Capital Markets Darden Style (with Yiorgos Allayannis)

Yiorgos Allayannis is reason alone to come to Darden. It may be Darden urban legend, but I have heard tell that his classes cure hangovers. From the minute you sit down, you will be on the edge of your seat.

Having worked in sustainable development over the summer on an avoided deforestation project, I couldn't miss Yiorgos' class on cap and trade, which he taught as part of his Capital Markets elective class. I also thought this was an opportunity to try and capture the flow of a case-taught finance class at Darden.

We started from 30,000 feet, and asked 'Is there a problem?' The overwhelming class response was YES, with 60 YES votes and only 3 NOs.

Some of the other comments raised were:
- Even if there is not a problem, business is aligning behind this issue, so get on board!
- Even if we're not sure there is a problem, can we risk doing nothing?
- What happened to the ice over Greenland?

Then we asked, 'Whose problem is it? Developing or Industrialized Economies? Or is it everyone's problem?'

Molly and Gaurav Gupta had a great volley over the contentious issues of externality, equality and leadership. Molly's argument was that China, because of the pollution it creates as the leading producer of GHG emissions, needs to come to the negotiating table. China's pollution is having an effect on the health and well-being of countries outside its own borders, and if not everyone agrees to participate in Cap and Trade, there will be a flight of factories to non-participating countries like China where energy costs are lower.

Gaurav argued that it is the responsibility of developed countries, historically the grossest polluters with the largest demand for products produced in China and the highest GDPs to reduce worldwide GHG emissions.

Next we shifted gears to ask 'What can we do about it?'

Three solutions were discussed to some length--Cap and Trade, Tax, and Investments, with a surprising amount of attention given to the third--investments into the infrastructure to distribute cleaner energy products, such as wind, to the populous areas of the US that need energy (from Nantucket to NYC); and into investments that drive down the cost of new technologies to make them cheaper and thus more available. We also touched on the nuclear debate after a surprising admission came from the back row--Marshall Croft apparently ran a nuclear reactor for a year! An expert in the room!

Here there was a great interruption from Davide. He commented that 80% of our energy use is from non-renewable sources and that in recent years our energy use has doubled. Thus, it is not just a question of clean tech, but a question of reducing our energy consumption and the way that we use resources.

Finally we started talking about the Cap and Trade system. (Let me take a moment to say that I was really impressed by the enthusiasm and intelligence my classmates had brought to the discussion thus far. I think we would have begun discussing the structure of cap and trade far earlier if it were not for the overwhelming participation around the earlier discussion, which I believe was fundamental to talking about this new market mechanism.)

Here is an aggregation of my classmates definitions: In a cap and trade system a Government sets an explicit aggregate limit on the amount of production (of GHG, in this case). There are two companies, A and B. Each receive a certain number of allowances to pollute based on their previous levels of pollution, and based on the. Usually an allowance is some measurable quantity, such as one metric ton of carbon. A invests in technology that reduces their emissions below their previous levels. B does nothing. A can sell its unused allowance to Company B.

Patrick Connell interjected with the concern that Cap and Trade will create a divide between companies that can afford to modernize and those that cannot. This being a capital markets class, this was entertained, but not seriously. We believe in free markets! If a company cannot compete in the market, they will fail (unless of course they are the Big Three...)

Chris Brandriff brings up another great point. He reminds us that the end goal of cap and trade is to reduce the emission of the greenhouse gases that are warming the planet.

There are advantages in taking a leadership role to get us toward this goal. Yiorgos provides California as an example. Investing in the carbon markets can spur growth in clean tech and allow California to be part of the discussion in setting the future standard. He asks, "Do you want to wait and be the last one, or the first and lead the charge to make the market efficient?"

We began talking about the dynamics of the new market -- how can you tell when a carbon credit is real? Has one ton of carbon, that would have otherwise existed in the atmosphere, been removed? How can credits be measured and verified? I was able here to share my experience working with avoided deforestation in Indonesia and my understanding of additionality. A great way to tell whether a project has been successful in reducing the upward trend of CO2 emissions is to understand whether it could have existed in the absence of carbon markets. If it could and would have been taken on anyway (positive NPV, mandatory by law), it should not receive credits.

I recomend that all my classmates or anyone interested in these issues read WRI's short (2-page) fact sheet on cap and trade for more on additionality and other issues discussed above.

It was truly an awesome class. It was informational and encouraging. I'm off to polish my resume and start networking to see if I can find employment doing project finance and project management in the new carbon economy.

Darden Business Concept Competition

I just got to the Business Concept Competition, and walked into the second-half of a presentation on a ride-sharing service. Darden students are finding business opportunities by considering sustainability issues. I love it.

This team has their act together—they’re talking about how their internet-based ride-sharing service will give companies flexibility in arranging transportation for their employees and offer employees a way to reduce their environmental footprint. They claim that DC-area employers currently pay ~$60 in transportation subsidy for each employee, and that their service would help companies save money. If this catches on, it could be hot. Great idea, guys!

Unmanned Aerial Vehicles for Peace. An unmanned aerial vehicle collects data, delivers ‘packages’, and navigates autonomously . Usually I guess the ‘package’ detonates, but these guys want to build a company that employs UAVs in civilian activities as a communication hub.

