My Climate Journey

Ep 25: Rob Day, General Partner at Spring Lane Capital

Episode Notes

Today’s guest is Rob Day, General Partner at Spring Lane Capital.

Spring Lane Capital partners with strong management teams who are selling or using distributed assets with compelling customer economics in the energy, water, food and waste sectors. In these sectors, they focus on solutions that have significantly positive impacts on the sustainability of our natural resources, which they believe offer advantaged long-term benefits economically and socially. They’ve found that in practice, most such solutions have major physical components – “distributed assets” are those solutions using equipment or facilities smaller and less concentrated than traditional project finance can address.

Rob has been a sustainable resources private equity investor since 2004, and acts or has served as a Director, Observer and advisory board member to multiple companies in the energy tech and related sectors. Rob also serves on the Board at the New England Clean Energy Council. From 2005-2016 he authored the column Cleantech Investing, which appeared on, and co-hosted several conferences with that group on the topic of new investment models for the sustainability sector.

Formerly a consultant with Bain & Company, Rob has worked with companies and evaluated private equity transactions in the energy/ utilities, telecom, IT, medical/pharmaceutical, and retail industries. Earlier in his career, Rob was a member of the World Resources Institute's Sustainable Enterprise Program, where he co-authored the report The Next Bottom Line: Making Sustainable Development Tangible. Rob received his MBA at the Kellogg Graduate School of Management (Northwestern University), and his BA at Swarthmore College.

In this episode we discuss:

Links for topics discussed in this episode:

I hope you enjoy the show!

You can find me on twitter @jjacobs22 or @mcjpod and via email at, where I encourage you to share your feedback on episodes and suggestions for future topics or guests.

Episode Transcription

Jason Jacobs:                Hello everyone. This is Jason Jacobs and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change and try to figure out how people like you and I can help. Hey, everyone. Jason here. Today's guest is Rob Day, a general partner at Spring Lane Capital. Spring Land Capital aims to partner with strong management teams who are selling or using distributed assets with compelling customer economics in the energy, water, food and waste sectors.

Jason Jacobs:                In these sectors they focus on solutions that have significantly positive impacts on the sustainability of our natural resources, which they believe offers advantaged longterm benefits economically and socially. Rob has been in the Cleantech world for a long time, initially in management consulting then in traditional venture capital and now doing what I think he called small distributed project finance with Spring Lane Capital. Spring Lane is pretty new, but they found a niche which seems like it's both underserved and also important.

Jason Jacobs:                And we talked about a number of things in this episode including the types of work that they do, how they evaluate, what projects they work on, how they define success, how it fits into the overall climate fight. And we also talked about if Rob wasn't doing the work he's doing, what other kinds of things would be impactful to help with climate change. And finally Rob gave some well heated advice to anyone who's feeling like I am and concerned about climate and not really sure where to start. I had fun with this one, and I learned a lot too. I hope you do as well. Rob Day, welcome to the show.

Rob Day:                       Thank you very much. Good to see you.

Jason Jacobs:                Good to see you too. Thanks for coming.

Rob Day:                       Absolutely. Beautiful day like today too good a excuse to walk a few blocks from the office.

Jason Jacobs:                Yeah, it is a beautiful day. It's funny, I mean I think as I've gotten down the climate journey path, it is a global pursuit for sure, but locally as I've made the rounds, your name just keeps coming up as kind of an OG in the Cleantech world.

Rob Day:                       When I started investing in this sector, I did have hair. It's true.

Jason Jacobs:                When did you start investing in the sector?

Rob Day:                       I thought you were going to say, "When did you start losing your hair?" So I've been investing in the sector now for going on 15 years, pretty much 15 years at this point.

Jason Jacobs:                Got it. So you got going like right leading into the last bubble?

Rob Day:                       That's exactly right. Yeah. I started out working with a fledgling venture capital firm in San Francisco focused on this area and thought I was just doing that to earn a few bucks, doing some extra hours for them. As I was looking around to see what startup I was going to join and ended up turning that into a full time job instead, which was fun. And then funnily enough, I actually started a blog in 2004, maybe it's 2005, but only because I had looked for news sources. And now, of course we know about Greentech media and all these other news sources that are out there, but there wasn't even a news source about what deal had been done in the space. And I was like, "Fine. I had a site, and I started blogging on stuff like that. So yeah, it's been a fun 15 years.

Jason Jacobs:                So what kind of investing were you doing at that time?

Rob Day:                       I was with a group called Expansion Capital Partners, which doesn't exist anymore, but it was growth stage Cleantech venture capital. Before there were a lot of growth stage Cleantech ventures, which was itself kind of challenging. But it was fun. I was getting to work with a couple of great partners, one of whom had come out of the corporate venture space, and it was a really good grounding for me and understanding how venture capital actually works.

Rob Day:                       And we did do deals. We did get to invest in a few companies, some of which actually did well, some of which obviously not so much the nature of the beast in venture capital investing. But yeah, it was a really good entry point for me in understanding how to view this world through the lens of an investor, not just, "Hey, what does the world need?" Or, "Hey, what do I think is a cool startup idea?"

