Hi, I'm Helen Avery from the green Finance Institute and
you're listening to financing nature from GFI.
Hive joining me. This episode is Eric let singer
founder of outcomes based Capital firm Quantified Ventures
to talk about the Innovative financing for nature-based.
Solutions that they are doing including environmental impact
bonds. Governments are looking at Green
infrastructure, all over the place, and nobody wants to be
first. Nobody wants to be second.
Everybody wants to be 25th by putting a financial model out
there. That made it a rational choice
for the second. Third, fourth, fifth, and sixth,
what's happening is it's starting to become normal,
right? And so our whole job is to make
things normal and boring financial markets, love
transactions. They can turn a crank and do a
thousand of them every day. That's our job to create. 8
Simple, non bespoke transactions that are consumable by the
capital markets without having to have long conversations in
the conference room over bed sandwiches.
A warm, welcome everyone to episode 5 and an exciting one
today, and another nerdy one. If you're into Innovative called
structures for financing MBS which we all are and we have a
treat for you because Eric, let's singer.
Founder of Quantified. Ventures will be joining me.
Momentarily, Quantified Ventures is an outcome based Capital
firm. That means they develop projects
where environmental and social outcomes are essentially sold to
The Fisheries to create financing model that allows
upfront investment in interventions.
Be that green infrastructure for water quality enhancement.
In d.c. carbon and water quality improvements on farms in Iowa,
or the development of recreational activities that
benefit state forests and Rural economies in Southern Ohio, many
more. But those are the ones we're
going to touch on today. Not so not so discuss including
what Quantified Ventures is doing next.
So let's get a Recon. Well, welcome Eric and thank you
so much for joining us today. What a pleasure to be here.
Thanks Helen. So nice to see you before we
dive straight into Quantified Ventures outcomes based
Investments and environmental impact bonds.
And I don't think you and I have ever spoken about how you ended
up founding Quantified Ventures. So, to start with.
I just love to hear about you. And how did that?
How did that will happen? Sure, I have spent a third of my
career in the public sector. After third of my career in the
private sector, third of my career in the nonprofit sector,
love all three generally have found that each one of them is
fantastic at something and super lousy at something.
And so I've always enjoyed doing work at the intersection of
those three sectors that requires each sector to bring
with their super duper great at and perhaps leave behind what
they're not so good at. And so I've operated In the
education, space the health space, the environmental space,
the housing space, then mostly just been a Performance
Management guy, measuring outcomes and then when I read
about the growth of impact Capital, this is back in 2014, I
had never heard of it before. Here was a source of capital
that was trying to get connected with outcomes impact, right?
And so that felt thrilling the impact Bond model.
Model which started in the UK and came to the US.
Got my attention as a model that could perhaps attract that
impact Capital to projects that were meaningful and and that
were stuck for a variety of reasons.
We're having a hard time attracting the funding or the
financing. So we set out to see if we could
deploy outcomes based Financial transactions where impact
investors were essentially taking Bet on initiatives, based
on whether they would yield the outcomes that were predicted and
then if it seemed like at the time that these investors would
be willing. And we've since prove this, to
be the case, they're willing to put their money where their
mouth is meaning directly tie their return on investment to
whether outcomes are actually produced or not.
A lot of how we finance a lot of our public projects in the
United States is most Mostly through debt where we the
government borrow a whole bunch of money and then we have to
repay that money regardless of whether the thing worked or not.
And so trying to shift some of those models to be more outcomes
oriented and therefore sort of align the incentives of
investors and governments and ngos seemed like a worthy
Pursuit and that's how we got started.
That's fantastic. And just to confirm here, when
you said that the Act fund model started in the UK were talking
social impact funds and then you correct adapted it for
environment. Correct.
Brilliant. And I wonder if you could sort
of talk us through a couple of the deals that you've done to
me, you're like the Godfather of environmental impact bonds and
so. So I wonder if we could start
off talking about that one, because if because 15 inches put
together, the first environmental impact bond in the
US or globally. Ali correct.
