August 5, 2024

By Gerelyn Terzo, Global AgInvesting Media

This summer, Grounded Capital, a San Francisco-based SEC-registered investment advisor, has made back-to-back investments to support sustainable food production in the United States. These included a $22.5 million investment into Lotus Foods coupled with a new equity investment into the Straus Family Creamery in June and July, respectively. Grounded Capital, which oversees approximately $2 billion in AUM, backs established, mission-driven companies that are aligned with its values and where it can apply a systems-based approach to investment capital.

Over the past 17 years, Grounded Capital CEO Stephen Hohenrieder has been on a journey, exploring the role of private capital in building the health of systems rather than monetizing the symptoms of unhealthy systems. So often, Hohenrieder shared with GAI News, the capital markets invest in solutions to symptoms of problems that perpetuate unhealthy systems. “When we do that, the financial motivation is to grow the problem. At Grounded Capital, everything we do is focused on building healthy ecological, social and financial systems,” he said.

As an investment firm, Grounded Capital is focused on generating a financial return. However, what makes the firm unique is that it also contemplates the rest of the systems related to that company or those farms or forests. They make investments whereby the assets can generate a financial return and also help to build social, ecological and financial systems, the latter of which might involve supporting rural economies, empowering people financially or creating another model for capital investment in the U.S. markets.

Key Areas of Focus

Hohenrieder explained how Grounded Capital views the world through numerous concentric circles, through which they apply a wide but strategic lens comprising five areas of focus: places, energy, people, food and nature. “Our goal is to be absolutely intentional about the impact we’re having, positive or negative, whether it’s in companies, farms or ranches,” he said. “Those areas of focus include elements that we strive to apply to every aspect of our portfolio. We contemplate the role of each element in our farms, our partner companies, forests, etc. That’s where the intentionality comes in, in understanding the role of each element in the asset or operating enterprise.”

A common thread that emerges among Grounded Capital’s portfolio companies is they have withstood the test of time. Lotus Foods and Straus Family Creamery boast decades of operating histories behind them, as does Traditional Medicinals, a Sonoma County, California-based medicinal herb tea giant that has been around since the early 1970s and in which Ground Capital took a minority stake in 2022 of $50 million.

“We have been a trusted source of capital for founders of established, mission-driven companies that rely on us to steward their vision into the next generation. We are an alternative to traditional private equity or a sale to strategic buyers. We invest in established mission-driven companies that we feel are aligned with our values and vice versa, where we can apply our systems-based approach to intentionally invest capital,” Hohenrieder said.

Therefore it’s not shocking that Grounded Capital would back Straus Family Creamery, whose mission involves sustaining family farms, revitalizing rural communities and building a more regenerative food system. While Grounded Capital and Straus Family Creamery kept the size of the deal close to the vest, Hohenrieder shared that his firm aims to invest a minimum of $25 million in companies it backs.

“We appreciate their relationships with farmers and their support of dairy farms in Western Marin and Sonoma Counties. We think they have very high-quality products, and those products serve as a benefit to their customers. We also feel very aligned with their management team and feel they have a bright future. Our goal is to support them in doing what they are already doing.”

Petaluma, Calif.-based Straus Family Creamery will direct the equity investment, which it described as “significant,” toward growing the business and supporting its mission of “sustaining family farms, revitalizing rural communities and building a more regenerative food system,” per the announcement.

Straus Family Creamery Founder Albert Straus stated, “We’re excited to partner with Grounded Capital, which believes in our mission and cares deeply about the future of our farming and food system. This investment will help us advance our carbon-neutral farming model, creating resilience in organic dairy farming operations and a sustainable pathway for the next generation of farmers supplying Straus Family Creamery.”

Grounded Capital’s Hohenrieder and principal William Culler-Chase will join Straus Family Creamery’s board of directors, in keeping with the investment firm’s commitment to remain extremely involved and supportive of the companies it backs.

Additionally, Grounded Capital made what the target company described as a “transformative investment” into Richmond, Calif.-based Lotus Foods to accelerate the shift to a more regenerative food system. Founded in 1995, Lotus Foods partners with small family farmers to promote regenerative rice cultivation while also preserving biodiversity. The capital injection represents a shift in strategy for Lotus Foods, which until recently had not accepted substantial outside investment, demonstrating an alignment of interest between the two management teams.

“We are supportive of the work they’re doing around the world in sourcing rice produced in ways that are aligned with our values. They’re doing wonderful work by supporting a more regenerative method of growing rice called Systems for Rice Intensification, which uses less water and has a lower environmental impact in terms of methane emissions,” said Hohenrieder, also pointing to the company’s efforts to empower women and girls.

Lotus Foods plans to direct the proceeds toward further scaling its business by investing more heavily in the value chain, ranging from the sourcing of new global rice cultivation communities to the growing and diversifying of its customer base. Grounded Capital’s Hohenrieder and Culler-Chase also have taken seats on the Lotus Foods board of directors.

Ground Capital is currently in discussions with several interesting food companies, so market participants might want to stay tuned.

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