Chinese milk companies got VC

Sequoia Capital invested $63 million in equity and debt to obtain 10.5% of American Dairy (NYSE: ADY), a publicly listed Chinese company that makes milk products. The company was one of the few to avoid scandal when 22 Chinese dairy companies were found selling milk contaminated with melamine last year.

“As the company has better control of its upstream quality milk production, it is emerging to be one of the market leaders in China,” Sequoia Capital China’s Neil Shen told Reuters.

It’s not the first time American Dairy is working hand in hand with a U.S. investor. The company previously sold $60 million worth of convertible notes to Chicago-based Citadel Equity Fund Ltd.

Demand for dairy products fell with the melamine scandal last year, depressing public market prices for companies such as American Dairy.

Wall Street analysts upped their predictions for the company’s annual revenue to a $405 million consensus. But when the company announced its second quarter revenue was only 10% above what it had booked during the previous year and that it would book between $330 million and $360 million for the year, the stock got hammered.

The company’s shares rose 6.3% to close at $29.55 the day the Sequoia investment was announced last week.

Sequoia isn’t the first private equity firm to invest in Chinese dairy makers since the scandal.

Kohlberg Kravis Roberts & Co. completed an undisclosed investment, reportedly north of $150 million, in Ma Anshan Modern Farming Co. in June. The company was another of the few not linked to scandal during 2008.

Before the tainted milk incident, Morgan Stanley, Goldman Sachs and Actis Group invested $73 million in Chinese milk-drink maker Taizinai Group for a 30% stake in January 2007. Taizinai also missed the melamine scandal, but run into liquidity problems associated with its debt load, according to reports.

The other food-related company to garner venture capital investment last week is looking to replace sloppy joes and French fries with stir-fried vegetables and brown rice.

Oakland, Calif.-based Revolution Foods Inc., which provides nutritious meals to school children, raised $6.5 million in a Series D financing led by Catamount Ventures and the Westly Group, according to a regulatory filing. Other investors included DBL Investors (formerly known as the Bay Area Equity Fund) and the New Schools Venture Fund.

Revolution has raised $17 million in total financing to date and expects its latest round to take it to profitability, according to reports.

Other startups that have garnered VC dollars for food-related activities this year, according to data collected by Thomson Reuters (publisher of PE Week) include:

• Healthy beverage maker The FRS Company raised $11 million from Oak Investment Partners.

• Organic beverage maker Sambozen Inc. raised an undisclosed amount from Rustic Canyon Ventures.

• Private label wine seller The Winery Exchange raised $900,000 from Startup Capital Ventures.

• Gourmet desert maker Phoebe’s Cupcakes raised $1.5 million from Ascent Equity Partners.

• Frozen yogurt seller Red Mango raised $1.2 million from an undisclosed investor.

• Sandwich, biscuit and pastry maker Grand Prairie Foods raised $50,000 from Rain Source Capital.

• Frozen yogurt seller Pinkberry Inc. raised $8.3 million in two rounds from Maveron and Highland Capital Partners.

• Snack maker Sunflower Food & Spice Co. raised $7 million from Advantage Capital Partners.