Very, very exciting. Yes, and I'd be happy to unpack.
That particular one. So the first transaction that we
did was in 2016 and we did. I live here in Washington DC and
DC water is our water utility in Washington DC and they found
themselves in the classic quandary, where they were under
a consent decree, meaning they were required by the federal
government to fix something. They had to fix their combined
sewer outflow. So, Them.
And and if they didn't fix it, they they'd go to jail, right?
So I mean, it's right, so, it's okay, enough toxin together.
It's quite an incentive, right people.
It gets people's attention and they had two choices.
They could spend about 2.7 billion dollars, building, gray,
infrastructure Solutions, more tunnels more cisterns or on the
other extreme. They could Implement a whole
bunch of Nature-based solutions that would essentially solve the
problem a different way. What you're having to do with
splitting combined sewers combined sewers means you just
got storm water and waste going through the same tube and with a
fixed diameter. When you get increased storms,
which were having then by Design, but just sends it right
into the waterways during Peak flows.
So, you've got to widen the dynamic.
Amateur of these sewer systems, which is expensive and gray.
And nobody sees it, if that makes you just tear up all the
streets and then you have a wider sewer system underground
and citizens are like, where did my money?
Go, what happened? Okay, so you got that choice and
then the other choice is a whole bunch of green infrastructure.
Can you put in a bunch of nature?
350, Acres of just nature in the city to serve as a sponge to
soak up that Warm water and then slowly over a period of a few
days trickle that precipitation, that's that you've captured in
the nature. If you can trickle that over a
few days into the sewer system, can you slow down that Peak
volume. So that you're able to get all
that storm, water through the pre existing tunnels that was
the theory. And so, if you think about those
two choices gray, infrastructure on one hand, green
infrastructure on the other hand, We put those in the
framing of business as usual on one hand and Innovation on the
other hand because of how our governments pay for everything,
which is borrow the money and then hope for the best.
We shouldn't be surprised when our government leaders pick
business as usual every single day, right?
Because that's just smart. And so so we took a look at, how
would they pay for that? Great gray infrastructure, which
they're probably going to choose Choose and that would be through
a municipal Bond structure. And so we got to work on messing
around with the municipal bond to see if we could tie the
return on investment from the bond.
Buyer directly to whether the green infrastructure actually
performed as predict or not. And we had that was like, nerd,
heaven and a ton of fun and the result was the first-ever
municipal. On where the interest rate to
the bondholder was directly tied to whether the outcomes were
occurred in. Not and we're not marketing
people. So we called it best, we can
come up with was an environmental impact Bond and
therefore, we had the first environmental impact on our
hands. Amazing, and of Interest.
What was the difference in cost for the gray infrastructure
versus green? If you look at them as pure
extremes and we too Be clear. It wasn't a choice of all one or
all the other. It was a hybrid solution.
How can we di risk, the green infrastructure enough to make it
a rational choice for the government to choose it.
And so, we were able to structure that environmental
impact bond in such a way that there was no increased cost of
capital to the government, which he, that's the requirement.
Because if it's more Pensive then they're just going to
choose the gray infrastructure all day long.
Yeah, so by making it the same cost of capital as the gray
infrastructure + D, risking it, we were able to in the nerd
Heaven. Laboratory, create a financial
structure that made it a rational choice for the
government to choose the green infrastructure, right?
Devin? I love it.
And that one is a private placement to Goldman's and
Calvert. Was that, was that right,
correct? It was the first one of these
things and so you know issuing a bond through the normal
channels. IE not private felt like a
bridge too far in this first one.
So we issued the first one as a private Bond, we've since issued
many of these here in the United States and they're all different
kinds, but, but that was the only privately placed one and we
did that. Just because of the Unique
qualities of that first-of-a-kind transaction.
