June 28, 2015

In early 2011, Investeco Capital Corp., a Toronto-based private equity group dedicated to socially responsible investing, announced a new investment vehicle: the Sustainable Food Fund, which invests in small, growing companies that focus on food and agricultural sustainability.

The $40 million fund completed its initial fund raising phase in late 2013. So far, the fund has invested in four companies, and will soon add a fifth, according to fund manager Andrew Heintzman, co-founder and president of Investeco Capital.

Heintzman is a veteran, environmental activist who was the Chair of the Premier’s Climate Change Advisory Panel for the Province of Ontario from 2008 to 2012, and is currently a member of Ontario’s Clean Energy Task Force. Sustainable Food Fund’s lead investors include several Canadian foundations, including The Harbinger Foundation, the Inspirit Foundation, The Metcalf Foundation and The J.W. McConnell Family Foundation.

Heintzman says the idea for the fund grew out of Investeco’s 2004 investment in Organic Meadow, a Guelph, Ontario-based co-op that distributes products nationwide. Investeco’s $1.5 million stake enabled Organic Meadow to build a production facility, establish a for-profit arm, and bolster its management team. In 2009, Organic Meadow’s shareholders were able to buy out Investeco’s interest.

The fund’s first investment was in Sun Select, a British Columbia-based greenhouse company.

Strategy

The Sustainable Food Fund’s objective is to “find great opportunities in North America and use our networks to get in early, and also add value,” Heintzman explains. Generally, the fund seeks well-managed and properly capitalized companies with a “unique” value proposition, and strong, fundamental growth, Heintzman says. The fund also looks for strong brands, in the case of consumer-products companies, and those that can create a “unique supply situation.”

Within the Sustainable Food Fund portfolio is B.C.-based Horizon Distributors, Western Canada’s largest distributor of wholesale organic food and natural products, and a supplier of major grocery chains.

Heintzman says the fund typically invests in companies with $1 million to $20 million in annual revenue, with a “sweet spot” of  $6 million to $10 million. Its typical, first round investment is $1 million to $4 million, with a similar, second-round amount. The fund seeks investments that will provide at least a 20 percent annual, “internal” growth rate, with a holding period of four to seven years before exiting.

The fund invests in about 1 of every 200 companies it considers, according to Heintzman. “A lot of them aren’t in our sweet spot, revenue-wise, or may not fit our view of being in the ‘right’ sector. Or, they may not need financing, or want a different kind of financing than we would provide. There are a hundred different ways to ‘whittle’ that down.”

How long a company has been in existence doesn’t matter, as long as it is showing strong growth.

So far, Sustainable Food Fund’s only U.S.-based investment has been Austin, Texas-based Vital Farms, which is the only national provider of pasture-raised eggs in the U.S. Heintzman said his firm was also attracted by Vital Farms’ flock-management protocol of providing 108 square feet of pasture per bird, and year-round access to pasture. The company also sells pasture-raised poultry, under its Backyard Birds brand.

In 2012, INC. magazine ranked Vital Farms as the fastest-growing food company in the U.S., and fastest-growing in 2013, due to its unique position in a high-growth egg category.

Given the sustainable ag sector’s relative newness, Investeco’s fund doesn’t face much competition for deals from other venture funds with sustainable missions. “There are a couple others, like (Vancouver-based) Renewal Partners. We trade ideas, and have co-invested with them.”

How does the fund add value? That depends on what each company needs, according to Heintzman. “We have quite a lot of ‘bench strengths’ in areas including legal, financial and strategic planning. We can help them build a board, make sure the management team is strong, and put together growth strategies.”

For now, the fund only works with accredited, Canadian investors, but Heintzman says that may change.

—

Dan Emerson