When Manna Tree Partners closed its debut vehicle on $141.5 million in April 2020, it’s very likely the firm’s founding team of Brent Drever, Ross Iverson and Ellie Rubenstein were all counting their lucky stars.

Not only had they avoided the risks of trying to raise a first-time fund during a global pandemic, they had also managed to close the vehicle above target just as the pandemic was fully taking a grip of the world. And better still, the firm took an additional $42.5 million in co-investments to take their haul to $184 million.

But a little over one year later in 2021, a time when lockdowns, social distancing and travel restrictions were still in effect, they were back in the market again, this time with a vehicle targeting $450 million.

“When we launched this thing, we mailed healthy chocolate cakes and healthy hot chocolate around the world to existing investors and we did this global hot chocolate toast,” recollects co-founder and managing partner Ellie Rubenstein, who is joined by co-founder and managing partner Ross Iverson in the call with Agri Investor. “That’s how we launched it. We were prepared to raise this whole thing virtually.”

As it happened, the coming months brought a loosening of restrictions and the fund didn’t end up being raised completely virtually, but as the aftermath of the pandemic took hold and war broke out in Europe, there was no shortage of macro events to shock the global economy.

Iverson and Rubenstein discuss why they decided to close their vehicle at the end of 2022 instead of continuing to raise capital into this year, why some in their LPs view the firm as a place for their bolt-on acquisitions, and how their strategy identifies companies that attract interest from prospective buyers as soon as they announce their investment.

‘We already raised what we needed to raise’

Manna Tree ended up closing its second fund in November 2022 on $300 million against a $450 million target, and took an additional $90 million in co-investments.

With $390 million in total to deploy, Iverson and Rubenstein say that having more than doubled the $184 million they raised at the close of Fund I, it made more sense for them spend their time executing their strategy than it did to spend a further six months out in the market fundraising.

“Being able to create highly curated, personalized portfolios is where I feel food is going, it’s getting drilled down into the subcategories of food”

Ellie Rubenstein

Prices had come down and the early reputation they’ve carved out for themselves means they “seem to get a lot of outreach right now on exits,” says Rubenstein. “Believe it or not, it’s hard to imagine but every time we seem to announce a deal, the companies come in wanting to start to learn about it.”

The firm’s sole exit so far was pasture raised eggs business Vital Farms, which listed on the Nasdaq in August 2020. The investment returned 4x invested capital and a net IRR of 80 percent in gross terms, confirmed Manna Tree.

“The reality is we already raised what we needed to raise,” says Rubenstein. There is [also] a big interest in co-investment, so we have to make sure we have co-investment allocation. It’s no secret we’ve raised now two funds and five co investment vehicles.”

Rubenstein adds that the way LPs are using co-investments means a large fund may not necessarily be the best way to serve investor demand in the food space right now.

“Somebody who likes CEA is not going to be your beef investor and somebody who likes beef is actually not even your dairy investor – that’s what’s been so interesting to us,” says Rubenstein.

“Being able to create highly curated, personalized portfolios is where I feel food is going, it’s getting drilled down into the subcategories of food. We have to be able to deliver that high quality product of what they’re looking for. So having a larger fund, I don’t think is what the market needs today.”

Looking for a bolt-on

The firm’s investors are broken down into three main groups. Family offices account for 60 per cent of Manna Tree’s LPs, with institutional investors and wealth managers accounting for 20 percent each.

Geographically, the investor mix is comprised of 18 nationalities spread across North America, Europe and the Middle East.

“I think those [venture capital] firms are going to really struggle to exit those assets over the next five years”

Ross Iverson

Iverson says that one of the ways in which family offices view Manna Tree is a place where their “bolt-on” transactions are held, given the firm specifically sourced them due to their pre-existing food or hospitality assets and their profiles as people who can “see where the future of food is going.”

“You might have somebody that’s playing upstream on the agricultural side that wants to have more access to consumer branded products,” says Iverson. “You might have people that have supply chain investments in manufacturing that need to have different ingredients or different profiles. They want to learn about where the market is going and that’s why they invest with us. They might actually do an investment out of their own family operation [that is] much more substantial after they learn from Manna Tree.

“Since we launched Manna Tree about five years ago, we’ve seen more than 1,000 opportunities to invest and so that gives us a really robust database to share with our investors.”