Jason Jacobs:                And when you save this world, I guess this world means something different to many different people in the space, so how do you define it? What is your area of focus? How would you describe it and also how has it evolved from 2004 when you got into today?

Rob Day:                       When I say this world, I mean it pretty broadly just the world of sustainability and entrepreneurship generally speaking, but one of the things which I realized, and it was the whole reason I ended up wanting to be an entrepreneur and then an investor in this sector in the first place was I realized there's going to need, at least in my opinion, it's going to definitely need to be a lot of leadership from the business community into this massive area of concern around climate change in particular and just environmental sustainability in general.

Rob Day:                       And I had always had the belief that if you want to see more of something happen in the world, you show people how they can make more money by doing it and then magically more people show up to do it. And that was how I kind of defined why I wanted to get in on the entrepreneurship end of it.

Jason Jacobs:                Just with energy parameters or broader, even from the beginning?

Rob Day:                       At first it was just energy. Taking a step back, I grew up in an environmentally conscious household. My father worked for the Senate Environment Public Works Committee as a staffer. For instance, when I was in junior high type age and when I was younger I cared as much about like clean water and just sort of breathable air as much as climate change. But then, in my early twenties got a lot of grounding in what was going on with regards to climate change, and it seems so existential even at that point that I wanted to do something in that realm.

Rob Day:                       And my job was actually at that point in time out of college, I was actually working at environmental nonprofits. And my job had shifted over time within those nonprofits to being working with large companies, helping them figure out how they could make more money by viewing the world through more of an environmental sustainability lens, sort of [inaudible 00:05:50] consulting, but really getting paid in case studies not getting paid in terms of actual dollars.

Rob Day:                       It was a phenomenal experience. I got to sit inside the boardroom of a fortune ex big pulp and paper company for instance, at one point got yelled at by the CEO for being an environmentalist just in general. I got to go work with large chemical companies and see how they were actually trying to figure out how to make more money in this way by rethinking pretty core business models in some cases. At one point I got flown all around the world to different continents to hug trees as part of a series of sustainable forestry case studies, which was actually a really cool experience too.

Rob Day:                       But coming out of all of that I said, "Okay, look, it's not the only sphere in which to have influence, but if you really want to make a dent on any of these issues, you've got to have the business voice in there." And in particular, in the late nineties I was exposed to a lot of what is now a little bit more sort of commonly held viewpoint, but was as I was working with a lot of really smarter people in the environmental nonprofit world who were doing really smart analysis around climate change, it was very clear that that was going to be sort of the issue of my lifetime from an environmental perspective.

Rob Day:                       And therefore, I left that nonprofit to go to business school to try to figure out how to become a clean energy entrepreneur, came out of business school at a spectacularly bad time to be an entrepreneur if any type.

Jason Jacobs:                When was that?

Rob Day:                       2001. And so right at the tail end of the dot-com bubble. I went into business school and everybody was talking about what dot-com internships they were going to be getting. Came out of business school and people were like, "Oh my God, you got a job in management consulting. You're so lucky." So real major shift in what was going on while I was in the business school at least. But spent a couple of years in management consulting and left there to try to figure out then what startup I was going to join in the clean energy world and ended up, like I said, stumbling instead into this entry level role in venture capital with that fledgling venture capital firm.

Jason Jacobs:                And so here we are in 2019, so tell me about Spring Lane Capital. What are you doing and how did you get here?

Rob Day:                       Sure. Yeah, so Spring Lane Capital real briefly, we are investing capital in the deployment of smaller scale systems. So going way back to 20 years ago when I was first getting started in this career, there was a phrase that was in currency then called "small as beautiful". And really what it was getting across is if you have more of your energy, food, water, systems, if you have more of them be local and smaller scale, you were avoiding a lot of transportation. You're rightsizing things for what is actually needed. You're engaging more people locally with these types of things so that they actually have a little bit more of a visceral feel about where their electricity comes from and stuff like that.

Rob Day:                       It has a lot of other implications as well. But one of the things that was true about it is, especially on that transportation side of it and by transportation, I'm not talking about cars, I'm talking about actually transporting energy, food, water, and waste. That if you can avoid having to take those really heavy physical commodities or in the case of electricity, just hard to move commodities, and you can produce and use them more locally than you have some form of efficiency advantage that you can take advantage of.

Rob Day:                       Now, the counter to that is okay, but you've also got efficiencies of scale and that's why we have in our economy these large hub and spoke infrastructure systems where you have large power plants, municipal scale wastewater treatment plants, things like that. We grow all of our lettuce in the central valley of California and then ship it all the way to Boston so that we can have lettuce anytime of the year we want it. But a couple of things have changed over those past couple of decades, which is yeah, you have the efficiency of scale, but you also back then had an efficiency of labor and that if you have a large centralized power plant, and you can have a team of people there to watch the dials and turn leavers and get in everything. That is roughly the same as if you have to have a team of people on site at a much smaller scale facility to do the same thing and give 24/7 coverage.