UAV for Peace plan to buy, adapt and lease UAV’s for use in search-and-rescue, disaster recovery and search for survivors. These guys are thinking about of the box – they’re not just talking about planes but about using blimps as mobile communication platform that could host cellular networks, radio antenna.

It may be uphill getting this past the Federal Aviation Regulation, capturing a sustainable competitive advantage, covering that high capital cost. But no one’s doing it. The judges offered some useful encouragement and suggested that the team select one or two mission categories, and work the sensor issue and the deployment issue to better communicate the opportunity.

Clean India introduces their team, which is strong, two MBAs and a Prof. and researcher at Oregon State University in water treatment. The product: low cost waste water treatment using ponds and photo bioreactor to treat water used by industry. Dirty water goes in, is cleaned by algae, and is filtered out as industrial-use water and dry algae. The revenues come from both these outputs--the algae can be used for bio-fuels, animal feed, fertilizer; and the water can be sold back to industry.

Clean India are focusing on the textile industry (4% GDP of India), which requires a lot of water (1 MM liters daily) and is currently shipping it from great distances. My classmate Ravi runs through some solid-looking financials and opens up for questions. The judges are concerned about barriers to entry—but it sounds like this team has an edge both with the algae technology and with their photo-bioreactor/algae hybrid model. Good job, Ravi and Baij!!

Life Flow is a technology that support the left ventricle for the treatment of congestive heart failure . Another super strong team--the presenter is an MD/MBA candidate and he’s working with UVA engineers, doctors and people who want to apply this new technology in patients.

Life Flow runs through some of the existing technology – if one of the main alternatives is a heart transplant (scarce supply, pre and post transplant issues, higher incidence of mortality 5 years out), we (me, you and our baby boomers parents) need more options! Life flow may be an industry first. Its strongest points are that its sensor network and magnetic technology allow identification of thrombosis and its location without messing with the flow of blood. The judges and audience have a lot of questions about IP, the device, and the process that they are using to test this device (in vitro/in vivo). I think that short of winning the prize-money, the feedback from the judges here is the most valuable thing for these teams that typically seek to compete in future competitions.

I could listen to these young, motivated, extremely bright entrepreneurs for hours, but have got to take off. After all, it is a reading-day (read: day-off), Halloween, and I’ve got an octopus costume to finish putting together (photos may follow).

I didn't mention all the entrepreneurs by name and didn't cover all of the event, so for completeness here's a list of all the Business Concept competition finalists. Congrats to everyone who made it and got a chance to present today!

Consumer Goods, Services & General Category:
Clear Money – Kevin Royer (D ’10)
Jay’s Karaoke Lounge and Suites – Jacqueline Grace (D’ 10),
Melvin Pope
Ride Flow – Alexander San Andres (D ’10), Joanne Gotianun (D ’10), Mark Taylor (D ’10)
TeleMed Africa – Scott Emami (D ’09), Keith Florance (D ’09), Manoj Sinha (D ’09), Henri Van Canneyt (Darden Exchange Student)

Life Sciences & Hi-Tech Category:
UAVs for Peace – Thanh Dinh (D ’10)
LifeFlow – Amir Allak (D ’10), Alex Bailey, David Chen (D ’06)
Clean India – Ravi Yekula (D ’09), Baijnath Ramraika (D ’09)
Ganti MurthyBlade Energetics – Scott Kasen, Michael Iger, Adam Malcom

New - Live Blogging at Darden

If you blog, you may have some idea of how I feel right now--slightly addicted. I thought that when I left Bali, I would leave my blog behind, too. But here I am, back on blogspot with a new idea for how to communicate my professional student (is than an oxymoron?) life to people outside the Darden Business School Community.

So it begins: LiveBlogDarden.

For the rest of the year I'll bring a small taste of live blogging to Darden. Every couple of weeks I'll come to you live from classroom 50, or from the Abbott auditorium or from Flagler Courtyard. Here's a sampler of some of the events planned for the next few months (my goal is to liveblog about two events/month):

October 16
Unsolved Business Mysteries. Faculty share their latest research with students.

- Casey Lichtendahl discusses research in Decision Analysis that facilitates good financial planning
- Ron Wilcox (author of Whatever Happened to Thrift)
shares his cutting edge work on Marketing Intelligence and the need for thrift in society
- Sean Carr (co-author with Dean Bruner of The Panic of 1907)
presents on Corporate Innovation.

October 27-29
Sustainability and Renewable Energy Forum
Expect lively discussion from the folks at UTC, Target, Frito-Lay, Good Energy and others.

November 7 or 8
Final Round Darden Capital Management Stock Pitch Competition
Before the markets tanked because of the financial "perfect storm," DCM had over $6MM in assets under management. Assets are managed independently by a core group of students.

BTW, I use the 'perfect storm' metaphor because as far as I can tell it's the buzz-metaphor of the past couple years. When did it become en vogue -- was it with George Clooney? Anyway, far too often I find it is used inappropiately to describe lucky coincidences rather than situations in which a lot of conditions align to disturb the current order, like the one unfolding now.

November 13-15
Net Impact National Conference, The Sustainable Advantage: Creating Social and Environmental Value.

November 20
Innovation Challenge

December 3
Building Goodness in April section auction (Go Section B!)
Darden students raise money for BGIA, an annual spring event during which bschool students go out into the Cville and the surrounding area en masse, and with professional home builders, help renovate houses for people in the community.