Advantage Capital Agribusiness Partners (ACAP) has today announced the closing of an $12 million investment in Shenandoah Growers, the largest provider of certified organic herbs in the U.S.
Middleland Capital and S2G Ventures also participated in the round. ACAP’s $154.5 million fund is part of the U.S. Department of Agriculture’s (USDA) Rural Business Investment Program (RBIP), aimed at promoting economic development and job growth in rural areas throughout the United States by helping channel equity capital investment into businesses and markets located in these areas.
As part of the Obama Administration’s “Made in Rural America” export and investment initiative, the RBIP has facilitated many successful investments since April 2014, with ACAP funding a broad spectrum of food and agriculture companies including crop residue company Pacific Ag, irrigation technology provider Hortau, North American Natural Resources, a botanicals provider, and egg producer Iowa Cage-Free.
“I’m proud of the record that President Obama and the USDA have developed in terms of investments in small businesses throughout rural America,” U.S. Secretary of Agriculture Tom Vilsack told AgFunderNews. I think the statistics would show that over 85,000 to 90,000 businesses have been helped in some form or fashion through the Obama administration’s work in rural areas, notwithstanding record investments in business development and infrastructure.”
Although the USDA does not contribute any direct funding, it provides funds with an Rural Business Investment Company (RBIC) license, giving them the ability to raise capital from Farm Credit System banks and associations. The Farm Credit System, a nationwide network of banks and lending associations specifically chartered to serve agriculture and the U.S. rural economy, is an essential provider of credit to agriculture and rural America.
“The reality is we have greater need for equity capital in rural America than the USDA and federal government can provide,” explains Secretary Vilsack. “That’s why it was so important to look at creative ways for the private sector to be more involved and more aware of great opportunities in rural America.” According to Secretary Vilsack, the RBIP is a perfect example of this creativity in action. “We began the process of licensing and authorizing additional rural business companies, which create opportunities for the Farm Credit System not to lend money, but to become owners of businesses.”
ACAP started out as a $100 million commitment, quickly exceeding this target figure by over half. Since its launch, the USDA and Farm Credit System have licensed and established two additional RBICs. On April 29, 2015, USDA announced that Meritus Kirchner Capital and Innova Memphis received conditional RBIC licenses to raise between $25 and $40 million in seed and early-stage venture funds.
“Innova started out as a $25 million fund and now we believe they will raise nearly $65 million. Meritus Kirchner Ventures is hoping to raise an additional $100 million,” says Secretary Vilsack. “So, if these are all online, we are looking at over a quarter of a billion dollars of additional equity capital that will allow expansion of businesses in rural areas and will allow the investment community to support the great innovation and entrepreneurship that is taking place in rural parts.”
The USDA plays a central role in the program, reviewing applications from interested investors and fund managers, and selecting candidates that have the necessary skills and credentials. “Farm Credit banks do the due diligence following our request. We basically give our stamp of approval and with that the Farm Credit System feels free to take a look at whether or not managers of a fund have what it takes to make wise investments,” says Secretary Vilsack.
What does the USDA’s stamp of approval require? “Whether or not the proposal will in fact lead to enhanced investment in the industries that we think will essentially grow the rural economy,” explains Secretary Vilsack.
Although the RBIP’s current parameters limit the USDA to licensing up to five RBICs, Secretary Vilsack has a vision for the program’s continued growth. “Our focus has been to try and fully utilize the authorities we have. The goal is to get those five funds licensed and make an appeal to Congress to provide us with permission to go beyond that. We are in the process of reviewing additional applications for RBICs and we want to see that the other two we licensed—Innova and Meritus—are adequately funded and starting to make investments like ACAP is doing.”
Since President Obama signed the Executive Order establishing the White House Rural Counsel, the USDA and other government agencies have been developing a bevy of programs driving new interest and investment into rural America. As the Executive Order notes, “Strong, sustainable rural communities are essential to winning the future and ensuring American competitiveness in the years ahead. These communities supply our food, fiber, and energy, safeguard our natural resources, and are essential in the development of science and innovation.”
According to the United States Census Bureau’s 2010 figures, almost 60 million Americans reside in America’s rural communities, comprising nearly one-fifth of the total population. The 2010 census also indicates that roughly 3.425 million square miles of U.S. land lies within rural areas—representing roughly 97 percent of America’s entire acreage.
“What I can tell you is for far too long, in my view, our focus on rural America has been solely and predictably on production agriculture. It is extraordinarily important, but because of its efficiency there are fewer and fewer of those large scale production agriculture activities going on,” says Secretary Vilsack. “If we want to repopulate and expand rural communities and create interest for rural areas, there has to be something that complements production agriculture, like the biobased economy, local production markets—things that create better utilization and economic growth for resources located in rural communities. We need to create more reasons for young people to populate these areas.”
While the RBIP and other USDA initiatives continue to make progress, the USDA and Secretary Vilsack are developing some other creative ways to build on the momentum growing around investment in rural America. “There is a partnership or match opportunity that we are exploring now. It’s a creative use of our portfolio. The USDA has over $200 billion of loans that we have made over the last 10 to 20 years. Some of these loans have a value and there is a possibility of being able to sell those loans and transfer them into a fund,” says Secretary Vilsack. “The transfer may be conditional upon investors adding additional capital to create new opportunities for lending, or the possibility of what we are doing currently with CoBank, which is identifying water projects where instead of the USDA providing all of the credit, we partner with the CoBank ROI fund. They put in half, we put up half, and it leverages our resources more efficiently.”
The USDA’s attention to development and investment in the private sector does not end with the RBIP. On July 28, 2015, Secretary Vilsack announced the first round of investments in rural infrastructure projects through the U.S. Rural Infrastructure Opportunity Fund. This fund enables the USDA to establish expanded public-private partnerships, facilitating the investment of nearly $161 million in private capital across 22 critical water and community facilities projects in 14 states. CoBank, as anchor investor, agreed to commit up to $10 billion of its balance sheet capacity to lend in conjunction with the fund.
“We know from our own portfolio experience that there are a number of water projects that we would love to fund, but we cannot because we don’t have unlimited resources. For example, we recently put out a report indicating that the biobased economy is a $369 billion industry with four million jobs connected to it. That provides a major impact on the general economy,” says Secretary Vilsack.
This announcement followed the close of the second White House Rural Opportunity Conference in Washington, D.C. “These conferences have brought investors into the nation’s capital for purposes of making presentations about opportunities that exist in terms of additional equity financing, additional lending opportunities, or opportunities to invest in infrastructure and partnership with USDA,” says Vilsack. The conferences and outreach to the investment community represent USDA’s efforts to not only lead investment in the rural market, but to encourage investors to act upon their own initiatives.
According to Secretary Vilsack, the USDA’s programs effectuating the agency’s commitment to connecting private capital resources with rural investment opportunities across America have created a ripple across the broader industry. “It is definitely awakening the investment class to rural opportunities.”
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