Rob Day:                       But now that's not true anymore. Thanks to advancements in telecommunications and automation. You can actually run a fleet of these smaller scale systems from a single headquarters. So this economy of labor of going to smaller scale is now mostly gone, and now you're left with the trade off of just big centralized production facility versus not having to transport stuff. And now if I look back upon 15 years of looking at innovations and seeing them successfully commercialized, at least from the standpoint of do they actually work, a lot of those innovations therefore have been at this smaller scale and more suited for more localized use. But the capital hasn't been there. So sorry, long winded way of saying what we do at Spring Lane Capital is we provide the capital for those smaller scale systems, which with a couple of exceptions that capital just hasn't been there.

Jason Jacobs:                And so, what would be an example of the type of project or even better a specific project if you've got one that you've worked on?

Rob Day:                       Yeah, absolutely. So for instance, we've announced investment. Our first announced investment was with a company that turns trash into electricity. There's different ways that you could do that. Just up the road from us in [inaudible 00:10:46], there's a big Wheelabrator plant where they literally just burn the trash, not great from an environmental perspective, number one. Number two though, they need to basically truck trash in from neighboring States to keep that thing full and functioning. Well, this company that we've partnered with Aries, they have a much smaller system. It basically takes trash in the top end of a vessel and using heat, gravity, and pressure that gasifies it and basically turns it into sin gas, which they then capture and then use right there on site using off the shelf equipment to turn into electricity or for industrial heat. And then also what comes out the bottom of that vessel is an ash called Biochar.

Rob Day:                       So is it the most efficient form of turning trash into gas? No, but what it is, is it's very robust, and it can work at smaller scale. So if you are a mid size town in Kentucky and you have a landfill capacity problem right now, you're basically out of landfill and nobody in town wants to vote for a new landfill or even to expand the current landfill. You're having to pay to ship trash to a neighboring town or increasingly to some other town like several towns over, and you're having to pay a lot to ship that trash. It's called a tipping fee that you're paying. Well, instead this area system put it right there on site. It takes some of that trash and instead of paying to ship it away, you pay Aires, Aires takes the trash, turns it into gas, turns the gas into electricity and then also sells the electricity to say a nearby municipal wastewater treatment plant to power their operations.

Rob Day:                       So it's a nice little solution that works really well at that sort of mid size scale and below where a lot of other stuff can't. The problem for that company was they only need like $5 million worth of project equity to build out one of their systems for that town. They knew going to that mid size town in Kentucky and saying, "Hey, why don't you go ask taxpayers so that you can raise the money to buy one of our systems for cash? Buy it all upfront. And then, by the way, now the landfill operator of this midsize town in Kentucky is going to be in charge of operating this newfangled gasification plant. How's that sound?" Turned out that was a really long sales cycle. It would take a long time for them to get one of those sales.

Rob Day:                       The management team there knew what they needed to do was instead just build them themselves, own them and operate them themselves and just sell contracts for tipping and sell contracts for power on the backend. But the problem is they still needed the capital to build out those systems. And if you've ever been an entrepreneur trying to raise $5 million for one project, t's like nearly impossible. Project finance does not work that way. Project finance on a one off basis is designed to help build out $1 billion wind farm, not a $5 million waste gas vacation facility. So this management team didn't know what to do. They went around trying to raise just a really big round of venture capital. And that's what so many of the entrepreneurs I've seen in 15 years of this end up feeling like they have to do, like they have to go to venture capital to raise the capital to put steel in the ground somewhere. Spectacularly bad use of venture capital.

Rob Day:                       And so instead when they came to us, we said, "Well, we're not going to give you a big round of venture capital either, but we'll set you up with a $25 million pool of capital that will be what you need to put up your next four to six projects." And so that's our first deal. We're excited to work with them. We're looking forward to putting some of these projects out there. They're going to take 5 million bucks at a time from us, but they know the capital's there, so they know they can go after that sales pipeline of theirs and start putting these things out there.

Jason Jacobs:                What criteria makes a good fit for Spring Lane Capital in terms of the types of projects that you're investing in?

Rob Day:                       Yeah. So first of all, it has to be net positive for the environment.

Jason Jacobs:                As defined by what?

Rob Day:                       As defined by a combination of factors. One is always going to be atmospheric carbon emissions. It can't make things worse from a climate change perspective and hopefully it's making things significantly better. But there are other environmental attributes that could be important as well, such as when we look at water and wastewater treatment, maybe it has strong operating characteristics in terms of treating water and wastewater and cleaning up water issues, but still has to have at least break even if not better on the carbon side. So it's always that one characteristic that we're tracking across the whole portfolio in terms of net atmospheric carbon emissions. And then a couple of other attributes that are specific to whether it's a waste treatment thing that we're investing in, or a water treatment, or food production, or whatever the case may be. That's one thing.

Rob Day:                       It needs to be something where the value proposition to the customer is very clear, and what's holding it back from being adopted is as much as anything else the lack of capital. So specifically if you are one of those Aries customers, it needs to be very clear that they are saving money by essentially paying Aries to take their trash, versus paying somebody else to truck the trash to some other town to be stuck in a landfill and just turn into uncaptured methane in all likelihood.

Jason Jacobs:                You can't just be like a tug on the heartstrings. It's got to make financial sense as well without relying on policy.

