Warren Adams combines conservation and ... - Patagonia Sur

Warren Adams combines conservation and capitalism in Patagonia..............................................................By Nelson SigelmanPublished: December 22, 2010..............................................................Warren Adams wants to do for conservation what he did for social networking when he started an Internetcompany he later sold to Amazon — that is, bring an innovative idea with social benefits and profit potential tofruition.The Patagonia Sur properties are in the south of Chile.In the process, the Martha’s Vineyard resident expectsto create a business model that can be used to protectand conserve vulnerable natural areas around the globe,beginning with Patagonia, Chile. His concept and thebusiness are off to a good start.Patagonia Sur LLC, a joint Chilean-U.S. company hestarted with four partners, has attracted millions in capitaland purchased more than 60,000 acres in Chile. Thecompany’s operations include a limited membershipoutdoor resort and the sale of carbon offsets.The club’s Valle California property named “La Estrella” is in a picturesquevalley near the Argentine border.The corresponding nonprofit Patagonia Sur Foundationhas begun laying the groundwork to provide inhabitantsof the isolated region with enhanced opportunitiesfor English education, preventable medical care, andsustainable economic development.The project has close Island ties. Members of the Vineyard’s seasonalcommunity are among the early investors, and Islanders are involvedwith various aspects of the project, from website and brochure creation toinfrastructure development.Valuing conservationUnlike the traditional approach used by nonprofit conservation organizationsthat rely on the outright generosity of donors and benefactors todonate cash or land, Patagonia Sur’s business model and conservationstrategy is to identify the conservation value in a piece of property andthen develop that value.The money fueling the fund used to buy land in Patagonia has come frominvestors who are attracted to the idea of making a return on their investmentand helping to conserve natural areas.A helicopter view of Lago Espolon in Patagonia.“Our objective and goal is to have $30 million of capital in this for-profitconservation fund. Underscore for-profit,” Mr. Adams said in a recentinterview with The Times at his Edgartown home. “We call ourselves aconservation company and we are marrying conservation and capital,”

Mr. Adams is not the first person to see profits in land and conservation. His said his company is unique in itsscope.Where others may sell a conservation restriction or carbon offsets, his plan is to utilize all the conservation attributesthe land has to offer. “We are a sustainable land management company and we look at as many of thosethings as make sense,” he said.At present that includes recreation, eco-brokerage, “ecologically-friendly” aquaculture, agriculture; and the saleof carbon offsets.“We think it’s an innovative model for conservation,” he said. “Compared with most conservation projectswhere people donate money and the organization uses that to buy and protect land and people get a tax break— and those are all good — we think our model uses capital more efficiently. We are able to attract capital frompeople because we say, ‘invest a million dollars with us instead of donate.”Still dreamingBy his own admission, Mr. Adams thinks big. In 1996 the Harvard Business School graduate was living andworking in Cambridge on a startup company, PlanetAll, generally regarded as the first social networking site onthe Internet. In 1998, the 33-year-old sold his company to Amazon.com for $100 million in Amazon stock.In a recent conversation with The Times, Mr. Adams described what led him to Chile and his new company.“Entrepreneurs can’t stop dreaming,” he said.Mr. Adams worked for Amazon for a few years after he sold his company. In2000, and before he and his wife Megan, also a Harvard graduate, had children,they set off to travel the world.“And that’s when we fell in love with Patagonia,” he said. Land was $100 anacre in one of the most undeveloped and beautiful parts of the world. In thenext seven years Mr. Adams was involved with nurturing other start up companiesbut he could not shake the idea of doing something in Patagonia.“There is just something about your own baby even though I was working25 hours a week then, and I am working 70 hours a week now, I am so muchhappier professionally,” he said. “And when you can marry profession andhobby like I did with social networking: I loved to stay in touch with people.How do you make a business out of it? I love nature. How do you make abusiness out of that?”Ultimately, his business skills, imagination, and love of Patagonia led him toa new venture, Patagonia Sur. “I’d say three years in, we are halfway there.”Mr. Adams and his wife Megan live with their three young children in an expansivehome complete with alpacas in the Oyster-Watcha section of Edgartown,a limited development subdivision with large conservation areas thatprovided some of the inspiration for his current project.Warren Adams and his three children inPatagonia.The Adams family spend several months in Patagonia and Mr. Adams travels there frequently.Capitalism is okayThe term conservationist generally evokes an image of an individual in a plaid shirt, not a three-piece suit. Mr.Adams acknowledges that within some conservation groups, capitalism is a dirty word.“That is what handcuffs them and initially made it harder for us to work with some organizations,” Mr. Adamssaid. “But three years in they have seen what we have been able to accomplish in terms of land protected, whatwe are doing with the land management and we are now very much collaborating with conservation groups.”

