Is It 2021 Yet? Some Reflections On The Blur That This Year Has Been

On Monday, February 3rd, I sat in the San Francisco airport with my daughter, waiting for a connecting flight home. "Don't touch anything," I warned her. "The odds are that someone in this airport has that coronavirus." We weren't wearing masks (no one was), but I had stopped at the news kiosk to get some hand sanitizer. No one around us seemed at all concerned or even talked about the outbreak that was happening right then in China, and had just barely started to appear in the U.S.

It's easy to forget how quickly the coronavirus went from a minor news story to dominating our lives.

• On January 8th, Wuhan officials were still saying (at least in public) that there was no evidence the virus could spread from human to human.
• On January 22nd, Wuhan started to lock down.
• On January 30th, the first person-to-person transmission of the virus had been reported in the U.S.
• It took a while for that U.S. "community spread" to take hold, but by late February it was clear it had started. I took what turned out to be my final business trip for a while, to a conference in NYC. On the train ride down, I noticed how many people were coughing -- no surprise, given that happens in any normal February on the east coast, but I was noticing it this time. At the conference, everyone was still shaking hands without a second thought, and the conference room was packed shoulder to shoulder. That same day, I heard startling info from a friend who had some inside knowledge from epidemiologists already fully engaged on the outbreak. On the train ride back, I texted to one of my partners at Spring Lane Capital: "Hey, can I hit you up with a thought? ...Coronavirus. It's scary. Should we be doing anything as a firm to try to insulate ourselves from this?" The next day, I wrote a column about the potential impacts the outbreak could have on our industry. As I wrote it, 175 senior members of the Biogen management team gathered for a meeting a few blocks away from me.
• Our firm got to work contingency planning as quickly as possible, and just two weeks later we sent the first of several notes to our limited partners, specifically about the coronavirus and how we viewed it impacting the economy, our industry, and our investments. But those were a long two weeks. During that fortnight, the WHO had declared COVID-19 a "pandemic" for the first time, President Trump made a televised address to the nation announcing new travel restrictions, and many companies started transitioning to "work from home". In this first note to our LPs on the topic, we wrote: "Even if the infection and mortality rates associated with this pandemic can be held in check, we are expecting significant social and economic disruption for the next few months, at least. The ‘normal’ we get back to after all this may also be significantly different than the pre-pandemic normal." 
• By the following week, we had shifted Spring Lane's team over fully from voluntary work-from-home to full WFH, and my kids' schools had shut down. My kids are now partially back in school (for now, at least), but most of our U.S. team remains work-from-home at this point, as a new wave of infections hits Boston and across the country.

In barely more than two months, 2020 went from normal to completely abnormal, and ten months later we're still in the thick of it. It's been a tragic year we will never forget.

I thought it would be useful, however, to reflect on how we've been able to weather the COVID-19 disruptions, as an industry, and as a firm. And the answer is: Surprisingly well.

Essential services and market shifts

Spring Lane Capital provides "catalytic project capital" for small-scale, sustainable infrastructure. So besides team and family safety, one of our initial worries was that these lockdowns could affect construction and operations of those projects. As it turns out, however, people still need energy, they still need food, and they still need their waste and wastewater taken away and dealt with. As a result, in many cases, the types of projects we were funding were declared by local authorities to be "essential services". If anything, the supply chain and other disruptions from Coronavirus have only increased demand for the kind of financed, local, resilient solutions we generally look for.

We were a bit lucky in that the kinds of projects we have been financing have been largely "outdoors", not requiring contractors to do the work inside other peoples' homes and offices. While projects like wastewater treatment systems have, in our experience so far, seen only some temporary disruptions from lockdowns and the like, other parts of the sustainability industry have not been so lucky. We've seen some major disruptions and job losses in the distributed solar and energy efficiency industries, for example, as people stopped welcoming salespeople and contractors into their homes.

Some other market shifts have been notable as well. As we have been active in the indoor ag market this year, we noticed early on that the customer type was starting to be a huge differentiator for the companies in that sector. Those selling to grocery stores couldn't keep up with demand, as everyone started cooking more at home. Those players selling directly to restaurants, however, have faced major disruptions.

