The Exchanges

Q And what does your team look like today?

A So we have 13 investors. There are three of us that are partners. We've sort of worked together from the beginning in one way or another. I have a couple of principals that joined us right off the bat there, and then a group of VPs and senior associates that come out of that traditional mode. A bunch of them worked at oil and gas private equity firms, or a utility group at a At a bank or investment firm. And they kind of saw the writing on the wall and said, Hey, I want to get onto this side of the ledger, but that gives us depth and firepower to look at most things that come in. And then we obviously have a full operations team.

AI assessment note: “we have 13 investors. There are three of us that are partners.”

Q What are those themes that are most attractive to you?

A Sure. So, I mean, I think the, the powerful ones within, and they're, they're somewhat obvious, but the powerful ones within electricity are declining costs of renewables. So renewables have just been on this inexorable decline in cost. And the question becomes not, is that a good thing? It's how do you position your investments to benefit from that rather than be compressed? That whole chain doesn't make that much return on a gross basis anymore. It's wonderful for the world that solar projects can yield or get capitalized at a seven percent on levered return, but that also means the returns are too low for us. And so how do you position yourself against that theme? And that's been an important part of, of what we do in electricity. Then the decline curve in lithium ion batteries applies to both electricity and mobility. So we are involved in grid oriented storage and maybe we'll come back to it, but that's enabled by dropping costs of batteries. And that same thing makes a huge difference in mobility and transportation, where a battery that used to cost a thousand dollars a kilowatt hour is breaking a hundred dollars a kilowatt hour. And so things are increasingly in the money. And so I think in both power and mobility, that's the, the defining theme is that more and more things are economically in the money. This isn't a question of regulations or subsidies. It's just pure e…

AI assessment note: “the powerful ones within electricity are declining costs of renewables”

Q Well, why don't we start, as I always love to do, with your background? How did you first get interested in investing?

A I grew up the son of teachers and the grandson of teachers, so education was really important. First real exposure to stocks was in high school. Had a math teacher. Freshman and senior year. Great guy. And he made us do the stock market game. So freshman year, we thought we were really smart. We're going to buy the most expensive stocks possible. Turns out that was Berkshire and capital city. So I just wish I had bought them and held them. But by senior year, we realized that the game was driven by percent gains. And so back then a tick was an eighth. And so if you bought a stock that traded for 75 cents, one tick overnight would effectively one buyer moved to a percentage of tons. So we sort of started gaming it then. And, and that was the beginning. I went to college, uh, liberal arts school, Washington University, a long way from where I grew up in California, culturally and otherwise. But from there was lucky I had an alum that reached down and interviewed a couple of kids and joined Wolfenson, the M&A investment boutique. And then in the late nineties, I wanted to move from banking into investing. And there was a firm called Baupost that was running a search and they said, oh, you probably haven't heard of them. They have about a billion dollars. And Turns out the PM gives you a call for your introductory half hour interview. And so, you know, had a phone call with Seth, C…

AI assessment note: “First real exposure to stocks was in high school. Had a math teacher.”

Q So what was that framework that you set upon that the three entities together coming together would pursue?

A So we set up our first vehicle. We called it a sustainable asset fund. And the key aspects of how we approach the world is saying that sustainable assets are the same thing as real assets. That there's sort of a fundamental architecture of infrastructure that delivers electricity. It delivers transportation. It gives us our food. It gives us our water. But the big shift that was taking place was that there's sort of this secular and structural tailwind that is going to really cause transition over time. And so our basic shared philosophy was that you had the opportunity to buy real assets and physical, tangible things that provided real principle protection. And yet the tailwind was going to allow you to earn outsized returns to the extent that you're right. And so it's sort of a deep value biased portfolio skew and investment skew that we were then seeing time and again in multiple different transactions and opportunities.

AI assessment note: “our basic shared philosophy was that you had the opportunity to buy real assets”

Q And how about on the batteries in the power grid?

