McLarty Capital Partners (MCP) plans to lock down enough capital for the first close of its recently-launched Rural Business Investment Company (RBIC) by mid-2017, co-founder Franklin McLarty told Agri Investor.
McLarty expects to secure a majority of the fund’s $100 million target by that time, and though unable to disclose a name, he added that the firm has already secured a “large anchor commitment from an established investor”.
The firm is seeking commitments from high net worth individuals, institutions such as pensions and endowments, family offices, as well as community banks and farm credit banks.
McLarty said he expects a roughly even split between private equity-type commitments and those from other investor types, as was the case with the Small Business Investment Companies (SBIC) fund he and co-founder Christopher Smith launched five years ago.
“There seems to be an equal appetite from traditional private equity investors and the banking community,” McLarty said. “It’s a yield starved environment, so if you can provide solid returns, that’s attractive to investors broadly.”
“We’re looking at downside protection-oriented investing, and we are going to focus on solid equity and structured debt investments with good cash flow characteristics,” he added. “It’s not ‘swinging for the fences’ type risk return; our orientation is to provide growth capital for businesses that are past the startup phase, have generated revenue and positive cash-flow, but are not quite able to access the major lending markets.”
Unlike the SBIC program from the US Small Business Administration, the RBIC funds from the US Department of Agriculture (USDA) are specifically geared towards creating growth and job opportunities in rural areas.
Investments will start around $5 million, and perhaps slightly lower initially. And though the fund is “industry agnostic” and “specifically designed to give us the flexibility to focus on rural america and not just agriculture”, potential recipients will include agribusinesses across the country, McLarty said.
The MCP fund is the fifth RBIC that the USDA has helped to initiate since 2014, “part of ongoing efforts to attract private sector capital to investment opportunities and to drive economic growth in rural America”, according to a statement from the USDA.
In 2014, Advantage Capital was granted a license for their $154 million Advantage Capital AgriBusiness Partners fund. That fund is making private equity investments in innovative agriculture-related businesses spanning bio-manufacturing, local and regional food systems, and farming technologies.
RBICs from Innova Ag Innovation and Meritus Kirchner Ventures were granted conditional approval in April 2015; as was the Open Prairie Rural Opportunities Fund in April 2016. Additional funds are currently under review, all part of the Made in Rural America initiative created by President Barack Obama.