I mean it's complicated and if you are a nerd like Eric and
myself we have them we have posted it on GFI, Hive the case
study, we can go into a bit more detail and I'm just interested,
you know what came out of that? Do you feel like it was a
watershed, all watershed moment look at that.
Was it a watershed moment for choosing green infrastructure?
Her or encouraging municipalities to, to look at
green infrastructure and this type of model.
Yes, and it again, if you put it in the framing of innovation
versus business, as usual governments are looking at Green
infrastructure, all over the place and nobody wants to be
first. Nobody wants to be second.
Everybody wants to be 25th, right?
And so, by putting a financial model out there that made it a
again, a rational choice for the second, third, fourth, fifth,
and sixth. What's happening is as a
solution to solve stormwater. Challenges in urban
environments, it's starting to become normal, which is
fantastic. And so what we see is the
environmental impact, Bond model is essentially moving on to
other more innovative solutions that are all in the nature-based
bucket, right? And so our whole job here at
Quantified Ventures is To make things normal and boring, the
financial markets, love boring, and they like transactions.
They can turn a crank and do a thousand of them every day.
That's our job to create simple, non bespoke transactions that
are consumable by the capital markets without having to have
long conversations in the conference room over bed
sandwiches. You mentioned there that it's
sort of expanded into all other different types of models and
situations. So I wonder if you can talk
through a couple of those with this is obviously the Iowa soil
fund and also, I'm really excited to sort of see used in
Mortal, Peter Tarik areas. I suppose like the one you're
doing in Southern Ohio. So, can you talk?
Tell us a bit about those. Sure.
And just a backup or. So, we are an outcomes-based
Capital firm. And so, what, again, back to the
Genesis of the company, We're just trying to move Capital to
the things that are stuck. What was great about that?
DC water transaction is it started a lot of conversations
in the country about essentially, where else could we
use that weird model to unstuck some capital and get some
projects, moving to solve some environmental challenges.
One of the things that came out of that particular transaction
was, can we use this model to reduce?
Do some of the phosphorus and nitrates that are getting off of
farms, and into the waterways and going Downstream and doing
terrible things. And so, out of that work to try
to figure out if we could lift that environmental impact Bond
model to this field, the answer was no and that was a bad day
because we thought the answer was at least maybe.
But what, you know, we're pretty stubborn here at Quantified
Ventures and once we That wasn't going to work.
We kept going and what we ended up with is a very highly
scalable outcomes-based fund model where we in plain English.
Here's what we do. We borrow a ton of money I'll
just use a weight measurement a ton of money at the beginning of
the growing season and we pay Farmers across Iowa and seven.
Other states through our Soil and Water outcomes fund weep Pay
Farmers to profitably and that's the key word profitably, build
conservation practices on their farms and and then the farmers
done because every farmer is looking for new revenue streams.
So we're not having long conversations about saving the
planet. We're not having long
conversations about the impact on water quality, we're just
saying hey farmer will pay you to do one of these five things
and and Farmers. Love that.
So big up to And then 10 months later, we measure two outcomes
that come out of those practices that the farmers built on their
private land. And one of those outcomes is the
carbon sequestered. And the other outcome is the
water quality outcome, which is the reduction in the phosphorus
and nitrates. And then we have multiple year
off. Take agreements for to what we
call outcome buyers. So we sell the sequestered
carbon To corporations who have made large, stakeholder
promises, shareholder promises to reduce their carbon
Footprints and then the other benefit, the other outcome is
the water quality outcome and we measure that reduction and then
sell those outcomes to three levels of government.
The federal government through the US Department of
Agriculture, purchases those outcomes, the state Department's
of Culture in the states where we operate, they purchase those
outcomes and then municipalities also purchase those outcomes on
the government's that it's interesting.
That took a, while to kind of get those multiple year off,
take agreements. Why?
Because the government here, at least on this side of the pond
are very used to paying for practices.
All right, we got some tax money.
Great. Let's do, let's fund some
programs. That are going to reduce
phosphorus and nitrate what we are saying to them is, don't do
that. Matter of fact, do nothing you
sit. There we will.