A Well, that was effectively where I was going, is that solar had come to the power grid, and we had been looking at utility-oriented energy storage for three or four years. Found a team that we really liked. They were very smart. Three guys backed by a great group of angels, and then the question becomes, when and how are they ready for us? And so we spent a year almost Working with them and showing them how we're going to operate and why we can grow the pie with them, right? You don't want to compete purely on cost of capital. You want them to understand that We're going to move quickly and understand the markets that they're building in. And as soon as it was time to start construction on their first asset, we came in and paid to build that asset and have grown that team from three people to 30 plus people. We did four different smaller assets. One of those, as an example, was a test of an idea that we had. The idea worked in the market and we now have, are expanding that 10 X over the next 12 months where you're able to get contracts that people hadn't realized you could get contracts for. And by being an early mover, Engage with these markets in a way that creates specific high return value that if you're not diving into the market with a good team, you aren't going to identify.

AI assessment note: “we had been looking at utility-oriented energy storage for three or four years.”

Q As you've been pursuing this, what are some of the bumps in the road that you've come across after making investments?

A I alluded to one, which is assuming that a developer is going to be able to, you know, continue to say, stay as solvent as they think they will be just doing your project. So you can be capital protected buying a project at construction ready is one of the places we like to invest because often construction risk is well known. We don't want to wait and know whether you'll get your interconnection or whether you'll get a permit or, you know, those things are much either binary or harder to control versus having a construction company show up and build the thing they've built five times is relatively easy to underwrite. But usually delays show up and a developer runs out of money when they would have thought that they were going to be fine. And so we've, we're increasingly trying to just avoid getting into that conversation, having been through it a few times, which says, you know, now we need to bail out our partner. And that creates an uncomfortable discussion. So it's better to sort of sort it out. So you're aligned upfront. I think that's probably been the most frequent issue. And then figuring out the right platforms to scale. We had a couple of things in fund one where the, the financial opportunity didn't scale as quickly as we hoped. And so while interesting project level returns, you don't get the kind of operating leverage that is required to do really well.

AI assessment note: “assuming that a developer is going to be able to... stay as solvent”

Q The cheaper, greener, lower cost is easier in some sense than the uncertainty about say autonomous vehicles. We know that trend's happening. Where do you think the mobility curve looks like maybe five years from now?

A So you've thrown out two differences of things that we are willing to invest in today and things that we want to be cognizant of for tomorrow. So the transition towards electrification is a really easy one. It's a mathematical equation, but one that requires knowledge and nuance. What are the ways to optimize your Power expenses. How is it more valuable to site your charging station on this side of the street where you're in one utility versus across the street where you have a different utility? Those are things that are hugely economically important, but not that hard. When and how autonomy applies is much, much more complicated. And so when we think about assets we're building, how do you align with both trends? When we owned EVgo, we had partnered with NRG and we grew the asset base over two times, but you wanted to be cognizant of where and how that was going to make the most sense.

AI assessment note: “When and how autonomy applies is much, much more complicated.”

Q What do you see as the biggest challenges to continued success in your business?

A If I go back to our mission, it's saying bring more capital and bring more ideas and bring more competition. And in some ways that makes it harder, but I think the key is this process and economic pathway continues. And so just sort of sticking on it and grinding away is really important. I think there's some complexity to capital still, the ability to put together the right mix of capital to really drive and deploy Projects over this changes is complicated by traditional fund structures. We have an investment from fund one that it's been great and it's grown and it it's five years in six years in, and suddenly it may have a multi hundred million dollar equity opportunity at high teens, 20% IRRs unlevered. Well, we're coming to where we need to be thinking about selling it. And that doesn't really make sense because we've had a fair amount of blood, sweat and tears in, in building and expanding management team and going through the early lessons of What works and what doesn't, and so we can do what we talked about earlier, which is, you know, turn around and sell to someone bigger, but I think there's a mismatch between expertise and alignment that continues to evolve, and that's been a question in asset ownership in general, and there have been some attempts to fix that, but when you're doing it in newer categories, it has a second level of difficulty.

