Data room essentials for developers

If you’re in climate and building a development business (i.e. you generate income from projects that you build and/or own and operate), you’re going to need to raise a lot of capital. Once you enter diligence, your data room is your first chance to make a great impression with investors. Without a coherent, comprehensive data room, the deal will take a lot longer and increases the risk of the transaction falling apart. So, how can you be sure yours is sufficiently professional and in-depth to make investors believe in the potential of your business? 

Mary King is a Vice President at Aligned Climate Capital. We sat down with her to discuss the key elements to include in a data room, tips for creating your financial model, and how you can use this opportunity to educate investors about your business. 

Why a data room matters

Your data room is your opportunity to open up the hood of your business and show investors exactly what you’re doing and how, which then makes for a smoother and more efficient transaction. It also puts you in control of the conversation – it’s your opportunity to teach investors how to think about your company, and be transparent and upfront about anything problematic. A meticulously-built and thoughtful data room also shows that you’re well-organized and understand what matters, building the investors’ trust.

Table stakes

One must-have for your data room is a clear and consistent taxonomy. You might want to include a file that acts as a table of contents, explaining everything contained inside.

Bonus points if you write an investment memo – a document that summarizes your business, as well as the content of your data room, and links to the files and folders that back up your points. Writing this will be a useful exercise, as it forces you to ask the questions an investor will ask. Alternatively, you can build out a full due diligence questionnaire (DDQ) or an FAQ, which will dramatically accelerate diligence.  

Clarifying the basics

Even if you don’t decide to write a full investment memo, it can be a good idea to put together a document, whether it’s part of your deck or a one-pager, laying out the critical points of what exactly you do, and how and when you’ll make money. 

Useful things to cover include:

• The types of projects/assets you’re deploying
• The technology, if it’s a novel or semi-novel process
• Average size of the assets and range of project sizes 
• CapEx per project
• Geographies and end markets you’re focused on and a brief explanation of why

You’ll also need to explain your monetization strategy. Maybe you sell the assets pre-NTP (Notice to Proceed – when you are permitted to begin construction) but only receive 50% of the cash, and get the rest at COD (Commercial Operations Date – for instance, if it’s a solar project, this is when it starts delivering electricity). 

Ultimately, any reasonable investor is going to care about nuance. Do you have exclusivity with an asset acquirer? Do you have limitations in your offtake agreement? Being transparent and clear about these things upfront is important – consider highlighting everything that’s especially important for the investor to take into account. 

Finally, don’t forget to outline why you’re unique. Are you the first to do assets of this size? Do you have a first-class understanding of the permitting and policy environment in this market?

Your team

If your management team doesn't have the right experience, the investor will likely pass. Funds want to invest in developers who have done this before, or, if it’s a FOAK project, who possess extremely relevant expertise.

So, when you’re laying out your bio, be explicit with numbers and dollars. And be specific. Don’t just say you developed a project – were you filing permits, going to community board meetings, building the model? You should also spotlight your whole team, not just management, especially if their track records are particularly relevant to the tasks ahead. 

Your financial model

Bottoms-up

Your model should not be built around a fixed percent growth rate year over year – the numbers hinge on the projects in your pipeline. If you have five projects in development, put their models as tabs in your financial model and roll them up, showing the revenue and costs they’re going to pull through. You should also integrate an indicative project model for revenue beyond the defined pipeline, or a handful if you have a few different project structures. This will avoid confusion about where your revenue is coming from, as well as how individual project delays will affect your OPEX. It also means the model is built on modular components that the investor can interrogate, rather than numbers that seem pulled from thin air. Plus, it’s a valuable tool internally – it’ll show you how your financials and cash burn will be affected should a project run into issues.  

Most of the time investors will build this bottoms-up model for developers themselves, so it saves time if you create it internally – or our team at Enduring Planet’s team would be happy to help.  

Don’t overlook cash

Be clear in your model about whether you’re using GAAP accounting, or working on a cash basis, or – hopefully not! – something in between. And while your P&L should be on accrual, if it is, you also need to have a cash flow statement that tells you how much you actually have in the bank at any given time. For more on this topic, check out our previous posts on financial planning 101, creating a proforma, and staying on top of it.

Debt

Companies often neglect to include corporate debt or project level facilities in their models. But if you’ve agreed upon a facility, or are actively in discussions for one, you should know how to model it, and doing so will eliminate any doubt on the investor’s end that you fully understand what you’ve signed up for. If you don’t, you can get in over your head very quickly, because you’ll have to worry about debt service costs, origination costs, covenants, audits, etc. Don’t wait until it’s too late to hire a financial expert to oversee everything – or consult a fractional CFO like Enduring Planet in the interim.  You can learn more about picking the right Fractional CFO for your climate company here.

Your pipeline

Some of your assets will be in development, and some won’t be that far ahead yet, but you should put them all on the page to help investors understand the scale of the opportunity. Include as many details as you can: asset size, development fee, location, milestones (like the dates you’ll hit NTP and COD).

Ideally you will also include a development matrix showing where your projects are in the process. What should be included here will vary with each specific project and asset type, but could contain information on offtake, permitting, interconnection, site control, etc.

Historical data that supports your modeled assumptions is also helpful here. Without it, investors could use more conservative estimates of timelines than you may have achieved in reality. 

The policy and regulatory environment

Very few investors will be as in the weeds as you are, so put together a quick primer on the surrounding policy environment, and how this impacts your market size, asset economics, and the pace of asset deployment.

Mary King is a Vice President at Aligned Climate Capital on the Venture team. Aligned’s Venture team invests in North American Seed to Series B companies decarbonizing infrastructure through clean energy, efficient buildings, electric transport, and sustainable land use. Prior to joining Aligned, she was an investor at Backcast Partners, a middle market private credit and non-control private equity investment firm.