Rob Day:                       Yeah, that's exactly right. We are stepping into situations where there is that core strong value proposition that has been held back by the lack of capital. We have a particular structure that is fairly new to the financial universe for how to roll those out for these smaller scale systems. There's actually a bunch of other stuff out there that is more sort of financially less attractive where this kind of structure could be used, but we're just starting, we're just trying to introduce this to the financial markets. And like I said in the beginning, the best way to get people to want to do more of something, it's to show how they can make money doing it.

Rob Day:                       And so what we want to do is help these companies get stood up, help these companies get their systems out there with a financial structure that then they can go to mainstream Wall Street Capital and say, “Great, we used $25 million from Spring Lane Capital. You can see our two years of operating track record now can you please bring in capital for the next hundred million dollars worth of these projects?” And if we can introduce this model in general to more of the impact investor community, people who are doing programmatic related investments for instance, maybe they can bring lower cost capital to something that is a little bit more, maybe it's not a tug at the heartstrings, but maybe it's more of a really pure environmental need.

Jason Jacobs:                Earlier with more [inaudible 00:16:40] for example.

Rob Day:                       That's right. I was just talking with somebody earlier today. He was trying to do some version of this for the very first such project, for something that they think would be needed. Maybe that's going to be a really valuable gap filler as well.

Jason Jacobs:                Got it. And so you mentioned that there's a new form of capital, but project finance, especially the large scale project financing you were talking about, that's been around a long time?

Rob Day:                       Actually you'd be surprised at how young an asset class it is from the perspective of large pension funds and institutional investors. It literally is younger as an official asset class, younger than venture capital funnily enough. But yes, it's already, even though it's relatively young, the people who work on infrastructure, who work on project finance, they have the recipe and that's their recipe. And it's like how to build a billion dollar airport. You're going to do the engineering for that one airport. You're going to work with a contractor around that one airport. All the contracts are going to be just geared around that one project. Everything is bespoke to that one project, and its huge amounts of transaction costs, but you can afford to do that at the billion dollar level.

Rob Day:                       The challenge has been how do you scale that down to the $5 million level? So our answer has been taken directly from our experiences in the solar space, where we and others introduced third-party capital in this structure and really unlocked, therefore a lot of growth in that sector along with cost declines that dovetailed with it as well. But basically you say, okay, we're going to take all that same amount of transactional pain, all the detail orientation of project finance approach to figuring out how to take every little bit of risk that we can out of this for that first $5 million project. But we're going to do all of that so that then the next project is cookie cutter, and the next one after that is cookie cutter.

Rob Day:                       And in so doing we amortize that pain as it were. We spread out that pain over multiple projects. If we've done our job right, and we're partnered with somebody who also shares that vision of, "Hey, the first one, sure it's going to be tricky. It's going to be detailed oriented just to figure it out amongst us, but then the next few are going to look exactly like that."

Jason Jacobs:                So then I think what I'm hearing from you is that it's viable if you go after smaller projects, assuming you choose clients or companies to work with who plan on many projects, and so you're signing on for all the projects and maybe it's not a guarantee, but it's just assumed that if they work with you once, and it goes well that they'll work with you again.

Rob Day:                       I figured we're giving them a hunting license. We're saying, "Okay, here's $25 million, and we've now negotiated amongst us exactly what type of project you're hunting." It's a lot easier if you're that developer team, if you're that startup to then go through your pipeline of projects, go through your pipeline of sales and say, "Okay great, let's go focus on the ones that look like that." If they want to pursue other stuff in their big game hunting out there in the Savannah, that's fine, but we've already done all the hard work to figure out, "Okay, but if you go get projects that look like that, bring them to us, and it'll be really quick to get the capital to get the projects into place."

Jason Jacobs:                And are the terms pretty consistent from deal to deal or are they all [crosstalk 00:19:31]?

Rob Day:                       Have to be.

Jason Jacobs:                Deal to deal within a client, but what about across clients and industries as well?

Rob Day:                       Yeah, so part of the challenges of introducing a brand new investment model has been, okay, well there's not the established [inaudible 00:19:40]. We can't just go to and download the standardized small scale project finance term sheets and documents sets like you can now for venture capital for a more established area. Plus, these are just simply more complex transactions as well. But part of what we're doing is really standardizing what this looks like. We have a very standardized financial structure, but it will vary a little bit in each case. But you have to have that grounding of expertise and knowing, okay, here's the basic structure and how it works and here's how we can modify it for the specifics of that organic composting opportunity, or that animal waste methane capture opportunity, or that containerized wastewater treatment opportunity.

Rob Day:                       So yeah, it is a little bit of a dance. You have to have a consistent document set, doc set as we call it. You have to have a consistent model that you're applying. But part of our role in being this pioneer of providing the first such project capital for that startup or that project developer is that we also have to have the pattern recognition, and the expertise to modify it for them. You can't just take an off the shelf third-party capital financial structure for name your rooftop solar financer and just apply that boiler plate with just a couple of names switched to one of these other opportunities. You have to make it specific for what works for them.

Jason Jacobs:                And who's your competition?

