CaribGROW fund seeks to bridge equity financing gaps for Caribbean food systems

David.

I'm David bank and from Impact Alpha. This is an Agents of Impact podcast,

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and you can see the richness of the region there. You can see that there are entrepreneurs who really want to move forward, and what is holding them back is access to capital.

0:06

That's Tirtha Patel of Intentional Asset Management. Tirta and her colleague John Morris are raising the Carib Grow Fund to provide much needed equity financing for food systems in the Caribbean. In our conversation, Tyrta and John explained the fund's strategy for transforming the region's food value chain from production to processing to waste recovery. Intentional Asset Management has been an active and early user of Impact Alpha's premium databases and investment tools for fund managers and other agents of impact. Let's jump right into our conversation. Tirtha and John, welcome to the podcast.

0:21

Hello, David. Thank you for having us.

0:57

John, you're an old friend and longtime agent of Impact and Tirta a new friend. So let's actually start with you, Tirta. Just tell us what is the Caribbean Grow Fund and what the Caribbean food systems investment opportunity is.

0:59

The Carib grow fund is $100 million private equity fund focused on predominantly investing in food systems in the Caribbean region and transforming the way food systems operate in the region to fill out its $6 billion food import bill.

1:16

Wow.

1:38

So let's dig into that a bit, but I want to kind of just drop back so folks know who you are and what's going on here. The Caribbean is a chronically underinvested region. We that at Impact Alpha, where we try to, to. To. To shine some light on some of the investments, but there's not as many as. As we would have liked to have seen. And John, I know you have a long history at Merrill lynch and other financial institutions, including, I think, covering the Caribbean region. So maybe you could each tell us how you kind of got involved in the Caribbean, since I think I believe you're sitting in. In New York and New Jersey, if I'm not mistaken.

1:38

Like a lot of Americans visited the Bahamas. But I visited because my three of my four daughters went to the island school there, which was a real amazing experience in sustainability. That was 25 years ago. And that started my Impact journey of what I learned based on their living within their means of circular economy in that school. And then at the time I was running Latin America and the Caribbean for Merrill Lynch. It was interesting to me that all the investment banking deals were done in Latin America and the and part Caribbean got very little attention.

2:15

And so that set you on a path to Try to learn more. And just what were you doing there for Merrill lynch and how does that roll into the current thesis?

3:02

Well, over the years, I mean during that period of time, way back when we were handling people' Trinidad and Tobago up through the Bahamas and learning about their lives, learning about the realities of the Caribbean. Flash forward 30 years and with an impact lens and see it very differently. It's an incredible victim of climate change. It's an incredible victim of extraction and post colonial behavior. It's an incredible center of human talent and it is a laboratory of 16 different countries that all can help us understand soils, weather, food systems in a way that we don't have anywhere else in the world to do that.

3:13

That's fascinating. System seems to keep coming up. And Tyrta, I know you have the history of with the Gates foundation, with the World bank, with the oecd. I imagine that gives you a kind of systems lens. So maybe just lay out what you mean by a food systems and then how do you go about sort of, I guess transforming it or changing it?

4:12

Typically in the space of private capital, when you hear of a food fund, you're either looking at something like an AG fund where the focus is on purchasing assets and growing returns from those specific assets, or you think of a tech venture fund. What we are looking at is looking at the entire value chain of food systems. Everything from production. So definitely looking at specific commodities to processing, packaging, cold storage, logistics, transportation support investments as well as waste recovery and circular economy investments. And that's what we mean by food systems. We're not just focused on one specific life cycle stage of food. We want to make sure that we're diversified across the different phases. Especially when we are investing in a targeted region and it's a place based product.

4:32

Well, just to be clear, are we talking about food for folks living in the Caribbean to eat or are we talking about food to be grown and exported?

5:27

Both. We have a clear in our thesis we are looking at both import substitution. So there is a lack of protein. So chicken is the best form of protein, but there's a lack of poultry businesses in these islands. And the more to support we can give to build those chicken businesses, the more healthier people are going to be on the island and the less they're going to have to import at an incredible higher price by that that's import substitution. There is export issues of do you sell sugar or do you sell cocoa beans at the lowest commodity price or do you process the fine Trinitario chocolate into a next level and package it and sell it at a full, much higher margin price, creating much more wealth in the region. That's the export opportunity.

5:36

It seems like many of these strategies are well known in development circles. From Africa, from Latin America, from elsewhere. You just taking kind of best practices and bringing them to the Caribbean. And if so, I guess why haven't these kinds of systems been sort of, you know, rationalized earlier by, you know, what's been the blockage?

6:51

A number of factors, but one is the fact that these are 16 countries that are all small and therefore they are. There's a lot of fracturing of focus. Another is they have been countries that have been supported by multiple development agencies and initiatives have been supported to change those issues. As you're, you're so right that people understand this, but because of the historically high interest rates, there's been no equity going into the region and therefore initiatives don't turn into businesses very well. And so we have identified a serious lack in the capital stack of equity capital. And that's what we are coming to provide to change the landscape and also look at opportunities that can be more regional in scope and, and not singular country efforts.

7:16

And just, you know, folks might ask what gives you the expertise or the special advantage in spotting these opportunities? You know, especially as I say, from a little bit from afar I would guess, you know, so why can you unlock value that others have not been able to?