We've got a model that scales and we and just by the outcome
from us because by the way, we did the math and here's our
math, we think you could just buy the outcome from us and it
would be 45 percent cheaper than you continuing to fund programs
with dubious outcomes. So that those were obviously
longer Term conversations that took a while.
And, you know, at the end of the day, this work is not for the
faint of heart. But now what we ended up with is
a highly scalable model that transfers state-by-state across
various crops and and that's a couple of things in there.
I think are really interesting in that is you're selling the
carbon sequestered in the soil. That's not something that we
really have in the UK at the moment.
So carbon code is in the works. So, you know, that's a big
Market isn't in the US has that sort of really enabled payments
because there's some services to take off for Farmers.
Good question, take off might be a little aggressive.
The, the world of soil carbon is an emerging field.
The the what we've tapped into is Corporate are large number of
Corporations, especially in the food nag business who Have made
very public shareholder commitments, to reduce their
carbon footprint. And the reason they like our
program is, they're able to buy sequestered carbon directly from
their supply chain. They believe like we believe and
the science shows that if you sequester carbon from the soil,
you'll improve soil health over time.
It's a twofer for them for so number one, they're satisfying,
their shareholder commitments through those the sequester
carbon. But number two, they're
contributing to soil Health in their supply chain.
Got it. And I can't remember the name of
the company you work with, who does the measurements on the
soil carbon. Yeah.
And that's a, we would be here for 472 days.
If we went down the whole Rabbit Hole of the of the measurement
on the on the carbon side and the water quality side, Water
quality is a lot more mature on the measurement side.
What we have found works is to work backwards from the
corporations who want to buy this carbon by using the
methodologies that they have deemed or the right ones for
them. So we have a lot of flexibility
in our model. So as opposed to picking winners
and losers right now on the measurement side, we have
flexibility in our model to use various As measurement schemes.
It makes no sense. It's great to know and then just
briefly they Southern Ohio deal because that's really kind of
off-the-wall I think yeah yeah it's a crazy one.
So rural economic development is something that we're not so
great at here in the United States and we're paying the
price for it every day. So the u.s. forest service, we
kind of stumbled upon this one. The u.s. forest service which is
actually our largest Client. They picked a handful of us
forests national forests, that fit a certain profile where they
were spending more putting out wildfires than they, their
operating budget would permit. And as a result, they're not
doing the preventative maintenance within the forest,
to attract the visitorship and they these forests ends up with
a little bit of a death spiral. And then you've got the
surrounding communities in this particular Forest the way
National Forest in Southeastern Ohio was in Appalachian.
Ohio, this is coal mining abandonment.
And so a lot of poverty, you've got communities around the
perimeter of this, they're really suffering.
From a the abandonment of that industry, the coal industry.
And number two, the fact that nobody's visiting that Forest.
So what we did is we said we worked with the five surrounding
towns that are On the perimeter of the way National Forest
created a council of government to unify all of them and then
built an 88 mile best-in-class. Mountain biking trail system and
brought in investment dollars to pay for that and made part of
the payback mechanism to these investors.
The motel tax in the towns around the Eater.
And so, we just went to all the mayor's is a listen.
We notice nobody's in your Diner, eating pie.
If we built this thing and people came, would you share
some of your Motel tax revenue back as a return on investment
to the investors who paid for the mountain biking trail
system? So what was fascinating about?
That was we launched a big chunk of the trail system, right
before, covid it and we were like, oh gosh, that's not going.
Work, that's bad timing. Who knew who could have see, we
didn't have that on the risk list and and we thought that was
sort of game over and turned out to be quite the opposite.
Everybody flocked to What's called the Bailey's trail system
during the pandemic, and it's been a wild success story, for
those communities who were had some forethought and some
willingness, to try something different to attract humans.
So as a result, those diners are full.