AI assessment note: “ability to put together the right mix of capital to really drive and deploy”

Q As you started thinking about sourcing opportunities and looking at your filter, were you looking at cheap existing cash flows? Or you also mentioned in this transition, you might have things that aren't driving positive economics today, but clearly with that tailwind, we'll get there as cost structures come down.

A It's really important to us not to get boxed into a single lens. I think the defining characteristic is can you invest with The structural opportunity and framework. Growing up, the idea that there was debt and there was equity or different approaches to what an investment was, wasn't really the right framework. It's what are the underlying opportunities? How do you best structure them to capture those things? And so we've been willing to be a debt investor. We're willing to be an equity investor. We've owned straight project capital and we've owned companies. What that's meant is To get to your actual question is we've started building things with management teams where there's really just an asset. So we've gone in and been construction capital building solar projects on Cape Cod because Massachusetts had an interesting regulatory regime that people had not really dug in and figured out. But we've also bought full-blown companies where they were a mixture of assets and opportunities that We felt like the underlying assets could be transformed by and with the management team that existed. So we try not to be biased one way or the other, but often in some cases it's valuable to come without the baggage of history and an existing platform. And in others, it's that very history and existing platform that allows you to transition.

AI assessment note: “It's really important to us not to get boxed into a single lens.”

Q And how did that evolve from your first step away and what did you do at that point?

A So everything is incremental in terms of actually having the time to learn how this functions. The good and bad of being an investment generalist is, you know, a lot about a little until you need to know a lot about something specific. And so, you know, sort of taking that framework, it was time to dive in on a whole bunch of systems and That I hadn't spent a lot of time thinking about. I knew there were problems, but I then worked closely with a handful of nonprofits. They were always eager to engage with, with someone who wanted to learn more and work with them. So I spent time doing that and investing a bit from my own balance sheet and diving in with a number of emerging companies and startups. I sort of spent four years, you know, as I put it, getting smart and ultimately began to see more and more opportunities that weren't just interesting intellectually or Felt like they could make change, but that were compelling investments aligned with this transformation and transition. And that really started lighting up our inboxes in.

AI assessment note: “I then worked closely with a handful of nonprofits... investing a bit from my own balance sheet”

Q How did you come to wanting to focus more on private companies and projects compared to the public markets?

A So this change, there are some great public companies that are part of the change, but it's actually a relatively nascent and complex world where finding teams and finding the people who are really going to dig in and do the work makes a huge amount of difference. I'll use Evigo again. Bringing in a new management team there has led to an acceleration of that business's performance, its network performance, all of the key metrics as you went from one point O of the industry to two point O of the industry. So people that had grown up in that business between 2008 and 2015 are different than the people that are growing it now as it's gone five X the size and it's going to five X again. And so you really need to be able to roll up your sleeves and both figure out structure and Find the right places to invest. Whereas next era is the biggest renewables owner in the United States. It also is regulated utility in Florida. And so how do you balance those two things? Their cost of capital is incredibly low. And so it's both a complicated ESG question and an inability to exercise outcomes in something that's this dynamic. And so a darling like San Edison can go from favored stock to bankrupt if you're not careful.

AI assessment note: “you really need to be able to roll up your sleeves and both figure out structure”

Q When you refer to sort of the way we work, are you taking that financial analyst lens and saying, okay, we're modeling this out, we're looking at certain required rates of return, or what is it about the way that we work that might be different from others?

