Bulls n Bears Entrepreneurship Zone :: Due Diligence: Talking clean energy investment in Africa with Inspired Evolution managing partner

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Inspired Evolution is a specialised investment management business based in
Cape Town, and with regional offices in London, Mauritius and Nairobi. It
focuses on clean energy investments. Michael Avery sat down with managing
partner, Christopher Clarke, to find out how he does renewable power deals
in Africa.


What is it you look for in an investment?


Besides being a clear fit within our two specialised investment themes –
clean energy and resource efficiency – what we look for at a high level is
the potential of an investment within these themes to deliver on our
targeted commercial returns with a measurable net positive impact. This is
our mission: to profit with purpose and impact. It’s our core DNA. We set
out to demonstrate that we can deliver high impact and superior investment
performance. And we have demonstrated this successfully under our Evolution
One Fund where the fund is a top quartile performer globally for its 2008
vintage. This approach defines and differentiates us in the marketplace.

Then, we look for projects and companies using a much more detailed suite
of investment criteria to guide our evaluation decisions, including but not
limited to, the following considerations:

*         Strong management teams with proven track records

*         Proven technology at commercial scale with limited execution risk

*         Demonstrable, clear and coherent business strategy and validation
of product/service market adoption

*         Scalability – we prefer platform applications (isolated single
project investments only where justified)

*         Options to take equity in the developer platform and/or
pre-permitted projects (preferred)

*         Demonstrated project conversion developer track record

*         Capital efficiency and where cost control influence (overheads)
can be effected

*         Validation of pipeline with clear visibility of cash generation

*         Project inputs (feedstock) and power purchase agreements (PPAs)
are in place with creditworthy offtakers

*         Technology provider guarantees to be available

*         Country risk mitigation and government support

*         EPC and O&M contracts on acceptable terms

*         Senior long-term debt is available at the appropriate terms and
tenor

*         Compliance with all relevant national and international laws,
regulations and treaties, and our own bespoke environmental and social
management system

*         Clear exit potential before the end of fund life


What is the greatest investment lesson you’ve learnt?


To always focus on relationships based on integrity and shared value, and
never lose focus on the transaction fundamentals. Always having the hard
negotiations upfront – entry valuation is key. Don’t delay key actions
and/or management replacements to a later stage. Don’t get too clever on
fancy deal structuring if it can be avoided – keep things simple. Be
patient, but persistent. It will pay off in the end.


Identify an untapped opportunity for private equity investors in Africa.


In our specialised investment universe, I think distributed (and embedded)
energy technology solutions and platforms – which increasingly will include
energy storage components and disruptive financing business models such as
pay-as-you-go mobile banking – is a compelling opportunity set across
Africa. It responds to the current 635 million people who lack access to
energy as well as a growing critical mass of businesses and industries
looking for more affordable, reliable power.


What is the biggest misconception about your job?


Probably the misconception that private equity players behave like
“barbarians at the gate”. And that making money for investors whilst doing
good is easy. In contrast, we see ourselves as active agents of positive
change. But there may be some rogue players out there that influence public
perception. We also don’t sit behind computer algorithms and switch stocks
in a passive manner with limited connection to the people driving underlying
businesses and their shareholders. The active ‘hands-on’ investment
management approach of private equity houses focusing on value creation is
in deep contrast to this.


Name the one deal you wish you invested in.


We are quite philosophical about lost opportunities. We believe everything
happens for a reason and at the time of execution, if a deal is lost, it’s
usually that our rigorous assessment of valuation combined with our
preferred investment terms and conditions simply could not be agreed. And
sometimes there may be exogenous factors that influenced the outcome. But we
try not look in our rear-view mirror and agonise over these. Good
opportunities often recycle in a more palatable form.


What are the skills needed to succeed as a private equity investor in
Africa?


Successful GPs are those that have created a high-performance culture with
an institutionalised set of core competencies to underpin their investment
approach. This often involves a flexible investment strategy, but tailored
to investing within specific sectors and industry focus areas across African
markets.

Other key attributes are deep market insights and sector experience, strong
networks for proprietary deal origination, analytical rigour in evaluation,
negotiation and innovative deal structuring, and active value creation.
Importantly, the execution of this GP skills set with commitment and agility
to forge alignment between all stakeholders.—Howwemaditinafrica 



Christopher Clarke

 

 

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