10 Steps of Project Finance
1
A single, measurable goal
unifies the parties
2
A holistic deal structure ensures
that all necessary conditions for
permanence are agreed to, and
that all stakeholders meet their
own objectives
3
A high-capacity nonprofit helps
secure the partnership
4
A set of core partners shares
fundraising responsibilities
5
A financial plan estimates the full
costs into perpetuity
6
A full-cost fundraising effort
ensures permanent funding
7
A “deal broker” leads stakeholder
engagement and drives the process
8
A set of formal closing conditions
ensures completeness
9
A set of formal disbursement milestones
ensures ongoing compliance
10
A single closing lends urgency,
creates leverage for every entity
involved, and thereby draws out
new resources and commitments
Source: “A Big Deal for Conservation,” Summer 2012, Stanford Social Innovation Review.
Enter Larry Linden, who after years as a partner at the multinational investment banking firm Goldman Sachs, was preparing to resign with a secret, wildly ambitious agenda in mind. “I wanted to slow down the rate at which we are destroying the planet,” Linden says. But despite a background in pollution control, engineering, management consulting and public policy, in addition to finance—he wasn’t sure how he was going to turn that goal into a reality. Then Leape called, and the ARPA team began to grow.
Describing a project to save the Amazon rain forest that was 200 times bigger than anything WWF had done before, Leape said he was looking for someone from the private sector who knew how to lead multi-hundred-million-dollar projects. While Linden wasn’t familiar with biodiversity or ecosystem conservation, he did know what was required to make a project of that size a success: a specific and detailed financial plan.
The first stop for information on what would become the backbone of the ARPA model was Wall Street. “I went around Goldman Sachs,” Linden says, “and talked to people who had run big project finance deals and asked them what the best practices were. I’d done big systems conversions,” he says. “I ran Goldman’s Y2K program, led the merger of two big companies and a lot of other large-scale projects, but I’d never done project finance. My Wall Street peers really pitched in with advice.” The Gordon and Betty Moore Foundation also lent critical support at ARPA’s founding, delivering both funding and strategic insight into creating a mechanism strong enough to deliver such an ambitious goal.
That core team decided that what was best for ARPA was a specially tailored version of project finance, one that included the disciplines of financial planning, risk management, financial controls, donor disclosure and reporting, asset management and highly structured project organization. And the approach reaped incredible results over 10 years, including nearly 100 protected areas covering 128 million acres.
But even with Brazil’s steadfast engagement through the terms of President Cardoso and his successor, President Lula, as well as the stalwart support of ARPA’s funders, the key end-goal—permanent financial sustainability—had not been secured. In fact, no conservation project of this scale had ever before been fully funded. So in 2010, a new financing plan and deal structure—organized around the high-risk idea of a single all-or-nothing closing—was developed with a fundraising target of $215 million to ensure that ARPA’s protected areas could fully function over the long term.
Usually used in multifaceted private-sector projects with several stakeholders, such single closings call on donors to commit the necessary funds—but hold off on actually delivering those funds until all resources and other necessary conditions for the project can be met. Then the funds are called in and the deal is “closed.”
This way, each donor gains tremendous leverage because the entire deal package relies on each donor, and no single entity need take the risk that their funding flows if other required funding or arrangements are not attained. This makes the entire project more attractive—and draws enthusiasm and funding that might otherwise hang back. Here, Linden notes the catalytic power of a founding gift from Roger and Vicki Sant. “We could not have pulled this off without the extreme generosity of Roger and Vicki,” he says. “Their early gift was critical in securing the other private sources of funding we’ve since received.”