A I think some of it goes to that structural question. We are able to offer a couple of different approaches to Providing capital. And so a management team may say, Hey, I want you to finance each of my projects. But then they realize they need capital at TopCo or the developer. And so once you start to get into the push and pull of who pays for the team, how do they pay for it? Having been around the block and seen things that work and don't work allows you to help them on that journey where you say, look, here's what we need. We need to be able to get access to the assets. If things aren't working, with all due respect to you, we need to be able to get our hands on those and protect our capital. Same time, you believe in yourself, and we believe in you, and therefore, how can you earn the kind of personal and team upside that you think fits with executing on your value proposition? And there are sort of our inherent biases in people who are willing to be developers and executives. While the tailwind is there, they're pushing against most traditional energy systems and traditional ways that the business world operates, and so they have an innate optimism, and so You know, we're able to usually find really good alignment between our goals for returns and their goals for returns.

AI assessment note: “I think some of it goes to that structural question. We are able to offer”

Q Do you find yourself purposely playing in that sort of mid space, knowing that you're going to have these bigger private equity firms to sell to?

A So we've seen our transaction size go up over time, partly because we have more capital, but also because as more and more things are economic, the scope and scale of what you can do and still be at an attractive bite size. So we see bigger opportunities, but we also see this second point where the really big guys are starting to look and they can't reach all the way down. And so the midsize space, we start to bump up against Them. Now that we're looking at certain situations that are well above a hundred million dollars, but that's kind of been the floor where you're just not going to see them come below it. And they still, I think, see value. If, if you want to put a billion dollars of equity into something, it's very hard to start at 10. And so we're willing to start at 10 or write a hundred million dollar check and then go from there while they need to start with two or three hundred million dollars to start.

AI assessment note: “the really big guys are starting to look and they can't reach all the way down”

Q Where do you draw the line on investing on behalf of others in the fund, and then maybe something you would do philanthropically that might serve the same mission, but doesn't have the same kind of economic return?

A The good news is those buckets are crystal clear and distinct. You mentioned, you know, stocks and things. I actually don't do much of that at all, right? I know what it takes to be good at it, and I don't choose to spend my time doing it. Therefore, it occasionally shows up where it really ties into what we do. You know, so we're doing a take private in Norway. The stock was massively undervalued and completely misunderstood, and I had all kinds of flashbacks to the exact kind of situation that I liked 15 years ago. But Within the nonprofit or philanthropic side, capital's not really the solution, right? The leverage comes from policy change and policy drives capital. So to me, at least, either something pays and real capital should do it, or it needs a structure or policy prescription that's different to make it pay. So the idea of subsidized capital or those things, that doesn't strike me as attractive. We see some opportunities where someone has been subsidizing it out of a family office up to five million dollars, but you can't scale there. And so it's a very harsh reality for a company that's had a, a philanthropic capital partner that hasn't been economic. And then they want 20, 50, a hundred million dollars and the harsh reality of what the market says. And it'd be better if they just had to figure it out from step one.

AI assessment note: “either something pays and real capital should do it, or it needs a structure”

Q When you set out to sort of build Vision Ridge, there's this concept at least that I'm imagining that you were investing in a certain way to just make money, and now you're in a space that has this bigger mission attached to it. How have you felt about the day to day difference?

A If I just wanted to invest to make money, I don't know that I would have gone out and raised a bunch of third party capital and taken on the obligation of working for others. We did that in part Because we saw a profit opportunity, but more of a profit opportunity for them. So I think our whole genesis was from a position of impact. It's why it's worth doing this, but not impacting a given micro investment, but rather felt pretty strongly that this was not a concessionary activity. This is actually hearkening back to my comments earlier about going to a small town in Europe to meet a CEO from a five hundred million market cap company who doesn't talk to Investors often and figuring out, wow, this is amazing, right? The level of work required is just different. And so now we're choosing to work on this because it actually creates opportunity and opportunity for really good returns and convincing other people that it does. So we see our mission as delivering on that market viewpoint to begin to convince more and more people that this is in fact the case. And then expanding effectively our investor base or the investors in the category and in the sector. We expanded quite significantly our LP base between fund one and fund two, and it's bringing an endowment or a foundation into these investments, not just because it's good for the world, but because it's good for their portfolio.…

AI assessment note: “So I think our whole genesis was from a position of impact.”