Mr. Adams said they were not so much suspicious of his financial motives as they were of his concept and abilityto make it happen. “I think they thought these guys don’t know what they are doing. But that is what peoplesaid when I invented social networking 15 years ago. What is this, you don’t know technology,” he said. “AndI think there are lot of analogies with that and this. Because it’s a new model, first of all we had to convinceinvestors that we were going to make money.”Mr. Adams said he sees a symbiotic relationship between capitalism and conservation. For example, his companycould partner with a conservation organization to conserve land that might be financially out of reach werethey to try and go it alone.“We put in 50 cents on the dollar and they put in 50 cents on the dollar. They are able to protect twice as muchas they would have otherwise. We are able to protect and manage twice as much as we would have otherwiseand we go in with an agreed set of covenants that we are thrilled with and they are thrilled with.”That could include an agreement that allows the company to generate profits through sustainable forestry or theplanting of native species in order to sell carbon offsets.Join, Protect, ExploreThe plan for Patagonia Sur envisions nine profit centersof which four are up and running. The most visible isthe 100-member Patagonia Sur Nature Reserve MembershipClub, which invites members and their gueststo “join, protect, and explore” more than 100,000 acresof some of the most undeveloped and scenic areas ofChile, while enjoying access to first-class amenities andaccommodations.Fred Khedouri of Chilmark, an investor and club member, holds up atrout he caught during a visit.White water rafting, kayaking, fishing, horse back riding,hiking are among the activities offered. Mr. Adamslikens it to the “legacy” clubs of the Adirondacks in the19th century.The membership price of $40,000 reflects the exclusivity. Almost half of the memberships have been sold. Clubmembers can sell their memberships and enjoy any profit the exclusivity might generate in the future.The price of a vacation stay is relatively reasonable when compared to similar vacation packages at far moredeveloped resorts. The daily rate for meals, lodging, beverages and guided activities for a couple is $300 perperson, $375 for guests, exclusive of airfare.The company is also selling carbon offsets. In the era of “cap-and-trade,” capping emissions and trading credits,there is money to be made.In the past, vast swaths of Patagonia’s forests were burned to create pastures for cows. Those pastures will bereplanted with trees and generate a commodity, carbon offsets, that can be sold around the world to companiesand individuals.That is not a lot of hot air. The company recently signed a contract to sell carbon offsets to a major universityfor all their reunions. Attendees pay $20. Patagonia Sur plants four trees and agrees to take care of them for 50years.Collectively, Mr. Adams said, the university will one day be responsible for creating a forest with more than20,000 trees. A printing company recently bought 1,000 tons of carbon offsets for $15,000.Ultimately, he said the purchase of carbon offsets spurs companies to conserve if for no other reason than toreduce costs, he said.Patient strategy

The economic crisis that circled the world one year after Patagonia Sur was launched, slowed but did not derailthe company’s plans. Mr. Adams said his company has no debt and takes a long haul approach.“Our investors are patient capital,” he said. “They do this because they expect a competitive market return. Wetarget 15 percent or more of a return and so we sailed through the crisis in terms of operating our business. Raisingcapital was frozen for a while.”The company has raised $20 million from individual investors in Chile, the Unites States and around the worldof a $30 million target in the first phase. The amounts range from $125,000 to $2 million. Of the approximately45 investors, ten are seasonal or year-round Island residents.The business side supports the foundation. Investors must contribute going in and coming out. The currentbusiness plan would generate approximately $25 million for the foundation. “It is all very synergistic with thefor-profit side,” Mr. Adams said.Mr. Adams stresses that the company is firmly rooted in Chile. He said a third of the club members and a thirdof the investors are Chilean as are two of the five principals.The investors share a confidence in Mr. Adams and the concept. “They see this as a chance for a good return oninvestment. It’s an asset-backed investment. There’s land behind the value. It is not like it’s a software companythat does not really have a hard asset. And that helped us through the crisis because if you are worried aboutthings that disappear, land doesn’t, and we’re buying it at $150 an acre and you can compare that with land onMartha’s Vineyard.”The next step will be to raise $100 million at which point the company would be relying on institutional investors,Mr. Adams said. Further down the road, his dream is to go public.“The third and real dream is why don’twe IPO conservation?” he said. “Becauseif we can get $15 from someone buyinga share and you get millions of peoplethat want to buy one share of this becausewe’ve proven that it is going to havea nice return, whether it’s a dividendstream or stock going up, wouldn’t thatbe a great way to draw billions of dollarsinto conservation?”Melimoyu, one of the club’s properties, in a bay of the Gulf of Corcovado, featuresdiverse marine life.For now, Mr. Adams is focused on thecurrent plan but with his eyes on the horizon.“My specialty is to keep focused butdream big. You always have to be thinkingnext, but blocking and tacking to getthe first part right.”Right personThat first part relies on investors who believe that the company will be able to add value to the land that protectstheir investment and makes it grow. Fred Khedouri of Chilmark, an investment banker, is one of those investors.In a telephone call from London, England where he is working, Mr. Khedouri said he approached Mr. Adams.He points to Chilmark as an example of how value can be developed. Real estate in Chilmark is more valuableon a relative basis than the rest of the Island he said because it has relatively strict zoning and large lot sizes.In the case of Patagonia Sur, protecting the majority of the land makes the rest more valuable. “It is not by anymeans a traditional approach to development, which is to extract the greatest possible profit,” Mr. Khedourisaid. “That is not happening, and all the investors I think understand that is not happening and they are all fine

with it because they don’t want to be extracting the most value, because then the conservation part would not beas large as it might be.“And that is why to me it is quite appealing, and I know some of the others investors have the same view. It is infact a good balance.”Mr. Khedouri and his wife visited two of the club properties last February with two friends. “It was terrific,” hesaid.“I seem to spend my life being places where a lot of times I wish I had been there 30 years ago, or I was there30 years ago, and it is no longer the same. We certainly have that experience (on the Vineyard).” Patagonia isthat place 30 years ago.“It just struck me as a really good idea. And something that should be encouraged, and I thought that Warrenwas the kind of person whose involvement would be making it a success.”Mr. Khedouri said he contributes to conservation causes. This he views as an investment.Patagonia Sur boasts an impressive list of board members and advisors that includes academic and conservationleaders. Mr. Khedouri said board members only provide one indicator of an organization’s merit.“What really matters is who is really involved,” he said. “With Warren, he really is involved. You are gettingWarren, and to me that is worth more.”The Patagonia Sur properties are in the south of Chile.All Photography Courtesy of Warren Adams.