Fund III has received $450 million of committed capital, surpassing its original target of $400m. It will continue to apply Aqua Capital’s successful middle-market investment strategy in ag and food, while partnering with management teams to drive value creation through operational enhancement, strategic change, improved governance, and successful integration of accretive add-on acquisitions.
“We are in the midst of an extraordinary transformation of the agribusiness and food value chains, Fund III will seek to generate strong risk-adjusted returns by investing in companies leading the transition throughout the Americas,” said Sebastian Popik, managing partner.
“We will continue to leverage our unique sector knowledge and reputation to identify sectors and companies poised for accelerated growth and deep transformation, and systematically select companies capable of delivering strong growth and differentiation.”
Aqua Capital’s investment strategy is based on acquiring and building platforms to become sector leaders through buy-and-build strategies and serial rollups. Investing in high-growth agribusiness and food companies led by strong entrepreneurs to help scale their proven business models, the focus of Funds I and II was across different segments of the agribusiness and food value chain in Latin America. The latest fund sees the company expand into North America.
Fund III has already invested in five platforms across Latin America and the US, with almost 50% of its capital committed. The current portfolio includes investments in high-value, sustainable ag inputs, omnichannel ag retailing and agtech services. Fund III is investing in companies across the Americas focused on regenerative agriculture contributing to carbon reduction, positive changes in GHG emissions and small and mid-size farmers inclusion.
Fund III limited partners are a diverse group of institutional investors from across the globe, including asset managers, sovereign wealth fund, endowments, development financial institutions, fund of funds and family offices. Fund III received considerable commitments from returning limited partners, while also welcoming a significant number of new investors to the firm.
With over $1.1 billion in assets under management, Aqua Capital is one of the largest private equity firms managing investments in innovative and sustainable businesses throughout the Agribusiness & Food value chain. The firm seeks to invest in companies with successful track record, strong management teams, and growth potential to become sector leaders. Since inception, Aqua Capital has made more than 45 investments grouped by platforms across the Americas (Latin and North America).
Seizing opportunities amid the agtech capital drought
Aqua Capital says that through its professionalisation, growth, transformation, and impact value creation approach, it seeks to build successful, scalable and sector-leading companies, with a focus on investment themes like growing food demand, closing productivity gaps, solving sustainability challenges, changing consumer habits, and disrupting traditional models through innovation.
The news of the Fund III close, meanwhile, comes amid a dip in global venture capital investments in the agtech industry. Some commentators have suggested the traditional VC model isn’t suited to agtech because the expectations of short-term return is not consistent with agriculture.
The primary benefit of private equity investment over VC investing, on the other hand, is that private equity firms typically invest in more mature and established companies, which tend to be less risky compared to the early-stage start-ups that the VCs target.
This benefit of private equity investment is one that Aqua Capital is using to its advantage. “Our value creation approach is really operational rather than financial,” said Aqua Capital partner Eli Ziskind.
“We're trying to use leverage more conservatively and modestly and generate value from our understanding of the industry and ability to open markets for other companies and position them rightly. We think we know where to identify value and which companies and areas are unique at a specific time. We have proven capabilities of opening markets to our companies.”
Offering solutions that are taken up by the end users
The company has a track record in taking family-owned or growth companies and positioning them as sector leaders, he explained. “We've done it over and over again and we have a unique track record in that.”
Some examples of successful investments made by Aqua Capital include AgroGalaxy, one of the main retail platforms of ag inputs and services focused on agribusiness in Brazil. It has also acquired US-based Novus Ag – a platform that provides inputs and value-add services, such as product application and agronomic advice, to farmers. Novus Ag operates a disruptive franchise model which Aqua Capital is confident enables it to attract top-tier store owners and gain market share by providing superior services, while creating high dependence and repeat business.
“Through these two companies we can really open the market for any product or service companies in the Americas,” said Ziskind. “Between these two companies we sell about $200 million of biologicals; we sell a lot of ag services, and we finance farmers.”
As a result, these companies are themselves “becoming an infrastructure for product or services companies to scale up through our connection and capabilities in an arm’s length agreement – I think that's pretty unique in the industry.”
Another difference between Aqua Capital and VCs is that the latter typically take more positions. “We are more concentrated, for good or for bad,” said Ziskind. “We make less bets on 8-10 portfolio companies.” A smaller number of bets allows more focus on its portfolio, he contends.
Being so operationally involved means Aqua Capital can offer greater value for farmers, added partner Gustavo Eiben. “There is a disconnection between the Silicon Valley approach in VCs and the farmers,” he said. “Those two are not talking very well.”
Aqua Capital, by contrast, "gets very involved operating our companies. When we invest in a company, we buy control and operate the company so that we are very close to the farmer. We think that sometimes VCs are very removed from the farmers and closer to the Valley. We don't have anything against VCs. But we born as a private equity firm, that's what we have been doing for the last three funds. there are not many players in the market doing private equity ag.. "we fill that gap very nicely"
Read more: Agech: too much tech, not enough ag?
Ziskind stressed that Aqua Capital’s current portfolio of investments in high-value, sustainable ag inputs, omnichannel ag retailing and agtech services is ultimately aimed at shortening the time of adoption of new technology products. Considering ag retail, for example, the go-to-market strategy is “all about having really trusted advisors to the farmer with the ability to get them to use next generation products because most of the farmer budget goes into one”.
The importance of a comprehensive go-to-market strategy is again illustrated with Solubio, the Brazilian provider of on-farm biological solutions in which Fund III took a stake. Solubio enables farmers to produce ag biologicals like biopesticides and biofertilisers on-site, reducing costs by up to 70% compared to off-the-shelf products. Solubio achieved over 116% CAGR revenue growth from 2018-2022.
This kind of integrated system is well suited to biologicals, said Ziskind, where there isn’t one ‘silver bullet’ type of product suited to all farmers in all conditions. What makes sense in the biologicals market, he said, is a strong portfolio that considers the ease of farmer application and how easy it is for the third-party channel to sell it to the farmer.
