RBIC Program: State of the Industry and Market Update

As an investment program sponsored by the U.S. Department of Agriculture, the Rural Business Investment Company (RBIC) program provides innovative small businesses in rural America with access to the capital they need to grow and create jobs. Hear how the program works, why fund managers choose to participate in the program, why commercial banks, farm credit institutions and other institutions choose to invest in these funds and what opportunities it may present for your business.

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Agriculture Secretary Vilsack Announces New Private Funds to Make Investments in Rural America

WASHINGTON, April 29, 2015 – Agriculture Secretary Tom Vilsack today announced the launch of two new private funds, known as Rural Business Investment Companies (RBICs), which make equity investments in rural businesses, helping them grow and create jobs. This announcement is part of USDA’s ongoing efforts to help attract private sector capital to investment opportunities in rural America to help drive more economic growth in rural communities.

“These two new private funds will provide innovative small businesses throughout rural America access to the capital they need to grow and create jobs,” Vilsack said. “At USDA, we are working hard to reenergize the rural economy, and we are enlisting more and more private sector partners to help achieve that goal. Rural Business Investment Companies will allow us to facilitate private investment in businesses working in bio-manufacturing, advanced energy production, local and regional food systems, improved farming technologies and other cutting-edge fields.”

Innova Memphis and Meritus Kirchner Capital can now begin raising capital to constitute their funds. Meritus Kirchner Capital has set a goal of raising $100 million, while Innova Memphis has set a goal of raising $25 million for their respective funds. Once the funds have been raised, these companies will make equity investments in rural businesses with high-growth potential.

“We are very pleased to be working with USDA to fund innovative, early-stage startups in rural America,” said Jan Bouten, partner at Innova Memphis. “This being our fourth fund, we will be able to hit the ground running and build on our strong track record in early-stage investing. We will work with partners such as Memphis Bioworks Foundation and Ag Innovation Development Group to build thriving innovation communities across the country.”

“We are appreciative of the leadership Secretary Vilsack and USDA have shown by facilitating the creation of these new RBICs. The RBIC application process was rigorous, with USDA and the Farm Credit Administration participating in an extensive review of all aspects of our management team, track record, and investment strategy. This is a significant milestone because now we formally can begin the fundraising process,” said Grady Vanderhoofven, partner at Meritus Kirchner Capital. “The capital we raise will be invested in exceptional growth-stage, agriculture-related and rural companies, which historically have had limited access to this kind of capital. By doing so, we will help create wealth, jobs, and opportunities in rural America.”

The new funds announced today were formed under the USDA’s Rural Business Investment Program (RBIP). USDA is utilizing RBIP to license funds to invest in enterprises that will create growth and job opportunities in rural areas, with an emphasis on smaller enterprises. Working through the USDA program enables licensed funds to raise capital from Farm Credit System banks and associations.

Last year, Secretary Vilsack announced the creation of the first new RBIC which has already begun investing in rural businesses with high-growth potential. The $10 billion Rural Infrastructure Opportunity Fund, also announced last year, facilitates private loans for job-creating rural infrastructure projects across the country.

These efforts are part of the Made in Rural America initiative, which was created by President Obama to help rural businesses and leaders take advantage of new investment opportunities and access new markets abroad. Secretary Vilsack and the White House Rural Council convened the Rural Opportunity Investment Conference last summer to attract additional investments to rural America by connecting major investors with rural business leaders, government officials, economic development experts and other partners.

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U.S. Backs Private Bid for $125 Million for Rural Investment

Source: New York Times
By ALEXANDRA STEVENSON
April 29, 2015

Tom Vilsack, the secretary of agriculture, has traveled to New York and San Francisco, knocking on the doors of some of the country’s biggest investors, including BlackRock, Blackstone and GE Capital.

His pitch: Invest in rural America.

On Wednesday, Mr. Vilsack will announce his agency’s latest push to make that pitch more compelling. The United States Department of Agriculture will support two private investment funds that will together raise $125 million to buy stakes in businesses across rural America.

The funds, called Rural Business Investment Companies, are part of a U.S.D.A. program aimed at attracting private equity investments in agriculture-related businesses.

With the agency’s blessing, the private firms will raise capital from the Farm Credit System, a government-sponsored network of banks and lending associations that provide credit to the agricultural industry. The investment funds will also raise money from investors, and collect fees in the process.

It is a somewhat more subdued follow-on to Mr. Vilsack’s pledge last year to play matchmaker for Wall Street with a $10 billion Rural Infrastructure Opportunity Fund backed by CoBank, a cooperative bank. At the time, Mr. Vilsack trumpeted a new role for his agency as a sort of fixer for investors looking to make big bets on agriculture and rural infrastructure.

That fund has started slowly and has not publicly announced any investments. But Mr. Vilsack hinted that might soon change when he said the White House Rural Council was in the process of investing in 10 infrastructure projects involving water treatment, sewerage and water resource systems in small communities across the country.

The financial sector’s interest in agricultural-related investments has grown in recent years, Mr. Vilsack said Tuesday. “There is a growing awareness of opportunity there and a lot of demand from the pension side,” he said in an interview, referring to large pension funds and endowments. He also cited “tremendous demand” from entrepreneurs and venture capitalists.

The U.S.D.A. is working to get big private money behind agricultural investments as large institutional investors, like pensions funds, are searching for investments that offer better returns because interest rates across the developed world are at zero — even negative. In 2013, Mr. Vilsack enlisted the help of Matthew McKenna, a former PepsiCo executive, to help find a way to tap the swelling coffers of pensions and private money.

Rural Business Investment Companies were created by Congress in 2002 to promote job creation and economic development in rural America. Originally, every dollar raised by such an entity would be matched with three borrowed dollars guaranteed by U.S.D.A. The managers of these companies were required to pitch a specific rural area where they wanted to invest and demonstrate how their investment would benefit the local community.

But in 2005, Congress cut funding for the program.

“We’ve resurrected this tool as a way for getting additional capital for equity financing,” Mr. Vilsack said. Today, the entities are not leveraged, he added.

Advantage Capital Partners became the first firm to create a rural investment company last year and has raised $154.5 million. This year, it invested in Iowa Cage-Free, a company that specializes in building layer houses for cage-free egg production, and American Botanicals, which manufactures and supplies herbs and botanical products.

The two latest funds to be announced by Mr. Vilsack include Meritus Kirchner RBIC II, which is managed by Grady Vanderhoofven and will raise $100 million, and Innova Ag Innovation Fund, which is managed by Jan Bouten and will raise $25 million.

The managers in each rural investment company take a percentage, usually about 2 percent, of the money raised annually as a management fee, similar to private hedge funds. They also take part of the returns each year. This so-called incentive fee is usually 20 percent.