Rob Day:                       You know there's a few other peer groups I call them. I don't even call them competition out there. There's a group called Generate that's been around, gotten a lot of good attention to what they're doing. There's a group called Vision Ridge. There's a group called Ultra and there's some other folks as well. But we rarely bump into those guys competitively and in fact, with some of them had nice sit down conversations about, "Hey, if we can, let's try to find deals where we can collaborate with each other." It's such wide open space, I won't give you a specific number in public, but we've got a deal pipeline. Having just launched our firm just a couple of years ago, we've already got a deal pipeline that measures in the billions.

Rob Day:                       This is a huge untapped need in the marketplace because if you think about it, so many of these solutions in the energy, food, water and waste area, they're physical. You're talking about actually having to put physical systems out there into the world. And yet the capital sources for that have either been large format infrastructure funding, which like we talked about works for large format wind farms and everybody wants to do it. And in fact the returns are currently crushed for big solar farms, big wind farms because every pension fund wants to do that. But it's not a fit for these smaller scale things. Or venture capital, which is still a little bit unfigured out in terms of how the model applies [inaudible 00:22:13], but certainly has been shown to not be a great source of capital for putting physical systems out there into the world.

Rob Day:                       And in fact I would argue, and this is coming from a guy who has self identified as a VC for over a decade now. I would argue the over application of venture capital to put steel in the ground out there in the world has damaged and killed as many startups in this space as it's helped.

Jason Jacobs:                The asset class that you're describing, so you and your peer group, it's only been a few years collectively that everybody [crosstalk 00:22:41]?

Rob Day:                       Yeah, that's right. I mean it's basically coming out of the back end of what was a real success story in this space. The launch of greatly accelerated rooftop and community solar markets in the U.S. It's not entirely attributable to providing third-party capital, but it was a big part of unlocking it. Solar developers were able to go to home owners, go to businesses and say, "Would you like solar for no money down? And it will cost you about the same as what you're paying to your utility right now." That unlocked a huge amount of growth that then created the virtuous cycle with what was going on with reducing solar costs as well. Solar panel costs and like at the same time. And those two factors themselves just led to an absolute explosion of the solar market here in the United States.

Jason Jacobs:                So who's the closest corollary in the solar world to what you guys are trying to do?

Rob Day:                       The closest corollary, I mean we're providing the capital behind efforts like a solar city, so solar city, it would be the developer that we partner with. Really the best the analog to what we're doing is the role that like a Morgan Stanley played in that Last solar wave. There are less known names that actually were the pioneers that introduced the structure, the financial structure that then JP Morgan and Morgan Stanley and others came in behind and provided. Okay, here's all the capital that mainstream Wall Street rates, and what I can tell you is there's literally tens if not hundreds of billions of dollars of that capital just waiting now to be unleashed into these other areas. But they need somebody to come along and pioneer the structures and show that there is a couple of years of operating [inaudible 00:24:08].

Rob Day:                       Basically, if you are a Wall Street bank, like one of these guys, you want to be handed a black box that if you put money in the top of it and you turn the crank on the side, even more money comes out the back end of it. They're not ones to create that black box themselves, so there're firms out there that aren't real well known that we're the ones that provided that to Wall Street. That's the best analog I can give you is basically we are that early version of those big banks coming in and providing that capital.

Jason Jacobs:                And you had mentioned before that that one of your criteria is based on GHG emissions, and so I would imagine that there are some types of projects that are easy yeses, some types of projects that are definite no's, and then this big gray area where it requires further analysis. Is that true?

Rob Day:                       Yeah, for the most part, although it's not that we spend a lot of time on the ones that are at the margins, you know what I mean?

Jason Jacobs:                So it's either a clear yes or with a no?

Rob Day:                       Not always, obviously, and nothing is ever that simple obviously. But I'll just tell you, I start from the viewpoint. This is why I got into the business side of it and then the investing side of it altogether in the first place. Pollution is waste. If you want to run a business efficiently, if you want to just see a better economic value proposition, generally speaking, reducing waste is a good way to go about that. So buying large, we're looking at innovations, they want to be saving their customer's money simply because they're reducing waste. A lot of these innovations we're looking at, they have very clear environmental attributes and that's one of the major reasons why they actually have a good economic value proposition.

Jason Jacobs:                Got it. So it's pretty much an eyeball of is this towards the greater good? It's not that scientific because in your view it doesn't need to be.

Rob Day:                       It's not that it doesn't need to be. Instead, it's actually really, really hard to do and would hold back a lot of transactions if you went to the endth degree. I have talked for instance, with folks who offer to do GHG analysis at the portfolio level and want to charge you tens of thousands of dollars per portfolio company to do it. Anybody who has done venture capital transactions for instance, knows that that's tenth the amount to what you would pay for the entire legal side of doing a transaction. So you put your finger on one of the challenges that we actually wrestled with a lot, which is, okay, how are we going to walk the talk and identify good opportunities and then track their performance. Not just identify them upfront but track their performance and report that to our investors so that we know that at the end of the day we're doing exactly what we said we were going to do, which is make a positive impact while creating really compelling financial returns.

