Effingham, Illinois-headquartered private equity firm Open Prairie has closed its third fund on $80 million.
The Open Prairie Rural Opportunities Fund targets a 15 percent internal rate of return through debt and equity investments across the grain and protein value chains, with crop protection, ingredients, processing, storage, data management and logistics among sectors of particular focus.
The vehicle had its first sale in September 2017 and a hard-cap of $150 million, according to a regulatory filing shown in October 2017. The fund reached a first close on $55 million in January and had raised $75 million as of August, founder and managing partner Jim Schultz told Agri Investor at the time.
That month, Open Prairie used capital from the fund to support a $5.2 million loan to Tillerman Seeds, a non-GMO product line-focused investment vehicle, in support of its acquisition of Legacy Seeds. Later in August, the firm also extended a $2 million loan to MyAgData, a software platform that helps farmers manage reporting requirements.
The Open Prairie Rural Opportunities Fund is registered with the USDA as a Rural Business Investment Company (RBIC) vehicle and counted 12 Farm Credit institutions and 14 commercial and community banks among its investors, in addition to family offices and farm organizations.
Open Prairie principal Leland Strom told Agri Investor that while precious RBIC vehicles – those managed by Advantage Capital and Innova Memphis – raised capital exclusively from institutions within the Farm Credit system, expanding RBIC participation to other investor groups was among the firm’s key goals for The Open Prairie Rural Opportunities Fund.
“This was a first attempt, and we deem it as a very successful attempt, at building a broad collection of investors into a RBIC fund,” Strom said. “Bringing the group we brought in, opens the door to further dialogue and further exposure of the RBIC program.”
According to the USDA, in order to qualify as an RBIC, funds must devote 75 percent of investments (by dollars and number) in communities of 50,000 people or less. Up to 10 percent of RBIC capital can be invested in urban areas with populations of 150,000 people or more, but more than half of the overall fund must be devoted to entities with a maximum net worth of $6 million and net income over the prior two years of $2 million or less.
“This is really a rural development initiative, in essence,” said Strom. “Part of our process was an educational process, alongside the fundraising effort, where we sat down with those new investors who were not familiar with the RBIC program and provided background about the program and our focus on and talk about the focus on businesses and companies that operate in rural America.”
Strom added the firm’s contact with more than 100 organizations over the course of its fundraise had the benefit of broadening Open Prairie’s network in a way that has already translated into a diverse pipeline of deals.
Schultz told Agri Investor in August that some strategic and family office investors had become more cautious in the face of agriculture’s role in the trade dispute between China and the United States. Strom added this week that while the challenging backdrop in the broader agricultural economy has increased the capital needs in the sector, increasing pressure on producers has also impacted investor sentiment.
“There’s a bit of wait and see attitude that’s occurring not just in the farm sector, but also the lending and finance sector, and think a little of that that’s pouring over into the investor sector as well,” he said.