“No. We won’t be using your models. Not now, not ever.”
He said that like Don Draper walking off the elevator: “I don’t think about you at all.”
He thanked me for my time and hung up.
I’d been speaking with the head of tax equity financing at one of the largest providers on the Street. For the 3 or so weeks prior, I’d worked to clean up and rework our consulting firm’s version of a tax equity financing model. I’d secured staffing, walked confused European teammates through this mess of a structure, built and rebuilt sections, conferred with internal accountants and legal counsel, then performed a massive reorganization of the calculations to reduce file size and make the flow more commercially relevant.
And Mr. Draper had spent about 15 minutes reviewing the final product, discerned that he didn’t like the results, and moved on. He hadn’t said so much as, “here are some comments,” or “I’d try to do this instead.” Just “no.”
It was 2016. I’d met Mr. Draper about 2 months before that conversation at a conference. In retrospect, our in-person meeting had been eerily similar in tone to the “no” I’d just received.
In my mind, the tax equity market was opaque and clubby, almost deliberately so. To my way of thinking, the primary providers of financing operated as a cabal of sorts, layering in obtrusive vernacular to their term sheets that seemed intended to obfuscate not clarify: “sponsor,” “managing member,” “net benefits” (which represented losses), “deficit restoration obligations,” “704b,” “731,” “754,” and on, and on. My literal mind had been trying to unpack each piece of vocabulary individually, hoping that if I could nail down one definition, perhaps the others would fall into place, and I’d be able to see the sailboat hiding in the dots of the overall financing picture.
I hadn’t ever worked on a tax equity financing (obviously), but I’d seen the models and knew they were complicated. I knew they only worked for large solar or wind projects, that there were limited numbers of tax equity providers, that the commercial terms they demanded appeared to violate many of the closely held conventions of project finance, and the models used in the market were some of the worst I’d ever laid eyes on. As a reasonably newly minted financial modeling consultant, I smelled a huge opportunity. And now Mr. Draper had just confirmed all my suspicions about the market and how it operated.
Our model had sought to remove most of that double-speak in favor of clear descriptions and simple, yet elegant calculations. The original models I’d collected to base our template off had all suffered from endless strings of nested IF statements, hard coded values built into formulae, inconsistent formulae across the same row, and other egregious violations of best practices. By reflowing the calculations and bringing the calculations up to best practice standards, I’d hoped Mr. Draper would have seen sufficient efficiencies to continue helping us refine our perspective into something he and his team could use as a tool to save time. Fewer hours spent in the model meant more time doing more deals which would expand the base of tax equity users hence bringing light to the darkness in which the market currently operated.
Looking back on that original model, I can see what Mr. Draper saw: a lot of time invested for potentially limited upside. I was right – tax equity is a very clubby market and it is very complicated. But I’ve come to understand that there isn’t any intentionality in that darkness. The accounting rigor is extremely high because the structure was never intended to become a market standard. Had Mr. Draper invested his time and energy into helping us fix our model for his use, it would have distracted him from doing the deals on his plate now. Further, it wouldn’t have solved one very basic problem with the market – as a structure created by lawyers and accountants, soft costs consume a huge portion of the economics, meaning small deals just don’t pencil. So, all that light in the dark stuff just would never happen.
Since our inception in 2019, Orbis has worked on more than 20 tax equity financings, some of which have been many multiple times more sophisticated than the single asset project models I’d used to complete that original template. Our clients use our models to negotiate their deals and regularly report how much aggravation they help alleviate. Getting to where we are now hasn’t been easy – we’ve made tons of mistakes along the way.
Today, we’re launching our updated template section. These template models represent all the learning we’ve undertaken since our inception. They’re clean and usable (I’d like to say simple too; but there’s only so much I can do.) And best of all, they’re free for you to download and use.
I hope you’ll enjoy using them as much as our team has enjoyed building them. And I hope they help you move your deal forward, no matter how big or small it is.