Rob Day:                       But how are we going to do that in an efficient way? And so, one of the things is having the pattern to know that uncaptured landfill methane is a big problem. And if you were instead diverting that trash to something where you're gasifying it in a way where you can capture it and then put it to better use. That is going to be a net environmental positive, of course, says only one factor that you have to consider from an environmental perspective versus a lot of other things. It does come down to at least in the upfront deal screening, are we even going to engage in this opportunity in the first place? Having a bit of that pattern recognition to know what you're going to watch out for, at least in terms of red flags.

Jason Jacobs:                So what's an example of one that you passed on for a non-financial reason?

Rob Day:                       We've passed on an opportunity recently where it was in the water treatment space, and it was a good efficient use of water in terms of just like the cost of treating a wastewater problem. But it was pretty energy intensive, and our questions were around, "Okay, so what's the trade off here? Are you spending so much energy to treat the wastewater that you're making a good use of water, but ultimately you're creating net worse atmospheric carbon emissions?"

Jason Jacobs:                But it was through that lens and not the energy as cost and cost as poor economics lens?

Rob Day:                       In this case it happened to be... I can't go into too many details specifics about a deal that we didn't do. I don't want to tarnish somebody.

Jason Jacobs:                What does it rhyme with [crosstalk 00:28:04]?

Rob Day:                       But yeah, in this case they were leveraging some pretty cheap available energy that was there for them to use.

Jason Jacobs:                That maybe wasn't the healthiest from an emission standpoint.

Rob Day:                       Yeah, exactly right. And anybody who operates in these markets of energy, they know that there are some cost disparities between different forms of energy or even different sources of water, and the like that people can take advantage of driven as much by policy imbalances or just marketed balances. And you've got to watch out for those.

Jason Jacobs:                So first of all, I'm psyched to have you on because we haven't had anyone representing the project finance perspective before, and I think it's an important one.

Rob Day:                       But just understand that if you're looking to me to provide the project finance viewpoints, we are a weird beast within that universe.

Jason Jacobs:                Can you explain what do you mean?

Rob Day:                       Well, like I was saying, large format infra folks are used to saying, "Okay great, we're going to cite this billion dollar wind farm somewhere and let's do that one project."

Jason Jacobs:                You're a small distributed project finance, how's that?

Rob Day:                       Yeah, pretty much. That's right. And so they look at us like we're crazy.

Jason Jacobs:                It counts. It counts under the same broader umbrella.

Rob Day:                       But the kind of stuff that we would look at-

Jason Jacobs:                Cruiser versus sport bike.

Rob Day:                       The stuff that we would look at, that we would entertain doing is so bleeding edge from their perspective that they looked at us like we're absolutely nuts.

Jason Jacobs:                Got it. And so is there higher risk in that regard and then also higher return as far as deal structure?

Rob Day:                       Yeah, that's fair way to put it. And there's a fine line. Like I said, there's somebody I was talking to earlier this morning who is willing to the very first of a kind plant. We're generally not willing to do it the very first of a kind. We're more prone to do numbers three through 10.

Jason Jacobs:                Do you have any success metrics that are not financial ones?

Rob Day:                       Success metrics that are not financial ones? Well, I mean I've talked about the impact.

Jason Jacobs:                That's in the deal selection, but what about performance?

Rob Day:                       Oh, well, we do track it over time. I mean we do want to be able to show that over time we are having a net positive impact.

Jason Jacobs:                As defined by what?

Rob Day:                       As defined by like I said, like we want to be seeing that across the portfolio we are having a net positive impact versus the status quo on climate change, on water, on healthy meals produced.

Jason Jacobs:                I guess how do you measure that? How do you know if you're on track or not?

Rob Day:                       We are not calling ourselves an impact firm and so we're not looking for the greenest of the green. We just need to see that we're making substantially attractive returns without making things worse because we believe strongly that if you are on the right side of these natural resource scarcity trends, you're creating as much as anything else in the economic tailwind for yourself. Because I'm an economist by background, sooner or later externalities get internalized. And so we just want to make sure that we're not backing something that whether it's just for moral reasons because we don't want to be making things worse or just because it's a point of vulnerability for them economically down the road. If they are making things worse then that means they could crack down the road by future regulations and the like.

Rob Day:                       But you asked what other metrics are we tracking? Honestly for me it boils down to something really simple. I have seen so many of these innovations languish and just not be able to get legs and not be able to get rolled out there like one would expect. No brainer, economic value propositions, years of blood, sweat and tears by innovators who have successfully commercialized something. They built a better mousetrap and then they don't know why the world isn't beating pathway through their door. I went to help establish a financial model that brings mainstream capital to bear, to help roll all those out. And one of the best ways to do it is to be able to allow them to do, you can call it two different things. You can call it a build own operate model or just simply blank as a service. Instead of me trying to sell you a complicated box that treats wastewater so that then you're going to have to run that box yourself.

Rob Day:                       Instead, what if I just said, "Hey, we'll just treat your wastewater. And you designed this five year, 10 year service contract, and we'll just treat it for you. We happen to use our own onsite equipment." That's what I want to enable. It's not going to be a panacea. What we need to be doing right now is introducing to this set of markets a whole wide range in capital ecosystem of which this is just one small part of it, but it's the one small part that we're tackling.

