Interview with Rahul Advani, CEO of SER Capital
Watch the latest videos from Dylan Green with an insightful interview with Rahul Advani, the CEO and Managing Partner at SER Capital.
Part 1 Transcript
Catherine: So I’m Catherine McLean, founder and CEO of Dylan Green and today I have with me Rahul Advani, CEO at SER capital, joining us from sunny Silicon Valley.
Rahul: Hi Catherine, how are you doing? It’s nice out here but probably similar weather everywhere, probably a little bit indoorsy.
Catherine: Oh yeah, it’s brutal here, 96 today. So tell us why you decided to start SER Capital.
Rahul: Sure! First, SER Capital, we’re a private equity firm and so SER stands for Sustainable Environmental Renewable and those are the three subsectors that we exclusively focus on. I decided to start it because I really felt that it was the right place to be at the right time. I think a few years ago I might have felt a little bit early, whether I’m right or wrong that’s another thing. I think now, first there was no firm that was independent that was dedicated to investing in these sectors, with a private lens and strategy that we’re caring for. So I thought that there would be a market demand for that. Number two, it really felt like now’s the right time because sustainable solutions are now economic and increasingly in demand. And so, where it once went from a fad, I think it’s now, whether businesses are sustainable or not, there’s this term greenwashing that goes out there. But I will say, to start an investment firm in this arena, on a more dedicated pure-play basis really, to me, felt like there was the opportunity to earn better returns than traditional private investment returns because of the sustainable aspect of it. And so, to me, all of those things are built in together. I had always gravitated to early-stage businesses in my own career and had been – I don’t know if I would have been able to articulate that this is something that I exactly wanted to but I am very excited to have the opportunity to do it.
Catherine: What lessons have you learned? What advice can you provide when you’re starting your own business from the ground up?
Rahul: I’d say the first thing is about the people you know, it’s almost cliche to say, particularly when I’m talking with a recruiter but it really is. Because that sets the tone for how you can really leverage yourself, how you can really just benefit from other people around you, and so to me the first lesson is just surround yourself with the absolute best possible people that you can. The second thing is to know what you are doing. It sounds like a simple piece of advice but if I didn’t have the private equity investing experience, and didn’t have it with the team that have been alongside, I don’t know whether I would be successful or not. But I at least have the confidence that we have a good shot, that we’re a cohesive unit, and that we’re all aligned together and transparent with one another, and that comes with history, it comes with the people themselves, and the ultimate culture that we set out to have as part of our organization.
Catherine: I know, you and I have talked many times about how important diversity is to you; and gender diverse companies are 21% more likely to financially outperform their less inclusive counterparts. While organizations with higher diversity are 33% more likely to outshine less diverse companies, according to McKinsey. Why do you think that’s the case, do you think a range of different voices at the table, or preventing groupthink?
Rahul: It’s interesting, I want to start with this quote that I think I shared with you recently, from Ruth Bader Ginsburg, when she was asked how many justices on the Supreme Court should be women. Her answer is all of them, to me that is the exact right answer, that’s the exact right mindset, you don’t want to have quotas or even just think, “well how many women do I need to have, or can i have.” I think that that’s entirely the wrong mindset. And so, our partner, Sarah Graziano, is the chair of our investment committee and is easily one of the smartest individuals that I’ve interacted with, one of the best investors that I’ve known and has some of the deepest experience in this space. And just being open to that, being able to have a culture that we can build around, with that in mind is something that’s very exciting, it’s a key part of who we are.
Catherine: Yeah, I noticed that even though you have a small team, 43% of your team are people from diverse backgrounds. So how have you seen this play out? What tangible benefits have you seen, perhaps from companies that you work with?
Rahul: Yeah, you know 43% of us are racially diverse, we do not have enough gender diversity, we’re not trying to check a diversity box. But I do think that if you start with looking at the broadest, best candidates, you’re going to end up with a diverse pool. That’s going to lead you to getting a different culture than you otherwise would have had, I’m going to say a much better culture. One that’s going to really drive a lot of respect and diversity of thought, and ideally, if done well, with transparency, with integrity, with authenticity, even vulnerability. I think these are all key elements of building a strong organization, and building a worthwhile experience, for myself, for my teammates, for all of us, for our executives, for our investors, for our community. So, to us, diversity and inclusion all fits into that.
