OddX
Odd’s Creek Exchange (OddX)
Business Plan
January 2018
Revised for Publishing November 2018
Scott Landers, P.E.
Founder and Chief Facilitator
Mission
Create a market-based exchange for listing conservation finance opportunities, which will catalyze conservation finance deal flow, further bridging financial and natural capital.
Problem Statement
The demand for conservation finance investment greatly outstrips the supply of qualified opportunities. Most investments to-date have been small scale - a single project by a single investment firm. Further, many of these investments are still at the demonstration stage and have been funded through philanthropic or government grants.
If a demonstration project is successful, the firm may create a fund of similar projects. However, the results of the project and structure of the fund remain the intellectual property of the investment firm. It often takes years to develop a investment thesis from demonstration project to a fund This results in many project-based demonstrations that have to be repeated by multiple firms.
These dynamics constrict the overall size of the conservation finance market and prevent proven investment strategies from scaling more broadly.
Unique Solution
Odd’s Creek is a 501(c)3 nonprofit bridging financial and natural capital by developing market-based solutions for managing natural resources in agriculture and water.
Through our work, we developed Odd’s Creek Exchange (OddX), a market-based exchange listing conservation finance opportunities.
OddX will be a marketplace for connecting conservation finance opportunities and conservation finance investors. We believe that creating an exchange listing conservation finance opportunities will catalyze conservation finance deal flow, further bridging financial and natural capital.
Innovation
The innovation powering the exchange is our standard evaluation method for conservation finance opportunities. Compared with the well established methods for evaluating companies (profit and loss, cash flow, price-to-earnings, book value, etc.), there exist no such standards by which to evaluate the risk-adjusted return on investment for conservation opportunities. It is believed that individual firms have developed their own methods of evaluation, but they are not publicly available.
This lack of standard evaluation keeps many opportunities in early development stages, funded by philanthropic or government grants.
However, scientific literature and demonstration projects have quantified the financial return of conservation opportunities. There are examples of pay-for-performance investments, which directly link measurable conservation outcomes to financial returns.
Our method will collect standard information from each opportunity proposal, analyze it against scientific data and demonstrated results, then assess a risk-adjusted return on investment.
This method will be the core intellectual property of OddX, allowing for the uniform evaluation across a range of conservation opportunities. Essentially, this method will translate the conservation risk into a quantified financial risk (i.e. an expected return on investment), thus reducing the barrier to entry for conservation finance investors.
Over the long-term, OddX seeks to open source our evaluation methodologies to publicly promote conservation finance investments to the widest extent possible.
Business Model
Born out of the Odd’s Creek non-profit, OddX will operate as a non-profit exchange. We deeply believe in the importance of conservation finance, and to this end, will only charge the fees necessary to maintain a positive balance sheet and operate an effective marketplace.
Choosing to be non-profit means we will prioritize our commitment to bridging financial and natural capital over a pursuit of maximum profit and that as much as possible of the financial capital invested will go directly to the conservation projects seeking investment.
The range of conservation finance opportunities that could be listed on the exchange is highly diverse with examples ranging from river restoration to carbon sequestration. On the other side of the exchange, the range of investors covers individual investors with $1,000 to institutional investors with funds in excess of a billion dollars.
OddX proposes two means by which to successfully start-up the exchange.
Initial Opportunities
Born out of the Odd’s Creek mission to bridge financial and natural capital, so too will OddX be dedicated on conservation finance opportunities. Within conservation, OddX will initially focus on opportunities in agriculture and water.
We choose to initially focus on agriculture and water due to our internal expertise in these fields and existing network of experts to advise on underwriting the conservation opportunities.
While choosing to focus will increase our likelihood of success, we are committed to developing methods that are broadly applicable across a wide range of conservation and social impact opportunities.
Over the long-term, OddX aims to support the full diversity of conservation and social impact opportunities.
Initial Investors
OddX will leverage the latest scientific data and demonstrated results alongside a panel of experts to evaluate and underwrite conservation opportunities. However, as with all investments, there are no guarantees of return and it is the investor’s risk to commit capital under the agreed terms.
To ensure early success of the exchange and reduce the amount of operational overhead required, OddX will only accept investments from qualified institutional investors. This will allow OddX to develop an industry-backed track record while refining its underwriting method.
Over the long-term, OddX aims to allow all interested investors access to conservation and social impact opportunities. In all instances, OddX seeks to comply with federal regulations and be an industry leader in establishing policies that support long-term decision making and transparency.
Revenue Model
Example revenue models are presented below. OddX could monetize any one or a combination thereof.
Option 1: A percentage-based fee is charged on all funds invested on the exchange.
Option 2: An application fee is charged to all sponsors seeking to list their opportunity on the exchange.
Option 3: A percentage-based fee is charge on all returns generated through the exchange.
Partnerships
To be successful, OddX will need the support of multiple stakeholders and partners.
Conservation Organizations
There is no exchange without listing conservation opportunities. Prospecting and qualifying these opportunities will require the support of Community Based Organizations, public agencies, and other non-profit institutions.
Experts
To be a trusted exchange, OddX will need to work with a panel of experts validating our methodology for qualifying, evaluating, and underwriting conservation opportunities.
Investors
Once conservation opportunities are qualified and listed, OddX will need need to market and sell them to institutional investors.
Digital Developers
While initial research and development can be completed offline, scaling the exchange will require a digital platform to support greater deal flow.
Financial Regulators
The above are just the basic components for a market-based exchange. To be scalable, the OddX digital platform will need to be built and audited for financial compliance.
Risks and Questions
This business plan is an outline of the OddX concept. There are many more questions that need to be answered before OddX can be built into a successful enterprise
Intellectual Property
There is nothing inherent about this business model that prevents it from being replicated as a for-profit exchange.
What is the best way to protect the intellectual property such that OddX can be a successful pioneer and first-mover?
Non-Profit Financing
Developing OddX as a non-profit precludes access to equity-based financing. As a non-profit:
Can OddX receive enough donations to develop and set up the exchange?
Can OddX generate sufficient revenue from fees such that the exchange becomes self-sustaining?
What is the best way to fund the initial development and refinement of the business plan and platform?
Aggregating Data
Our evaluation method will require a database of scientific data and demonstrated results from conservation finance projects.
How can we best partner with existing demonstration projects or early-stage funds to anonymize and leverage their data as part of our conservation database?
Financial Regulation
OddX will be an exchange for investments. Like all investments, these will not be risk-free and no return is guaranteed. Depending on the terms of investment and investors to which they are offered, OddX could be subject to financial regulation.
In particular, it will be necessary to determine if investments through the exchange represent securities and how to best proceed in accordance with SEC regulations.
What is the best way to set up the initial OddX platform such that it complies with all regulations, yet does not become immediately overburdened with administration?