Zooming through pitches, diligence, and recruiting

Private equity has traditionally been an in-person industry. First pitches from entrepreneurs have been encouraged to be done in the flesh, so that we investors can get a good initial sense of the team. Major portions of deal diligence (especially for those of us in project finance) have been done in person. And of course, our own recruiting efforts as we build out our team have involved lots of in-person interviews -- at least in the past.

This year has upended that for ourselves and many others. My partner Christian wrote back in April, "When will I fly again?" wondering when business travel and such activities would come back at least partially. I know many of my peers in the sustainable investing space have similarly had to curtail their travel and halt in-person pitches and the like.

However, while it's not a full substitute, it's been eye-opening to learn how much we can really accomplish over videoconference.

First pitches don't really seem to suffer much quality loss over zoom. Diligence and project oversight still requires some in-person site visits, but a lot of the in-person we would have liked to do, we find we can still accomplish without making a trip. Even on management team due diligence, an area for which our team has a very rigorous process, including 3-4 hour "deep dive" interviews of each key member of a management team we're considering investing with. Yes, they're best done in-person, but we have been pleasantly surprised with the results via videoconference. We have closed new deals entirely remotely as necessary. We recruited an awesome new CFO/COO to the firm and managed summer interns in entire virtual processes, and have remained well integrated as a team throughout the year. To be clear, we can't wait to get back to being in person regularly with each other again. But it hasn't been nearly as disruptive to the work of the firm as we thought it would be.

And what I hear from my peers across the sustainable investing landscape is that they've experienced the same: Some deals that were closed during the early days of the pandemic on the basis of prior meetings and site visits, but now even more deals that are being closed with the entire process from first pitch to first board meeting being done over Zoom.

I suspect our industry will never quite get back to the same level of expectations of business travel. It may even become a sign of desperation if someone is eager to jump on a plane to do a first pitch in person, because we've all learned that's a lot of time and money spent traveling just for a couple of meetings. We still need to do it -- no matter how many Zooms and phone catch-ups, I miss my West Coast friends in the industry. But I think we've learned we can get away with traveling a lot less.

A market that has marched forward

March through May were really challenging for a lot of people, as everyone went into lockdown and people were figuring out how to make it all work, not only professionally but especially personally. As mentioned above, some portions of the industry were particularly disrupted.

And of course, too many of our friends, family, and peers have been personally impacted by this tragic global event.

But 2020 on the whole has been really positive for the markets we operate in. Investor interest has never been higher in the sector. In speaking with entrepreneurs, I keep hearing the same recurring theme that their customers have never been more active. There's a big year-end push going on and a lot of startups are going to see record 4th quarters. A new U.S. President and administration in 2021 should be able to provide even more of a tailwind in a variety of ways. And across the large corporate and institutional investor universe, I've never heard so much senior management recognition of both the threats and opportunities of climate change, along with commitments to real action. I believe some of this has actually been prompted by the pandemic -- once you see the damage from one long-tail event in your lifetime, it's harder to ignore the realities of another major global challenge that is also right in our faces every day.

Despite the awful disruptions of the pandemic, the sustainability markets have continued to march forward. In fact, we'll probably see even more capital and talent flow into the sector in 2021.

Let me be clear, 2020 has not been on the whole a positive year. I'm very much looking forward to leaving this year behind us. The hundreds of thousands of lives lost, the losses of jobs and livelihoods across the economy, the disruption of so much vital education for so many, the unfair impacts on disadvantaged communities in particular, and all the tragic psychological impacts on families. It's been just awful. I am not trying to sound too positive here in these reflections.

But I also am really pleased to see how resilient our industry has been, to hear so many positive professional updates from my peers in the industry, and to see so many strong entrepreneurs who've somehow managed to pull through and turn this into an overall "up" year for their businesses. All of the awfulness of this year does at least serve to remind us of how lucky we are. It's been an incredibly tough year, but not a "lost" year, and for that we should be grateful. I wish to you all a very safe end of 2020 and a happy new year. Stay safe, stay resilient.

Here's to a better year ahead.