The pie is being served and those motels are full and
everybody's happy. So we are now in the process of
replicating that around the country and from Vermont
California. So exciting stuff in that second
cut, that really is and there's enough return for Motel tax to
pay for that investment. Or is there some sort of
concessionary capital going in as well for for those projects
know, there's enough unit economics to make these things
work where everybody wins and we're all about Trying to create
these structures. So the revenue stream stays in
the local economy as opposed to yet another extractive industry
that comes in and makes all the money.
The thing that actually takes some time and as part of our
Playbook is actually creating that those government and NGO
structures to make sure that the revenue stays local.
Right? Wow, and I'm sure there's a lot
of Secret Sauce that you copied. I want to show this it
throughout your IP and but we haven't sake.
We have got a couple of these up on the, on the hive and we
should put the Southern Ohio one up there, for sure, going as
really interesting thinking about rural economies, and
what's the biggest challenge when you're putting these deals
together? The humans?
Yeah, we would like to think the Brilliance is like, you know, in
cell G 97 of the financial spreadsheet.
Not like I said it is nerd Heaven.
These are fun to put together. The realities are, these are
transactions that go across political boundaries government,
boundaries, 80% of what we do touches water.
In some way, we're wildfires water and wildfires do not obey
political boundaries. And so, as a result, you got to
get humans to work together which takes time and takes
tenacity, and it takes a willingness to listen.
Listen, hard and find those synergies.
Geez, and find those opportunities to get good
people, working towards bold Solutions, you make it sound
easy when you say it like that, but I bet that stuff monster
getting multiple humans to try and will come to the same point.
What has been helpful? I must say we've now had enough
successes on the board where by being able to point to those
successes were able to convene folks a lot faster because we're
not. Thing, about some things that
are in the abstract anymore by being able to point to some of
our successes we're finding that that really speeds up the time
from idea to the time, the capital moves.
Yeah. Yeah.
I mean that whole first mover advantage that you had being the
pioneers and now you've got to say several deals under your
belt. What I'm not seeing is this
moving across out of North America into other parts of the
world? Or am I mistaken?
Have you seen it? Work in other countries.
If not. Do you think they could wait,
it's a good question. And we are very eager to play in
other markets and other countries.
We would love to be partnering with entities, on your side of
the pond to Leverage, The the hard-earned lessons learned that
we've muscled through to see what what is leverageable again?
We have enough humility to I know that these are not cut and
paste transactions. We're not there yet as a
species, then again, we've made every single possible mistake on
the planet. And we would love to be sharing
those Lessons Learned with those in other countries who are
toiling with similar hopes and dreams for this outcomes.
Based financing stuff all to say.
If somebody can benefit from what it is that we've screwed up
or got. In right, we're happy to share.
So I'm not going to ask you for your cell phone number right
now, to share with everyone listening.
But that's really great to know. And I know you have been
supportive in talking to some folks, in the UK, about setting
up an environmental impact Bond. There's a couple in their
natural environment investment Readiness fund actually going
through at the moment. One, I know you're familiar with
was the, is the one up her up in the Hadrian's Wall.
We love the Hadrian's Wall project.
We've been talking to Those folks for a long time and we're
we're rooting for him. So just sort of wrapping up now.
And you know, well say that I'm about to ask you really question
it would you think holding back nature markets and later
Investments more generally right now, I'll tell you one thing
that we try to keep in mind every day is keep it simple.
And by the way, simple as really hard It turns out?
Yeah, the Rolling Stones. They, I mean, they're right in
three chords songs. I mean, that's that's simple as
hard. Keeping it simple as really hard
and by the way it works. So as for those who are out
there structuring these kind of financial transactions and
funds, you've got to work backwards from the capital
markets, otherwise you end up with a bespoke one-of-a-kind
transaction that nobody wants to do again.
You got to pay attention The transaction costs and you've got
to have replication in mind every single day during the
structuring component. So if the goal is to engage
Capital markets into the types of projects that we're talking
about here, then you got to keep it simple.
