By Tom Ballard, Chief Alliance Officer, Pershing Yoakley & Associates, P.C.
Tennessee Governor Bill Haslam has touted the importance of rural economic development, and those efforts received an important “shot in the arm” yesterday with an announcement about two Rural Business Investment Companies (RBIC) with strong ties to the Volunteer State.
Meritus Ventures, with offices in Oak Ridge, London, KY, and Birmingham, AL, and Innova, headquartered in Memphis, have received federal designation as RBICs. They were the only two in the country announced yesterday by Tom Vilsack, Secretary of the U. S. Department of Agriculture (USDA).
The announcement came on the same day that the annual USDA Rural Development Conference kicked-off in Murfreesboro.
Meritus Ventures, which was founded at a time of heightened interest in rural economic development, has set a goal of raising $100 million to invest across its Appalachian service area. Meritus Kirchner RBIC II, L.P., is the name of the new fund, reflecting a partnership with the Kirchner Group.Innova is creating Innova Ag Innovation Fund 1 with plans to raise $25 million to focus on investments in life sciences.
“The two funds will complement each other,” Grady Vanderhoofven, Co-Founder and Fund Co-Manager for Meritus Ventures, said. Innova is focusing on early stage companies, while Meritus Kirchner will focus on growth stage opportunities.
“These are only the third and fourth funds nationally selected for RBIC since the program began in 2002,” said Ken Woody, the Knoxville-based President of Innova. “It is a major accomplishment for any fund to go through the rigorous selection process of the USDA and be selected. It is strong validation of the great work going on in Tennessee today for two firms here to be selected.”
For deserving start-ups not on one of the coasts, this is a truly significant opportunity. Vanderhoofven cited statistics compiled by the MoneyTree Report for the first quarter of 2015 that showed more than 60 percent of venture fund investments were made on the West Coast and 27 percent in the Northeast. By comparison, the combined data for five regions – Southeast, Southwest, Midwest, South Central and North Central – amounted to only nine percent of the venture investments.
Woody said the Innova Ag Innovation Fund will have a nationwide focus and will continue to primarily focus on early stage investments in the rural and agriculture space, benefitting farmers and the farming industry. Innova was founded in 2007 by the Memphis Bioworks Foundation which has strong ties to the agricultural biotechnology sector.
For Meritus, yesterday’s announcement was déjà vu all over again. It established the nation’s first RBIC – Meritus Ventures L.P. – when it raised $36.4 million to make equity investments in private, expansion-stage companies in predominantly rural areas in central and southern Appalachia.
“This is the next step in a history of bringing capital to underinvested regions of the country,” Vanderhoofven said. He has been a venture capitalist for 14 years, while Ray Moncrief, his partner, has 30 years of experience.
The federal RBIC program appears to align well with the state’s rural priorities as outlined in a report titled “Governor’s Rural Challenge: A 10-Year Strategic Plan.” The Tennessee Department of Agriculture has key leadership responsibilities. More recently, a sister agency – the Tennessee Department of Economic and Community Development – named its first ever Assistant Commissioner for Rural Development.
The RBIC program was authorized by the U.S. Congress in 2002 as a way to ensure that rural communities were not by-passed as new jobs and enterprises were created. Three years later funding was cut.
“We’ve resurrected this tool as a way for getting additional capital for equity financing,” Secretary Vilsack said in an article in The New York Times.
Click here to read the USDA announcement.