Seed Money for Rural America

Wall Street to Fund Rural Start-Ups

Investment capital has largely overlooked rural America, favoring California start-ups instead. (DTN file photo by Elaine Shein)

HADDONFIELD, N.J. (DTN) -- USDA announced Wednesday the debut of two additional private funds to provide $125 million in venture capital to rural businesses. Innova Memphis will invest up to $25 million in private equity in the Midsouth region and Meritus Kirchner Capital will offer $100 million for businesses in the Appalachian region.

The newcomers join an innovative $150 million rural fund seeded by the Farm Credit System last year and managed by Advantage Capital Partners. To date, that fund has invested equity ownership in a cage-free egg operation in Iowa and a botanical and herb processing business in Missouri.

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Unlike more conventional USDA rural development projects that rely heavily on USDA loan guarantees and credit programs, these new private funds offer to partner with entrepreneurs and infuse needed cash to help grow existing operations. The two new funds expect to attract investors with a long-term horizon of about 10 years and an expectation of 12% to 15% annual returns.

Outside the West and East Coast, few entrepreneurs are attracting venture capital. In the first quarter of 2015, 60% of the nation's venture capital flowed to the West Coast, with the bulk of that in California, said Grady Vanderhoofven, a partner with Meritus Kirchner Capital. The East Coast captured another 27%. The Southeast, Southwest, North-Central and South-Central regions were scrapping for about 9% of the nation's venture capital, and much of that is not evenly distributed, Vanderhoofven added.

"There are exceptional opportunities" for those rural investors who are willing to sift and dig, he said.

Advantage Capital Partners and eight Farm Credit institutions were the first "Rural Business Investment Companies" to debut last year. They envisioned four more funds at the time, with backing from other Farm Credit Associations and three funding banks. Each of those five funds will invest in "anything off the farm," officials said, including rural water, telecommunications, processing plants, meat packers and grain co-ops, provided they meet criteria as a small business.

Separately, a $10 billion Rural Infrastructure Opportunity Fund, organized by the Farm Credit System's CoBank, is facilitating private loans for projects like community water and sewer projects. U.S. Agriculture Secretary Tom Vilsack said that credit fund is working with USDA to identify 10 water projects by the end of July and have 20 lined up by the end of the year.

It's been difficult to attract private capital to rural areas in the past. But there are many deals worthy of investment there, Vilsack added. "The spirit of entrepreneurship is alive and well in rural America."

(AG/BAS)

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