Jason Jacobs:                I mean, this is more of a philosophical question, but I mean one of the things I'm trying to figure out is there's kind of these quadrants because there's the impact quadrant, like how big an impact you can have on climate change. And then there's the livelihood quadrant and of course you need to match that with what's going to give you energy and what you're good at and things like that. But I'm curious for you, because you said you're an environmentalist first and that you're kind of a financial investor second.

Rob Day:                       In my day job, it's the reverse.

Jason Jacobs:                Okay.

Rob Day:                       To be clear, like I said, we don't call ourselves impact investors. We're going after superior financial returns by helping companies unlock growth in this area where the innovations need to be, at least on the right side of natural resource trends. I have my own personal reasons for why I think that's a really important role as an environmentalist, but I just want to be clear that in my day job return is oriented.

Jason Jacobs:                If you were not at all focused on livelihood, and you were only focused on impact on de-carbonization, would you be doing what you're doing now or something different?

Rob Day:                       I mean I self selected this way after starting my career at nonprofits. I actually happen to believe that the financial world is a crucial lever, that there's literally, like I said, hundreds of billions of dollars just sitting on the sidelines that actually wants to be given permission to jump in here and help take the solution set that we already have and roll it out at scale, but they don't know how to and somebody needs to do that. Now, to be clear, like I said, my personal perspective is that this is a powerful bank shot, but I'll readily admit it's a bank shot. And it's a bank shot in that we need to go out there and establish that there is a track record of strong financial returns from helping roll out stuff at scale.

Rob Day:                       And then if that means that number one, we're rolling out a lot more of these systems at scale directly because follow on capital comes in behind us and does it, or even better other people out of like the endowment community say, "Wow, okay, now we understand that financial model and that works, and we want to apply it to some of the stuff that was lower returns or at least higher risk because it's less well established." Something that you need to do for the first time, but "Hey, okay, there's a financial structure that we can borrow and use that." That's really what I'm trying to get at personally.

Jason Jacobs:                Mm-hmm (affirmative). I don't know if I'm allowed to ask this, if I'm not just give me the base ceiling symbol or something. But in terms of your LP base, I guess, what does that look like and also what's the primary motivation behind the people, or the entities that are writing checks in this type of vehicle?

Rob Day:                       So what I can tell you is that we are institutionally backed, and I guess I'll pivot to sort of answer your question in that. I'll just say I've had a lot of conversations over the years before launching Spring Lane Capital with members of the institutional investor community. And there is great frustration out there. If you are a large pension fund investment manager, you are a 30 year investor, you can see these very clear mega trends, and they're an economic impacts as well as anybody. You thinking longterm, want to invest with that same sustainability tailwind that I'm describing. Now, over the past few years, there's been even more pressure on some members of the institutional investor community because you're also now being told to divest out of fossil fuel stuff. Where are you going to reinvest that?

Rob Day:                       So there's a great hunger out there among at least a sizable minority, and I'm sure there's a selection bias in terms of the conversations I've had. But still there is a sizable portion of the institutional investor universe out there who at a conceptual level buys into, we need to be making large investments, large amounts of investment into sustainability solutions. The problem is they haven't been shown good recipes for how to do that.

Jason Jacobs:                As far as returns?

Rob Day:                       As far as returns. And that is their primary motivation obviously. They need to show that what they're doing with this is creating compelling financial returns at least on par with what they would get by just the status quo of how they invest. And especially on the private market side, if you're talking about like private equity, venture capital, project finance, private markets in general, there's been a paucity of options being shown to them in terms of where they can invest to get those good returns. Venture capital still scary and at least from their perspective and figured out. Large format infrastructure, like I said, it's been figured out for the most part, for at least wind and solar and now increasingly in batteries, but it's been so figured out that everybody wants to put money into it and there's a supply and demand imbalance.

Rob Day:                       Frankly good thing for the environment but bad thing for them in terms of finding those returns that are attractive enough for them, and you've just seen the yields crushed on solar and wind projects. And so when those are really the only things being shown to the institutional investor community, at least at the scale of check that they need to write, it's actually a really frustrating problem from their perspective. So that's why I say one of the critical needs right now is the development of a more robust capital ecosystem. A more diverse set of financial models, of investing models, that can be established, can start to show a track record and then can be shown to that investor community that has those hundreds of billions of dollars if not more just sitting on the sidelines, just waiting to be given permission to be put to work. Now we're getting into the more interesting stuff versus the boring specific purposefully boring financial stuff of what we do at my firm.

Jason Jacobs:                No, I think that sounds good too. The details matter. And yeah, I talked to Patrick O'Shaughnessy, who runs a great podcast, and we talked to him a while back when we were just getting going. And one of the things that he said was that his assumption going in was that short and general where the episodes that we're going to do the best, but actually what he found was just the opposite. That long and nichey are the ones that did the best and people are going to devote an hour of their time, they want to feel like they're really learning something new that they couldn't have learned by reading the paper or some other obvious source.

Rob Day:                       Well then buckle up folks. Happy to get wonky.