He adds that Manna Tree’s decision to steer clear of venture capital in Fund II and the timing of its close, which means deployment should be complete by the end of 2024, will allow the firm to ride out the current market cycle while amassing the right type of assets in its portfolio.

“There are all of the venture capital funds that had, I would say, had decent success from 2010 to maybe 2020/21,” says Iverson. “I think those firms are going to really struggle to exit those assets over the next five years and it’s going to really leave this growth equity and buyout phase as kind of the sweet spot in private equity from our view.”

Investment strategy

Manna Tree pursues a growth equity strategy and along with its focus on ESG, the firm also puts a strong emphasis on the nutritional value of food.

The strategy has evolved in two areas between Funds I and II. Fund I had a venture capital allocation, which Fund II does not have, and the ownership percentage it seeks has increased from 25 percent to 60 percent.

“Management really positions itself for building the assets that these companies almost have to have in the future”

Ross Iverson

The firm has a portfolio of 12 companies, made up of businesses such as greenhouse grower Gotham Greens, wholesale foods and restaurant supplies marketplace Cheetah, infant probiotic producer Infant Health and The New Primal, a clean-ingredient meat snacks, seasoning and dressings company.

“Health-Ade [a kombucha tea, cocktail mixer and healthy soda company acquired in 2021] was a $50 million investment out of the fund and a $75 million co-investment. That was a buyout syndicate and I would expect patterns like that to continue,” says Rubenstein.

“During covid, it’s no secret that big food made money. Private equity also raised a lot of funds. And so that sweet spot of our fund is perfect because those private equity ESG funds that were raising $2 billion to $5 billion dollars, we are in the category of what they need,” she says.

Iverson adds that the firm has an exit that is currently pending, which could be announced in April, and often receives unsolicited enquiries about its other portfolio companies.

“Big food is getting pressure from an environmental aspect. So they might not change their entire beef portfolio but they can bring in a firm like [Manna Tree’s organic and pasture-raised beef producer] Verde Farms to augment it and say, ‘Hey, we have a regenerative division in our company’.

“Management really positions itself for building the assets that these companies almost have to have in the future. Our role is obviously to take them from that founder-led phase when they’re doing $25 million to maybe $75 million in revenue and take them up into the $100 million to $200 million revenue.”

Rubenstein adds that the “the exact same principle” is playing out in energy markets, where energy majors such as BP and large PE firms such as Macquarie have been buying up renewable natural gas businesses en masse in the last 12 months.

Food as health

One of the trickier parts about the strategy, say Iverson and Rubenstein, is figuring out which part of the food supply chain it makes sense to pursue and try to steer towards more nutritious foods.

“In the US, we’re approaching [a situation where] 90 percent of US citizens are metabolically sick, which means they’re pre-diabetes or pre-obesity,” says Iverson. That’s a huge market opportunity if the consumer can educate themselves on how to reduce that.

“People dip French fries in ketchup and you might have 29 grammes of sugar [for every 100 grammes] in your ketchup bottle. If we can go from 29 grammes to 20 and do it cost effectively, and then go from 20 to 10, and then 10 to zero, there’s a progression [we’re trying to create]. And so we try to get the biggest bang for our buck.”

“In many ways, Vital Farms was our early bullseye. They created a new category”

Ellie Rubenstein

Rubenstein cites salad dressing as “one of the worst [industries] to clean-up,” given the use of numerous sweeteners and the fact it is already a crowded food category.

She cites cottage cheese maker Good Culture, which is a Manna Tree portfolio company founded in 2015, as an “excellent example” of the type of niche “category winners” it targets. Good Culture has the capacity to disrupt its subsector and is the type of organic, pasture-raised grower ‘big food’ is likely to take an interest in, says Rubenstein.

“We don’t go into these crowded categories, so they’re unsexy. Who would think that cottage cheese and sour cream would be a great category to go into but now they also produce milk, they have cream cheese, and that consumer trust,” says Rubenstein.

“In many ways, Vital Farms was our early bullseye. They created a new category. Yes, they’re in eggs, but it’s a new category and a ton of loyalty of brands that you can trust. And I think that’s what we continue to see.”

If the likes of Good Culture and other Manna Tree portfolio companies can deliver a similarly blockbuster exit to that delivered by Vital Farms in 2020, the firm’s positive early reputation could well precede it and open the doors to the biggest LPs, many of which prefer to co-invest when it comes to food and agriculture.