Home-grown food companies with a green mandate, a strong brand and a proven business model will have the opportunity to tap into an innovative new investment fund this fall.
Investeco Capital Corp., a Toronto-based private equity group that bills itself as Canada’s first environmental investment company, is launching a $40-million fund dedicated to growing small and medium-sized food companies that meet its tough criteria, including at least $2-million in annual revenue.
“It has to sell to the public on the principle of sustainability and health,” said Andrew Heintzman, Investeco’s president and chief executive officer. “That’s where we think the market’s going but we also think it’s good to get capital into those kinds of companies – good for the economy and good for society.”
It’s unlikely there will be a shortage of prospects for the fund, which is open only to accredited investors. Canada is in the midst of a cross-country food-business boom fuelled by the popularity of local fare, organic and sustainably grown ingredients. The trend is attracting attention and investment from multinationals looking to get in on the game by buying up promising prospects such as Quebec-based artisan yogurt brand Liberté, which was bought by French giant Yoplait Group last year.
Investeco has already made successful investments in Organic Meadow, Eastern Canada’s leading organic dairy, as well as B.C.-based Horizon Distributors and Rowe Farms, an Ontario-based butcher and local food retailer anchored by an ethical farming philosophy.
The group’s managing partner, Michael Curry, has a running list of more than 150 potential candidates he keeps tabs on across the country, ranging from supply and processing companies to agricultural enterprises. But only a few are likely to make the Investeco cut. Despite increasing consumer willingness to pay more for premium products, survival isn’t easy for niche start-ups in the food industry as they routinely find themselves starved for cash.
“At my stage, it’s incredibly hard to get money from banks,” said Carole-Ann Hayes, co-founder of Ontario’s Own, a Toronto-based company that sells jarred, preservative-free local soups and sauces. The company is three years into an uphill effort to win space on major grocery store shelves and hit monthly sales targets of $100,000. “Banks look for security ... assets to lend against. The only assets we have is a brand name and receivables,” she explained.
In addition to securing enough cash to grow, most new companies struggle to navigate the narrowing labyrinth of supply channels open to small operations in Canada.
“One of the factors that hold back small [food companies]is that the world of production facilities has dramatically changed,” Mr. Heintzman said. “You’ve lost a lot of small and medium-sized producers. If you’re a small brand, it’s very hard to get production because they tend to be massive plants run by multinationals that have huge volumes.”
Ontario’s Own, for example, found only one co-packer in the province willing to produce its small-batch recipes.
While Investeco can’t level the playing field, the fund’s goal is to help build an alternative. By infusing select businesses with capital and industry-specific expertise, the fund, backed by a team of advisers that includes industry veterans Gäetan Lussier, Charles P. Scott and Roger Dickhout, will help reinvent supply chains and enable small and medium-sized players to operate sustainably.
The blueprint is drawn from Investeco’s previous experience with Organic Meadow, a co-operative based in Guelph, Ont., with national distribution. Investeco’s $1.5-million equity investment in 2004 enabled the business to build its own production facility, and the company’s advisers helped Organic Meadow establish a for-profit arm, a board of directors and a management structure suitable for growth. Sales increased so significantly that by 2009, Organic Meadow’s members were able to buy out Investeco’s interest.
“It’s one of the things I’m proudest of,” Mr. Heintzman said. “That was the goal.”
Ms. Hayes, who hopes to catch the attention of Investeco’s fund manager (her chances are good since her company’s co-founder, Michael de Pencier, co-founded Investeco with Mr. Heintzman) called the new fund “a dream come true” for small food businesses.
“There were so many times we didn’t know where to turn or what to do,” she said.
Mr. Heintzman said the fund will include seven or eight companies; the amount invested in each will vary. It’s slated to launch in early November.