Jason Jacobs:                I guess last question is just if you had $100 billion and you could put it towards anything to optimize for de-carbonization. So I'm not talking about financial returns now, I'm not talking about personality fit or what gives you as a human energy or your skill set. I'm just talking about money. Where would you put it to have the biggest impact and how would you allocate it?

Rob Day:                       Can I only put it into one thing?

Jason Jacobs:                No, you choose, you can go anywhere you want.

Rob Day:                       I mean I do believe strongly in the need for further research and development and further innovation. I also think a few dollars go a long way at that end of things as well. So I would devote 10% of it to furthering innovation in these areas where we need further breakthroughs and renewables and zero carbon energy, especially in areas like reducing carbon emissions from agriculture activities, things like that. But the rest of it, did you include, I have to put some into policy or are we just talking about in the economic?

Jason Jacobs:                You don't have to put it, you can put it all in the most nichey thing if you thought that that's where it would have the highest impact.

Rob Day:                       Some of it needs to go into a longterm policy and communications engagement strategy so that all of this work that people are doing to try show that this actually comes with economic benefits, not just economic costs and that smart climate policy can actually unlock a revolution of economic growth. It's not a cost that we have to incur. If we do it the right way it's an investment, and it's an investment that'll yield results in terms of jobs and GDP growth. Great, so that message [inaudible 00:38:53] out there. The big thing I was going to say is I would love to see a lot of that capital if that amount was available. Going into taking some of the existing solutions that we've got and rolling them out there at scale. We already saw what happens in the solar world when that happens.

Rob Day:                       You start to drive a virtuous cycle where you drive cost reductions in those systems as well and then that just makes it more attractive and then it'd attracts even more capital behind you. Even more important from a climate perspective, it's really important for folks to realize that if we are going to address climate change and at least partially mitigate it, we got to start immediately. There is a cascading impact of not doing that. If you leave the status quo the way it is and emissions have actually been rising and still not going down. If you leave that the way it is every year of that compounds itself because these don't get out of the atmosphere very quickly. And we could have a tremendous innovation 20 years from now that radically changes how energy is produced so that it's zero carbon, and it's cheap and plentiful and it's a silver bullet, and we never have to worry about the energy component of climate change again, except we will have had 20 more years in the meantime if we ignored the current solutions and didn't roll them out at scale.

Rob Day:                       I think people forget about that when they think about the imperative to address climate change, that that means we have to throw everything in the kitchen sink at it including everything we've got today. And do I think we need to do that to the exclusion of those innovations going after those breakthrough technology solutions that'll be commercialized successfully 1520 years from now? No, absolutely. We need to do all of the above. We need to do that as well, but if you want to make a significant impact as quickly as possible and also just as long as possible, as sustainably as possible from just the time perspective, you need to start taking some of the solutions we've got today and roll them out at scale.

Jason Jacobs:                And let me guess, the best way to do that is small distributed project finance?

Rob Day:                       Actually, I'm not even convinced about that. I mean like I said, we've got a centralized, have been spoken for structure system. Replacing those like for like is frankly easier in many cases than replacing it with a distributed infrastructure. There's a lot of good to be done with distributed infrastructure too, but we need both and it's not just infrastructure too, a lot of the solutions that we're looking at are really more sort of real assets oriented. It's like what do you do with farmland? It's what do you do with the sort of trash problem and all of the other sources. People have a tendency to think about climate change as being an energy problem. When I think what does that, like only one quarter of the net problem? And a lot of the solutions are going to be just changing how we treat [inaudible 00:41:27], right? It's going to be really prosaic stuff.

Rob Day:                       It drives me nuts that everybody talks about the need to create some kind of breakthrough technology to take carbon out of the atmosphere to figure out how to power that with solar power. And then to sequester it, I'm like, "We already have that. It's called a tree, and it's been working beautifully for millennia." So part of the answer here is afforestation and other things like that. So yeah, I mean if you took that amount of capital, and all you cared about what was making an impact on climate change, there's a lot of things you could do that don't even touch infrastructure, that don't even touch technology, that could do a lot of good immediately.

Rob Day:                       But this is, like I said, we need a much more diverse and robust capital ecosystem to cover all of these types of things and present that to Wall Street and sovereign wealth funds and everybody else with these trillions of dollars just sitting on the sidelines. We need them to see that they'd actually do have a wide range of places where they can and should be placing that capital and yeah, our little slice is just one little part of that, but we need to move beyond feeling like everything has got to be either venture capital or wind farms.

Jason Jacobs:                Awesome. Well, thanks Rob. I feel like I learned a ton, so I'm glad that you came on and made the time for me and for our listeners.

Rob Day:                       No worries. Thanks for the invite, happy to do it, and I hope something in there is a little bit interesting at least.

Jason Jacobs:                Yeah, I thought it was great. Thanks for coming on the show.

Rob Day:                       Cheers. Thanks.

Jason Jacobs:                Hey everyone. Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you can visit us at Note: that is dot-co not dot-com. Someday we'll get the dot-com, but right now got co. You can also find me on Twitter @jjacobs22, where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. And before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers may say that, thank you.