Catherine: Yeah, I think that that’s a really good point, that you mention about vulnerability, it really does set the stage for how you operate with each other and the companies that work for you.
Part 2 Transcript
Catherine: So you’ve been in the industry, obviously, for a number of years. How have you seen an increase in diversity, within the energy sector, and particularly within finance?
Rahul: So there’s been an increase in diversity and that increase in diversity has probably with the increase in renewables. I don’t know if that is coincidental but I would say that it is probably not entirely coincidental because it’s been the biggest growth area, it’s been the biggest opportunity set for employment and for diversity to even occur. While it’s grown, I think that it’s like the rest of corporate America. I think that there’s opportunities to do better across the board. But there’s a lot of reason to have a lot of hope because, I think, another part that’s a dynamic in the sectors that I have been involved in is that we’ve had an aging workforce. And there has been a dialogue, going back as early as the late 90s, where this is a topic of conversation. When you’re doing diligence on business, when you’re talking about the sector, when you’re talking about key trends, so when you have younger generations coming into leadership positions, diversity is increasing by generation, at least I feel that way, I don’t have the data to back it up. It’s one of those things that we are moving in the right direction. Where we sit, as SER Capital, we have the chance to really establish this de novo. I think this you’re an existing organization, if you don’t have a diverse culture but you have high integrity people who really want to deliver on that, but feel a little bit stuck, like how do I do that if I don’t have a budget for growth, nobody deserves to be rotated out to create room for somebody. These all require tough decisions, that’s exactly what they are: tough decisions. They’re a lot easier to put in place when you’re building companies, so with a newer sector and this ethos, I may not be alone.
Catherine: Yeah, I totally agree, it’s definitely easier to do it when you’re building it from the ground up rather than retroactively go back and try to fix it and instill that culture, it’s not just about hiring. It’s about making people feel included when they’re in the organization.
Rahul: It’s a critical part of it. As investors, you have to be able to feel vulnerable. If you have folks that are the smartest person in the room, and let’s say you have a wallflower, that may not want to extend themselves because, maybe, their junior or maybe they just don’t want to get into it, maybe they’re unsure but it might be the best point that changes the course of the fate of an investment of a business. If you just unwind what all that means, you have to have that transparency and that shared vulnerability. And that’s not a one way street, you don’t see that a lot, I think it’s spoken about around organizational behavior. And maybe teams will do that in teamwork exercises but I haven’t seen that really be something that’s adopted more broadly across firms.
Catherine: I want to talk about Streetwise Partners, a non-profit mentoring program that you founded. What motivated you to do that?
Rahul: It was a lot of just feeling some of the inequity of the world on my shoulders. I was maybe naive but it was 1997 and I graduated from Colgate University. I had my first job at PWC and on my first day I was being taken to some of the most lavish lunches and dinners in the city with open tab accounts, and I didn’t feel like I had done anything to deserve that at that stage. So I felt some sort of guilt and it was amplified when I saw the poverty across New York City and I had somebody homeless that would frequently warm themselves on a grade outside my apartment. I had a cubemate who was very inspiring to me and together we started talking about how we could give back and we created a 15-week mentoring organization. That grew from one site in PriceWaterhouseCoopers to multiple sites with backers like Credit Suisse and Barclays and Gallup and Robert Smith, so we’re in Detroit, we’re in New York City, and Washington D.C.. And I’ve stayed involved because of the people. It’s the people that we help, the mentees we’re able to help transform individuals’ lives. The thesis, we did it back in ‘97, I was 21, I don’t know that I could have articulated it, but it was “we want to change one person’s life, that can change a family’s life, that can change a community’s life.” That was really the whole ethos. We did it with the idea of helping one person and it ended up all being worthwhile back then. Now we’re graduating north of 400 folks a year across three cities and a lot of it, I’ve had little to do with at this stage, but just being around great people has been something. That’s just a great organization.
Catherine: I know, I joined in with them a couple of times when I was in New York and it really is a great organization. I want to talk now about Covid. There have been reports forecasting continued renewable energy growth despite Covid, that’s certainly what I have seen. Do you believe that this will be the case? How do you predict the clean energy industry will be impacted long term by the pandemic?
