ACAP 20% deployed after follow-on investment – exclusive

Advantage Capital has invested 20 percent of its $154.5 Advantage Capital Agribusiness Partners (ACAP) fund, the fund’s principle Tim Hassler told Agri Investor after it made an undisclosed follow-on investment in American Botanicals.

The ACAP fund is a partnership between Advantage Capital and nine farm credit organisations including the Farm Credit Bank of Texas, and AgriBank, and is licensed as a Rural Business Investment Company (RBIC). ACAP is Advantage Capital’s only nationwide, industry-specific fund.

ACAP acquired a controlling share in American Botanicals in October 2014, and the fund has now financed the company’s purchase of medicinal fungi producer Aloha Medicinals.

“The fund is designed to be both subordinated debt and equity focused. Within equity we do both minority equity and control equity investments,” said Hassler.

He told Agri Investor that ACAP had always intended to expand the American Botanicals business through acquisitions, and that they first acquired it “because of the high fragmentation of suppliers to the nutraceuticals industry”. Aloha grows and sells powdered mycelium or fungi to the supplementary nutrition business, as well as making its own final products.

Hassler said Aloha’s fungi production business was attractive because of its control over the fungi production supply chain, the high prices mycelium demands and the potential for crossover between Aloha and American Botanicals’ client base.

Grown in sterile condition on petri-dishes in labs, Hassler says mycelium is profitable because it is “almost more like biotechnology”.

“The mushrooms are not grown as you think about mushrooms. What you are eating of the mushroom when you make a meal is the fruit body. The underlying raw material of a mushroom, mycelium, never becomes an actual mushroom, and it is done in a lab,” said Hassler.

“The reason for the higher margin [for producing this botanical] is that it is a more technical product to make, and there aren’t so many stages for us to get the product to market as with other botanicals.”

Some mycelium, such as cordyceps, are used for improving immunity in animals and humans, while other fungi species, including penicillin, are used in statins.

Aloha is the largest domestic US mycelium supplier and has 30 percent of its customers spread across 60 countries, according to Hassler.

“The bulk material that American Botanicals produces is sold to the nutraceuticals industry but the two companies had very little in the way of customer overlap.”

ACAP closed on $154.5 million in October 2014 and typically makes initial investments of between $3 and $10 million, according to Hassler. The fund has a five years investment period, and American Botanicals is one of five companies in the fund’s portfolio. Egg producer Iowa Cage-Free, organic herb grower Shenandoah Growers and renewable energy company North American Natural Resources are also in the fund’s portfolio.

Advantage Capital makes early-stage and expansion capital investments into companies of various sectors including communications, manufacturing, information technology, life sciences, and energy. The firm has raised more than $1.9 billion in venture funding and small business lending capital. Investment partners include Frontier Insurance, General American Life, Guardian Life, Hanover Insurance, Prudential Insurance and J C Penney Life.