8:23

For six years we have been developing relationships through research. We wrote the Caribbean SDG Investment opportunity report in 2019. We convened over a thousand people from all the islands on issues of food systems. In 2020, FAO, when seeing that we were bringing investment interests to the table, they asked to advise them. And they're the largest food and agricultural organization in the world. And the Caribbean asked us and we've been working on a two year contract with them to dig deep into the value chains and are they investable? Is there private capital? As we know the SDGs were meant to attract private capital and that's what led to, all of that knowledge led to how to invest and what was needed was funds like ours.

8:43

Now John, I know you're almost as long in the tooth as I am and have a long history in the financial markets. At Merrill Lynch, I think at this late stage you're considered a first time manager, isn't that right?

9:47

It's so nice to be a child again.

10:01

And, and what kind of reception are you getting? Are you getting welcomed in or people saying where's your track record?

10:05

I've never felt more positive about the reception in the region. I'm not doing this to be the lead manager. I'm doing this to work with Tiritha. Aaron Barkant, who is on the ground in Trinidad and Tobago. Anani Muhammad, who is on the ground in Guyana for us. Eric Guarino, who is our coo. They're all the next generation. I'm just the old guy in the group with the gray hairs. They are the ones building the knowledge. And the. The fellowship program that we put together now will be specific to the Caribbean. So in each country we will have people who want to grow their careers in the cross section of food and finance and work with us to hopefully spin out and be an operator.

10:16

Terrific tier to just tell us what gets you excited about the work. Just maybe some stories from your visits and due diligence.

11:21

Definitely. I think the first visit that I had in the Caribbean was with John. And one of the key things that was really interesting to see is that was my first time in the Caribbean. And despite that, I could very easily understand the culture. I could very easily understand a lot of the foods, fruits and vegetables that you don't see normally in the US but in the Caribbean used in almost similar or slightly different ways than they are used in India. So I could see a lot of linkages between the two because there's a massive Indian diaspora in the region as well. And I think our first trip also led us to the Jamaican Blue Mountains to look at Jamaican Blue Mountain coffee. And you can see the richness of the region there. You can see that there are entrepreneurs who really want to move forward, and what is holding them back is access to capital. Yes, they have access to grants. Yes, they have access to debt, but debt is very expensive, and grants are small and they come in short pieces, which means they're applying for a grant to fill a small hole in the operating capital, after which they need to go back to applying for these. And that loses focus on the business. And over time, especially given the colonial history, there is an element of viewing businesses just as a source of income rather than an asset that can grow in value. What is the most exciting for me, coming from the space of behavioral economics, is looking at that and shifting entrepreneurial behavior to get them to better understand equity, to get them to better understand how businesses can be used to create value that is actually restored in the region and not something that goes away after it's built out. So I think that's the exciting part.

11:30

You've talked a lot about equity. I think you've also talked about other forms of capital, revenue based financing and other structures. How do you know what the right capital is? And then also how are you raising capital, your capital?

13:34

Well, first we know the right capital is equity is what we want, what we're bringing to the table. In the impact world, we have really been trained to think about blended finance and we've really been trained to think about really unique structures. But sometimes that confuses the marketplace. So we have gone in a 2 and 20 structure, in a private equity structure to say we're equity capital and we believe that we will be one piece of the capital for businesses. We're an ingredient to blend. And so if someone wants to come and be working with us on something, we can blend with them. But we're the equity ingredient.

13:49

And are you taking venture type minority stakes or are you taking private equity control stakes?

14:42

We're taking minority stakes. And in the first three or four deals that we've negotiated, it's mostly been a preferred equity stake that the LPs will get paid back and then get their 8% return before it switches to common in which the owners start to really get a flow of their effort. They will then increase their income so much they should be very excited about either buying us out or we will. Already we're working with a lot of US and international food companies. So we expect to line up a lot of exits in coffee, in cocoa, in CMOs, with the right type of players on on exits to come in as a minority player to get great distribution or access to those products. So equity is a discussion that is operator specific. If operators don't see the value in growing and creating wealth for them and the people around them and then we're not the right discussion. So that's why behavioral economics is so important. And a whole, you know, 15 countries and 40 million people that have not been in equity discussions, they've been talking to banks and doing their numbers on being able to repay a debt. And we are saying, no, let's do a valuation on your company and let's see how you would value it and how what kind of value we can get to it in five to seven years. And those that are excited by that rights, it's operator specific

14:48

and you take the risk with them as opposed to pulling your repayments out of them. And just the final question, I know John, from your years there, you know, a lot of the families and the local wealth holders. Are you raising money primarily in the region or are you raising money from outside and bringing it in?

16:40

Yeah, this, this hundred million dollars we look to put to work over the next couple of years in the region will be in a few closes like typically done. The first close, we are looking to be predominantly from the region, from the key banks in Trinidad Tobago and Jamaica and Bahamas and major family offices and some of the development actors. We are looking to have a broad participation which our data room is showing the best names in the region who recognize what we're doing and also the banks who see that for us to bring in equity, they could be a great partner because all of a sudden the under financed food system is hard for banks to finance. Because what are you going to do, take someone's farm away? But we're coming in with a slug that allows it to be much more bankable and we're looking to be a minority. And so it's each the 100 million we bring. We think it's going to be something like, you know, 4 to 500 in total investment into the region.

17:02

Well, John and Tirtha will be watching closely as you move along this journey and we hope you can bring us back some stories and some deals as you see them. And good luck on the journey of Caribgro. That's going to do it for this Agents of Impact podcast. Big thanks to Tirtha, to John, to our producer Isaac Silk, to the whole team at Impact Alpha, and to all of you agents of Impact, with gratitude for all that you do.

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