Montreal-based Ag Biotech Chief talks about equity, expansion and exits

January 6th, 2017

Offered by Global AgInvesting

By Gerelyn Terzo

Montreal-based Inocucor received the green light from Canadian regulators in recent weeks to register a pair of biological products, Synergro and Synergro Free. The approvals come even as the company is raising a Series B round of equity of between $10 million and $12 million ahead of an expansion that stretches from the lower 48, down to South America and over to Western Europe. While the company’s current focus is on organic growth, future plans could include M&A.

Donald Marvin, Inocucor president and CEO, tells GAI News that the double nod from the Canadian Food Inspection Agency was two years in the making. “With these approvals we can move forward with the commercialization of the company’s Synergro Free product targeting commodity row crops this coming growing season. Synergro, our product for high-value produce, we can begin selling immediately,” said Marvin, adding that the company has back orders to fill.

Andree-Lise Méthot, founder and managing partner of Montreal-based Cycle Capital Management, an early investor in Inocucor, tells GAI News Cycle was initially responsible for bringing Marvin, a transplant from the pharmaceutical industry, to the company. In addition to Marvin, Cycle introduced the company to Jim Blome, chief executive at Bayer CropScience, who also chairs Inocucor’s Board of Directors.

“Don has an amazing team around him, very savvy people in the ag sector, in [intellectual property] in terms of genetics and other things. He put together a team and it works very well with his investors including Cycle Capital and the people that we bring in, and I think he is really personally committed,” she said.

Product Spotlight

Indeed, Inocucor’s flagship products are Synergro and Synergro Free, both of which are designed to bolster yields, but each with a unique design and approach.

Synergro, which is registered as a soil amendment, is a live cell formulation of Inocucor’s patented fermentation technology used to boost production of high-value produce such as tomatoes, peppers, squash, strawberries, and melons, among other crops. “Independent studies have shown increased yields in strawberries of 30 percent or more,” said Marvin, adding that yields for other high-value produce crops using a Synergro-based treatment program have jumped anywhere from the high-single digits to between 40 and 50 percent, depending on the particular crop.

Synergro is comprised of 11 strains of microbes, or a consortium of microorganisms, making it among the first of its kind to be approved by Canadian regulators. “This was quite an effort by us, as this is one of the first products comprising that many microbes to be approved by the CFIA. We are pleased with the results,” said Marvin.

Farming with biologicals containing live microorganisms adds another layer of variability for farmers (on top of traditional field variability factors in agronomy such as soil health and nutrition) given the very nature of live microorganisms in a product.

Synergro was originally introduced to organic growers of high-value produce when Inocucor was still a start-up company. “They’re the fastest to adopt a new product and they understand microbial-based biologicals. Plus they have limited tools in their toolbox to treat crops because they are organic farmers,” said Marvin, adding that when conventional growers began noticing the yield pops among their organic peers they too starting asking for the product. “Now Synergro is used by both organic growers and traditional growers alike,” he said.

Synergro Free, a standalone commercial bio-fertilizer with the microbes removed, is used as a biological additive to existing commercial macro and micro nutrient fertilizers to stimulate plant growth and bolster yields for commodity row crops, such as corn, wheat, soybeans, and cotton. Field trials in both Canada and the U.S. have produced yield increases for growers using this product ranging from the high single digits to more than 10 percent, depending on the crop treated and nutrient fertilizer used.

Synergro Free is added to existing micro nutrient packages already sold in the marketplace by major ag companies that are also Inocucor’s commercial partners. The result is a new proprietary formulation that carries Inocucor’s intellectual property along with it.

Inocucor’s distribution model in Canada will resemble the company’s approach in the U.S., as Synergro and Synergro Free are already registered in 22 and 16 U.S. states, respectively. For Synergro, the company will likely go through a couple of distributors in addition to positioning sales managers on the ground in Eastern and Western Canada. ”They will work directly with growers using the product to create demand and serve as a technical advisor to distributors. That’s how we do it in the U.S.,” said Marvin.

Meanwhile, for Synergro Free, Inocucor is likely to go through commercial partners, including major agriculture input distributors, that will take the product directly to the grower.

Equity Raise

Inocucor’s Series B capital round for between $10 million and $12 million is underway and has attracted both a familiar roster of backers in addition to some new investors. Canadian clean-tech fund Cycle Capital Management, with CAD$230 million in assets under management across a trio of funds, is among the investors to return for the Series B. Cycle Capital has been with Inocucor since the genesis of the company and has participated in every funding round.

“We were there at pre-seed, at the [Series] A, we will be there for [Series B] and probably at the C,” said Cycle Capital’s Méthot.

Desjardins Innovatech, the venture capital arm of Desjardins, one of Canada’s largest commercial banks, invested alongside Cycle Capital for the first round and will similarly return for the Series B round. Marvin also anticipates that the pair of U.S.-based family offices that backed the company in June 2016 also may commit additional capital for the Series B.

The lead investor in the Series B round, however, will be a first-time investor in Inocucor. “They will likely be joined by another new investor or two to fully complete the Series B financing,” said Marvin, adding that he expects to make a formal announcement in the coming weeks.

The privately held company is not yet profitable as Inocucor continues to plow revenue from the sale of its products back into the business. Marvin expects, however, that in the next couple of years Inocucor will indeed become profitable. Meanwhile, revenue growth from 2016 to 2017 is pegged at 75 percent to 80 percent of the previous year given the wider distribution and international expansion ahead. Inocucor currently generates more than three-quarters of its revenue in the United States with the balance coming from Canada.

International Expansion

Paramount to Inocucor’s sales growth is the company’s robust expansion plans, which in addition to greater sales and distribution in Canada and a commercialization office in the United States, extends to some maiden ground, with a commercial foray into South America, which will likely be in Argentina followed by Brazil.

“Between Argentina, Brazil and the U.S., those three countries supply 85 percent of soybean demand around the world. A lot is going on in the soybean area for us,” said Marvin, adding that the company’s Western Europe expansion is expected to be in Spain’s high-value produce market. “Bio-stimulants are well accepted and adapted in Western Europe and also heavily used in Spain’s high-value produce growing regions,” he noted.

End Game

Inocucor isn’t Marvin’s first trip to the rodeo, as he explains to GAI News. In fact, Inocucor is his fourth startup, with the others having ended up as trade sales or successful Nasdaq IPOs.

“When the window opens for an opportunity, you want to get through it as quickly as possible and build critical mass on the other side. That requires a combination of organic growth and strategic M&A,” he said. Indeed, part of the growth strategy at Inocucor for capturing market share is by strategic M&A, and depending on the timing Marvin could be seated on either side of the deal table. “You will see us make acquisitions along the way in the specialty ag biologicals space to drive market leadership in this rapidly growing sector,” said Marvin.

As for an exit strategy, the end game could be one of several possibilities said Marvin, including a potential sale to a strategic buyer. “There is a lot of value to build under the curve, and we’re in it for the long run. While we have very patient investors, at some point you have to give all stakeholders a pattern of liquidity and for me it’s really a clinical process one goes through to achieve that objective,” said Marvin, adding that there’s no rush on the company’s part to get there.