You're aiming for a person who just wants to turn a crank,
right? And thousand of a kind of a
transaction. So that's what you're trying to
satisfy. I love that image because that's
who we're trying to get to. To it and you got to work
backwards from from that crank turning Financial person or
amazing tips. And the someone I can only play
three chords on a guitar. I appreciate the another chair.
Yeah keep it, keep it there. And just wrapping up then what
can we expect from quantify Adventures this year?
What are you looking forward to? What are you working on?
We have spun out a series of companies, we're really excited
about through the process of doing these.
Since we get pretty low to the ground and we see opportunities
for scalable businesses. And we are launching our first
technology company on March 1st, which is really exciting.
It's in the health field and we are finding sort of an endless
array of environmentally sound financial structures that are
sort of company based less fund base.
I think there's a tendency to Lunge for the fund but if you
back A cup and sort of really go deeper to see if there's enough
unit economically. You can start bringing in
capital to capitalize a company once you're in that world, if
possible try to avoid the a um, model 2%, you know, now you're
okay. Now you've worked really hard
for two years to raise your two hundred million dollars.
Now, you're a hammer looking for a nail looking for, how to
deploy this Capital, the corporate model we have found
just has A lot more flexibility to actually pivot all to say,
our model emerged into, we created Quantified Ventures
Holdings. So, we have a holding company
now, for our multiple companies that are underneath it.
We still go to market is Quantified Ventures, which is
primarily our advisory work. We find that that's the best way
to get stay low as to the ground because you're able to see the
fish in the pond a little bit better.
Well, that's amazing. Any example, you can just
quickly give us up one of those companies.
Well, let's see here. So one that will be launching in
the second quarter is, we are launching a climate Merchant
Bank. There are a lot of climate
oriented companies. Little companies who are not
Venture Capital ready. Meaning, they're not going to
there's those massive hockey stick but they're doing
something that has a climate impact whether they're doing
that on purpose or not. And so by building a merchant
bank that leverages the advisory arm that we And plus the capital
N plus just a willingness to be patient and not be greedy and
stay away from models that are go big or go home.
I think we're really excited about the Merchants Bank model
because I think that's sort of consistent with the DNA at
Quantified Ventures. Yeah, that's really amazing.
Well when that starts out we'll have to get you back on if
that's that's that's really really interesting model.
Eric this was so much to talk to you about and I feel like the
It's just never enough time, but thank you so much for coming on
today and just giving us a run-through and thank you for
the enormous enthusiasm and energy that you always bring to
these conversations. It's wonderful as always, to
speak to you. Well, how, and it's so great to
talk to you? Listen, we're on the same team.
We're working on the same stuff, and I always love our
conversations with you. Looking forward to the great
work that you and your team are doing and, you know, To find us
if we can be helpful. Really enjoyed the thing to Eric
there, and super excited for what's next from Quantified.
Ventures to, if you do want, more information on Quantified,
Ventures deals, don't forget, you can check out those case
studies on the GFI Hive website. Their website, links are also in
those case studies, and Eric said you could contact them so
he may he may regret that. But it all that information is
in there that you could reach out will also be uploading the
Southern Ohio example in the coming weeks also going up this
month on. If I hide in the case studies
and worth checking out is one on Bank of islands Woodland, nature
credits and armed peers. Retail bonds for the Dutch Farm
transition. And in addition to the bleeds
deal we covered in last week's podcast.
So lots going on, if the stars. Align, I'll be back next week.
We've got some really great guests lined up in the coming
weeks. We'll be talking Wildfire,
resilience bonds, we're talking biodiversity, net gain the role
of crowdfunding, and how How the finance sector can better
support cop15 Ambitions, but that is all from me today.
It just leaves me to say, thank you for listening and supporting
the podcast and thank you to financing nature, funder.
The Esme, Fair been foundation and to our editor extraordinaire
Robin Lee burn, a fairly media to a next time.