By Dan Emerson

 

In 2013, a team of experienced investors launched a new venture fund, the Cultivian Sandbox Food and Agriculture Fund II, to focus on pure-play food and agriculture technology. The $115 million fund is co-led by Sandbox Industries, a Chicago-based venture capital firm and incubator, and Carmel, Ind.-based Cultivian Ventures, an agricultural-technology-focused venture capital firm which launched its first $34 million food and agriculture fund in 2008.

 

Global AgInvesting spoke with Andrew Ziolkowski and Ron Meeusen, managing directors (and two of the co-founders) of Cultivian Sandbox Venture Partners, LLC.

 

Before starting Cultivian, Ziolkowski was a managing director of SAE Ventures and Forest Street Capital LLC, where he spent 14 years as an investor and adviser to early-stage health care and technology companies. Previously, he was director of venture capital at CS First Boston Merchant Bank. 

 

Prior to forming Cultivian, Meeusen led the expansion of the biotechnology R & D program of Dow AgroSciences, and founded a biopharmaceutical company, Immuneworks, Inc. He holds a Ph.D. in Plant Sciences.

 

GAI: How did you start your first and second funds?

Ziolkowski: In 2008, it was difficult to raise funds, but we were successful in raising just under $35 million for our first fund (Cultivian Ventures, LP). Fund I has returned $5 for every $1 we invested. The fund has had a very successful run, closing on nine deals. Shortly after we sold our first investment, Divergence, to Monsanto in 2011, we were encouraged by our existing, limited partners to raise money for a second fund. It didn't take long for us to collectively raise $115 million for our second fund. We had our final closing in February.

 

GAI: What were a couple of your successful investments from the first fund?

Ziolkowski: Two come to mind: Divergence and Aratana Therapeutics (PETX), an animal health company, which went public.

 

GAI: What did you learn in running the first fund that you have applied to the second fund?

Meeusen: One big thing: we had two strategic investors we would visit, as courtesy calls. We found out that about 50 percent of the technologies we as a venture fund were uncovering were unknown to their technology scouts and M & A people. In return, they give us real-time feedback on what is going on in their industry; that has made us better investors.

 

GAI: How do you choose your investments?

Ziolkowski: We are technology-driven investors, and we're more focused on business-to-business (companies) than business-to-consumer.  So we invest in animal health, animal, feed and crop production, food safety. Also water. Our typical entry point is the first institutional (Series A) round. We'll also do earlier and later investments.

 

GAI: How do you mitigate risk in early-stage investing?

Ziolkowski:  We are active investors. We take board seats; we're on the boards of all of our companies except one. We have experience in the (food and ag) area, so they want us as part of the board.

 

GAI: How else do you add value to your investments?

Meeusen: We have an extensive network in the ag area, through our strategic limited partners, as well as outside of that. So, we often make introductions to suppliers, collaborators and customers, to help companies grow that way.

 

GAI: What is one of the investments in your new fund?

Meeusen: Agrivida was a company that had been focused on biofuels and we looked at it a couple of years ago and passed. But we were very interested in their secondary project, which was feed enzymes for hogs and poultry, a profitable and rapidly-growing business. So, we led their very successful, Series D round, which was oversubscribed by 15 percent.

 

GAI: How do you factor in the growth of sustainable agriculture and the growing consumer demand for sustainable foods?

Ziolkowski: Food and ag by its nature is defined as sustainable. Everything we're looking at contributes in some form or fashion to sustainability at a high level, so we think we're well-positioned there.

Meeusen: With the possible exception of oil and gas, I don't think there is a “vertical” on the planet that has a bigger social and environmental footprint than food and agriculture. So, if we're pumping money into new technology that makes production less wasteful, less energy-consuming, higher quality, we are contributing to sustainability.

 

GAI: Going forward, how do you see the ag investing landscape?

Meeusen: There are still so many more deals than there are funds like us, but it's very collegial. There is a great deal more collaboration – sharing deals, sharing diligence — than there is competition….although the competition will come. Also, the traditional, Silicon Valley models aren't going to apply all that well here. It's a unique set. In our experience, there are fewer 10x returns, but also fewer write-offs. While the overall IRR can be equally attractive, the portfolio’s often are achieved with smaller, but more, successes.

Ziolkowski: There are more groups being formed to invest in food and agriculture, which is good.