Rural Infrastructure Opportunity Fund Offers Bounty of Capital

A new White House initiative hopes to harness private capital for start-ups benefiting the U.S. agricultural community.

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A tractor collects crates of harvested apples from the orchard during the summer harvest at the Sady Trzebnica z o.o. apple farm in Trzebnica, Poland, on Monday, Aug. 25, 2014. Polish corporate bonds are losing their haven appeal as Russia’s escalating stand-off with Europe and the U.S. undermines the country’s growth prospects. Photographer: Bartek Sadowski/Bloomberg

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Each year the U.S. Department of Agriculture shells out tens of billions of dollars in farming subsidies. So a new, $10 billion pool of capital, a White House initiative named the U.S. Rural Infrastructure Opportunity Fund, might seem like more riches for the rich.

But taxpayer dollars are not on the hook. Rather, the anchor investor of the new fund is CoBank, a national cooperative bank based in Greenwood Village, Colorado, which committed $10 billion to get the fund off the ground. CoBank is a member of the Farm Credit System, created by the U.S. Congress nearly a century ago to provide agriculture-related, infrastructure and general-purpose business loans in rural areas. The fund will be managed by Capitol Peak Asset Management, a Denver- and Washington, D.C.–based firm, which will work to bring private investors to the fund.

USDA officials have been quick to point out that the new fund is acting simply as a facilitator. “It is about creating a platform that channels capital to important projects that will benefit rural communities and our country at large for years to come,” says Leo Tilman, executive chairman of Capitol Peak Asset Management. He sees the new pool as transformative capital: money that will seed big ideas that other investors might consider too risky or too expensive. Many investors are familiar with transportation infrastructure projects and agricultural land investments yet may be less familiar with critical infrastructure investments, which include rural community facilities, water and wastewater systems, rural energy and broadband projects. By parsing the risk in each investment, the new fund can connect the appropriate project with the right investor — working effectively as a matchmaking service for rural infrastructure development.

“Our goal is to create a sustainable platform that connects the world of institutional investors — pensions, endowments, foundations, family offices and sovereign wealth funds — with critical infrastructure projects across rural America,” says Tilman, who, in addition to his role at Capitol Peak, is also the president and CEO of Tilman & Co., a global strategic advisory firm.

U.S. agricultural investment goes beyond farms and farmers. Innovation on the rural front encompasses everything from housing and transportation to new, genetically modified organisms and agricultural technology. And, according to Tilman, from the get-go, many of these projects are perceived as too risky, as entrepreneurs venture out of the cozy confines of Grandpa’s farm — figuratively and literally.

A recent farming business to get an injection of venture capital is Glendale, Colorado–headquartered Nutrinsic Corp., which is developing a technology that extracts nutrients from the processing of agricultural by-products. Not only does the system help produce low-cost protein, but it also sharply reduces the cost of processing the waste. Says Leo Gingras, Nutrinsic’s president and CEO: “Many of the food plants that we would target as potential host sites for our technology are located in rural areas. And we of course add to local employment as we staff our plants.” Silicon Valley venture capital firm Artiman Ventures led the $12.7 million funding round, which closed last month.

In 2006 two former Google employees, David Friedberg and Siraj Khaliq, launched WeatherBill, a company that sold insurance to cover disruptions by bad weather. At first, the policies covered a wide range of events, from weddings and movie shoots to concerts and sporting events. But the two quickly realized that the real market was agriculture. And they soon assembled an army of programmers, mathematicians, engineers and agricultural specialists to focus on the market. In 2011 the company changed its name to the Climate Corp. Last year Monsanto purchased the company for $930 million (see also “Climate Change and the Years of Investing Dangerously”).

Projects assisted by the U.S. Rural Infrastructure Opportunity Fund might receive money completely from private sources; others might get a combination of private and public financing, including government grants and loans. Ultimately, the success of the fund will be judged by its ability to attract new capital and new types of investors and its overall impact on a rural economy that is in need of revitalization.