The Valley of Death
There are allegedly billions of dollars of investment available for Nature-based solutions — so why aren’t more projects getting funded?
Even though our team has decades of experience in regenerative development work, Regenerative Resources is only a 3 year old organization. In my networking and discussion with financiers and developers around the globe, a common conversation has lead to three realizations that form the basis of this post.
First, there is immense interest from the financial world in nature-based solutions to climate change, in blue carbon in particular, and wide recognition of their potential to solve multiple issues.
Second, there are numerous organizations dedicated to developing bioregionally appropriate land restoration & regeneration projects, from the oceans to the tops of watersheds.
Third, despite points one and two, there is a dearth of deployed capital, and a plethora of projects not getting funded. Very few in the financial world understand the difficulties and requirements for getting these projects going, and almost none of the people in the project development world get finance. This was a point I emphasized in the podcast “Solving Climate Naturally,” and I’m here to add some meat to those bones.
The fact of the matter is, it’s almost impossible to get a project funded, because of what’s known as the Valley of Death.
Here’s a typical cash flow chart for nature-based solutions projects. This is particularly relevant to forestry, whether agroforestry or restoration, but i understand from other folks in the industry that this is the dominant pattern. Note the timeline — in general you’re spending a whole lot of cash up front and not breaking even till year 10. That dip, from years 0–4 is actually the most important of the whole process, and getting from there to what is year 10 in the graph is called the Valley of Death. Many enter. Few survive.
Here’s all the things a project needs before an investor (in general) will even look at it:
1: Land (or access to land)
2: Permits & relevant authorizations
3: Financial models & business plans (this is the easiest part and still quite complex)
4: Trust, well-established relationships, and structure with local communities.
5: A competent and professional team that can execute.
ONLY AFTER all these things are in place will an investor look seriously at our projects. Without them the projects are generally considered too risky for investment.
Getting those five requirements (land, permits, plans, local buy-in, and the right team) is resource intensive — it costs money and time and requires serious flexibility. And yet, it’s usually impossible to have those resources up front because the project’s not yet considered viable or de-risked enough for an investor. On top of that, there are 100 ways any of those 5 requirements can go wrong, face delays, force pivots, and mess up plans. Here are some examples that i’ve experienced personally in projects across 4 continents:
- The land you want may be disputed, or fraudulent people may claim ownership to it and produce fake titles. It may be community owned and a sale may require the individual signature of dozens of people. Any one of them can veto.
- Bureaucrats may try to extract bribes in order to sign off on relevant permits. Or they may come up with fallacious reasons why you’re not eligible for them because they don’t like your accent, or your religion, or your skin color. Or you may be working with a community that belongs to the “wrong political party” , so they find flimsy reasons to delay processes.
- Local communities are likely to be very suspicious of a multinational American company (and rightly so!). In general, we expect trust building and relationship building with local communities to take a minimum of 12 months.
- NGOs operating in the area may feel threatened by a newcomer (funny enough, in some places, NGO turf wars are a thing) and capitalize on their existing relationships to cause distrust and suspicion.
- Your initial assessment of a given site is likely to have surprises — saltier than expected water, shallow limestone shelves, the lack of an expected resource, phantom liens, etc.
- *Local expectations are always wrong; they must be managed quickly, honestly, and consistently in order to avoid creating false hope and disappointment.
This stuff is incredibly hard and complex. But the worst part of it all is that a significant amount of resources are required up front, and almost nobody is willing to supply them. Hence: the valley of death.
A few patterns are starting to emerge to try to bridge the gap — many folks are looking for catalytic philanthropy to get through the valley of death, with a focus on alignment on impact. In my experience, most philanthropists would much rather see impact on the ground than help get a project ready. And few understand the kind of work required to get a project ready (which is why i’m writing this post!).
Public funding is sometimes available. Both philanthropic and public funding can come with serious hoops to jump through — and when projects are innovative or unproven that kind of finance is unlikely to materialize. Regenerative Resources set up a Donor Advised Fund, which allows us to collect both crypto and cash as tax-deductible donations, and in which we intend to cycle profits for the development of new projects. We’ve also launched an NFT raise, with phenomenal artists, in hopes of raising funds to get through the last few months of our own valleys of death. The DEFI world likely has more to offer beyond that, but what that looks like is anyone’s guess.
The bottom line is, the valley of death is a big reason why investors can’t find projects, and why projects can’t find the resources they need. From the investor perspective, anything before or during the valley of death is considered too risky. From the project perspective, it’s the most important phase! Getting a project going is impossible without it!
Until a bridge is created, and until the finance and project worlds understand each other, a myriad of real solutions to climate change, biodiversity & habitat loss, poverty, food security, water security, and a whole bunch of the UN SDGs will remain stymied.
PS: If you’d like to support Regenerative Resources, please do so either via donations to the DAF, or via purchase of an NFT. Or reach out; we’re currently raising funds to grow 100,000,000 mangroves in our existing project portfolio, and have a number of non-profit projects seeking philanthropic capital, and for-profit projects seeking investment.