned and that are producing the same type of income that you planned, you're going to surprise yourself, your investors and all. Great. Yeah. The problem is that if you add too many safety nets or too many conservative assumptions, you kind of lose the financial feasibility. So it's gotta be. So to answer your question, the truth is somewhere in the middle, the more the plan is defined using CapEx as an example, if you're getting an offer, which is what's called a plus minus 30, you should assume a plus 30. If you're getting a project that is plus minus 10, you should assume maybe plus 10 or plus 15. It's all in the accuracy of what you're doing. The same applies with using the example I gave before. I'm going to build my first plant of saffron production. I'm going to have offtake agreements for 30%, 50%, as much as I can get before I even erect it. It's almost like any other project. If you can get somebody to buy the product from you or the facility from you or whatever it is that you are selling or. Yeah, if you're exploring oil, the oil, the more you can get sort of on the buy end to start with, the safer you are to get to your goals.
Harry Duran:That makes a lot of sense. And I imagine over the years you get better at refining that and having, you know, looking at those numbers and having almost like a gut check to understand based on past experiences how much you got to work with those numbers to get to where you want to be correct.
Michael Oster:I don't think you can get to a zero mistake. But I think the smarter people and the more experienced people narrow those mistakes and sort of can afford to eliminate the dreams that are not either achievable or very low chance of achievability. Look, we're in a business using my business. We're in a business that has high risk by design. The technology, the growth protocol. In our case, there's risks inherent in the execution. Okay. The last thing you want to do is add to that with bullish assumptions. So now you're just layering on the failure points. So we try to sort of minimize them in a way that, you know, yeah, we'll have room for some failure and still be very successful.
Harry Duran:That makes a lot of sense. That's a very smart approach. So when you decided to move from a board member to CEO, is this something challenge that you like, this leadership role as CEO and all the different hats you have to wear in that position?
Michael Oster:Yeah, it was a combination, I'll be very honest. I arrived in Israel, I have my business in the US but became a little more passive there, so I had some free time on my hand. The founder basically came to me with a challenge of, you know, let's go commercial, which the prior CEO who was very, very talented in the development of the technology and bringing the protocol to where it is and proving the concept in many ways that wasn't her passion to go commercial, if you will. Also we have the potential of going public and other stuff that sort of again, was a little less appealing to her type of experience and more appealing to mine. So yeah, I dove in with a lot of ambition and I'm still here and I'm still ambitious and I'm even more excited than I was three months ago, two months ago and one month ago.
Harry Duran:How big's the team?
Michael Oster:We're small. We're very small. On a on inherent team with four, including me, the chief agronomist, the engineer and the ops guy. And we have a CFO which is part time, so call it CFO controller type deal. Remember, we're not commercial yet. We're still sort of at the startup phase. We have advisors from the top agricultural institution in Israel called Volcani. We have an advisor from Valencia, Spain. Also on the agronomy slash extract side, we have an engineering firm that is helping us with a detailed design of the plant. So we have. But if you're asking me about our core, it's. It reminds me of the days where I was working with these private equity firms and you know, private Equity that's running a 3, 4, 5 billion dollars assets under management and they have six people. Yeah, it's within, but we have a lot of good help from the relevant people.
Harry Duran:How would you describe your leadership style?
Michael Oster:I try to lead by example. In other words, I'll give you an example we had. So part of being four people is that when it comes to.