Rahul: I do think renewable energy will continue to grow. We are going to have accelerated growth of clean energy through Covid. That’s not to say that there’s not going to be risks to having that kind of view around that trajectory. A lot of renewable growth that we’ve seen in recent years has not been growth in electricity demand. So it’s not the marginal new assets to fulfill the marginal new demand that is renewable. It’s renewable assets are coming in and on the whole are displacing assets that are coming off. So the question is going to be, is that displacement going to continue at the pace that it has? What we are seeing is that even installing new renewables at the capital costs, at the long-term contracted costs that they could offer customers, is lower than some of the inefficient assets that are already on the grid. So, betting against that continuing is betting against continued innovation in a sector that’s just demonstrated it over the last 20 years, with solar over the last 15 years. So I think that’s going to continue to be a big part of this. I think you’re going to have added areas of growth around it but I believe it. Whether it’s profitable also, and how you invest in it, what the business models look like, that’ll be a different answer because all of the efficiencies that are being driven, they include cost to capital efficiencies. So if you think about trying to earn a return, in some of these businesses, you have to, in my view, have a pretty optimistic or aggressive vantage point around that, one way or the other.
Catherine: Do you think any industries in our space, the clean energy space, will go backwards as a result, like perhaps plastics?
Rahul: I think you nailed it, I think plastics is the one – we have single use plastics now coming back in. New York City just instituted what’s probably the most ill-timed plastic bag ban, right ahead of the pandemic, and the unwinding of people bringing their own bags to grocery stores. I think that that was always an industry that needed some involvement, either with carrots or sticks, to get it off the ground, around plastics, some way of pricing the externalities. I think that they can be hurt, but I would say, conversely, around recycling, I think that we are going to have an uptick around e-waste recycling. Whether it’s our devices, that we might have a bunch of in a drawer somewhere. All of these have regulations in terms of how they’re supposed to be returned, how they’re supposed to be recycled, or at least, how they’re supposed to be disposed of. Particularly as we are seeing battery storage assets coming on, solar panels that are eventually going to be needing recycling, we’re seeing that as something that, it doesn’t offset the negative impacts of plastics but human safety trumps, at least in the moment, trumps planetary safety. It feels like that’s what the mindset is. If you can read tea leaves of everything that’s going on.
Catherine: The final question I’ll ask is, where do you see the greatest growth taking place within the clean energy industry in the coming years. I know we touched on that a little bit in your previous statement, how does SER look at that?
Rahul: I think SER, my team and I would say, number one is battery storage. I think it’s the most potentially transformative asset that is coming onto the grid. It’s really enabled in a much better way because of the renewable growth that’s preceded it over the last 10 to 20 years. So it slots in very well in ways that other traditional assets don’t necessarily. The physical capabilities, the fact that it’s the cost of clients that are coming down, we see that as the cost declines are continuing because we see companies investing in the supply chain because of electric vehicles. And the grid actually just becomes a beneficiary of that electric vehicle supply chain. So I think that’s going to be a key part of it. I think also, there’s more, as I was saying, a lot of our investment thesis is demand driven. I think what the parallel to that in our sector is energy efficiency. I think that any technology that empowers a reduction in energy waste, which we know there is a lot of, I think that we are going to see a lot of opportunities around that. I think those are probably the key areas. And these are areas of growth and backdrop of, depending on the markets, we’re talking about 5 to 20% drops due to Covid, I think these are sectors that held up relatively well, certainly renewable assets did. I think that resilience is going to lead to continued interest. There is more demand for resiliency here. One of the things that we have also talked about around the demand side is, on a broad level, we see it being decarbonized, we see it being distributed, we see it being digitized, and all of that being increasingly electrified. So, internally, we use this term 3D&E, but it’s a shorthanded way of saying that demand for electricity or industrial activity is changing and the asset opportunity around that is transforming, and it’s no longer an advantage to have a big asset, maybe that is of scale, that needs a lot of lines and wires coming off of it, or distribution networks off of it. I think that’s just going to continue through, despite some of the horrible aspects of Covid that all of us have been wrestling with one way or the other.
Catherine: Well, thank you so much for your time and thoughts on this. I really appreciate it.
Rahul: Catherine, thank you, I really appreciate it. Thanks for the opportunity.