Andy Gordon

Government Regulations Are Creating Investment Opportunities

I recently said that government-driven opportunities are one of my favorite drivers of upside and profit. This is what I wrote: “When a new [government] rule allows a product or activity that was previously prohibited or the opposite — or when they ban or prohibit something previously allowed — entirely new market opportunities are created.”

I know this for a fact. Thanks to the Indonesian government, I made my first million dollars — well, not quite a million but damn close — this way. 

On the island of Sumatra, there were plenty of companies producing prodigious amounts of oil. Oil drilling was a big business, and these companies controlled huge tracts of land — with lots of roads. In the dry season, roads turned into dust bowls. Every vehicle that traveled on them threw up its own mini-dust storm.

Spraying crude oil from their own storage tanks on their roads was a cheap and effective way to keep dust clouds from kicking up everywhere. But over decades, the damage added up. And the oil seeped deeper and deeper until it reached the water table and threatened to irreversibly contaminate the island’s water supply. At that point, the government acted and banned the practice. 

And that’s when I swooped in. I wasn’t an environmentalist or actively pursuing environmental projects. But I know a big profitable opportunity when I see one. I had an active business at the time in Indonesia. More importantly, I had the perfect product to woo the oil companies with. It was an American made, all-natural, liquid product I packed in 55-gallon drums. When sprayed onto dirt, it eliminated the dust and turned roads into water-resistant, load-bearing, maintenance-free thoroughfares. 

My product caught on right away. It made me a ton of money. And it was the government that paved the way — no pun intended. So I know firsthand how government regulations can create lucrative market opportunities. 

Sometimes, it’s the banning that makes you money. Sometimes, it’s the unbanning. The U.S. government is gearing up to do a whole lot of both. It will be discouraging or outright banning lots of products and practices it considers harmful to the environment. And it will be incentivizing companies to come up with solutions that preserve and nurture the environment. 

It’s an about-face moment for the government. And it will create exciting profit opportunities for hundreds of companies… And not only for companies, but also for the investors in those companies. 

It’s happening very quickly because it’s being driven from the very top of the government. On the first day of his term, President Biden issued an executive order to rejoin the Paris Climate Agreement. Another order addressed the impact of climate change on disadvantaged communities with the aim of rolling back harmful policies. A third one revoked the permit for the Keystone XL pipeline, which was supposed to transport Canadian oil to refineries in Texas. 

And earlier this week, Biden directed the government to replace the entire federal fleet of cars, trucks and SUVs with electric vehicles made in the U.S.

This is just the beginning. Lots of government agencies will be addressing environmental issues — including ones that help manage the economy. The Federal Reserve and Commodity Futures Trading Commission recently addressed climate risks in high-profile reports. The new Treasury Secretary, Janet Yellen, said that she would create a hub focused on climate change and possible financial risks. The Federal Housing Finance Agency — which oversees Fannie Mae and Freddie Mac — has requested input on climate-change risk management, noting the threat that extreme weather poses to the economy.

While the government is setting the stage, it’s the private sector that will be getting its hands dirty and making it, you know, actually happen. It’s already joining the fray… and in some interesting ways. Just last Thursday, Elon Musk — CEO of Tesla and SpaceX — announced a contest for which he’ll donate a $100 million prize for the best carbon capture technology. 

I think Musk loves big piles of money first, and his pro-environmental stance is a function of that. That’s perfectly fine in my book. I like the idea of capitalism animating economic activity that benefits the planet while rewarding the people who do it right.

Investors are also keenly aware of the huge profit opportunities knocking at their door. VC investors recently poured $85 million into Gro Intelligence. Gro is developing indexes to measure conditions like drought, floods and temperature. The Investment group TPG just created a climate-focused fund and named former Treasury secretary and Goldman Sachs chief executive Henry Paulson as its executive chairman. 

There are sure to be attractive crowdfunding opportunities too. Early-stage up-and-comers like World Tree, Sapient and Neighborhood Sun were added to our First Stage Investor crowdfunding portfolio at valuations (or caps) of $15 million or less. At those prices, just a modicum of success will lead to huge investor profits. And now these companies will be taking advantage of a much more favorable macro-environment. It should boost their growth opportunities. 

I’m a big believer in government-driven opportunities. But while the government is creating the conditions for environmental companies to grow and thrive, you as investors — and not the government — are picking the winners. And if you’re right, it’s you, other investors and the startups’ founders and employees who will reap the substantial financial rewards to be had. 

The environmental freight train has left the station and is rushing down the tracks. You should hop on board. It’s going to be a very rewarding ride.