Ground truth versus deck truth in emerging-market project assessment

Every project that comes to me arrives, almost without exception, accompanied by a deck. The deck has been worked on by a team of people for weeks or months. It contains numbers, charts, photographs, organisational diagrams, regulatory references, counterparty descriptions, and a narrative that ties them all together. By the time it has reached me, it has been refined to the point where the rough edges of the underlying project have been substantially smoothed away. It describes, in effect, the version of the project that the sponsoring team would like to be the case.

The version of the project that is actually the case — the ground truth — is almost always different from the deck truth in respects that matter for a serious capital decision. The work of the originator is to determine where the gap is, how large it is, and whether the deal still works once the gap is honestly accounted for.

Why the gap is structural

The gap between deck and ground is not, in most cases, a product of dishonesty on the sponsor's part. It is a product of the structural dynamics of how decks get produced. A deck is assembled by a team that is materially incentivised for the project to advance. The team has worked on the project for long enough that they have come to believe in it, and the belief shapes the way they describe the project even when they are trying to be objective. The numbers that are uncertain get reported as central estimates without the uncertainty range; the regulatory approvals that are pending get reported as expected without the political-risk discount; the counterparties that are tentative get described as committed without the conditionality that attaches to their commitment.

None of this is, individually, dishonest. Cumulatively, the effect is that the deck describes a project that is materially more advanced, materially more de-risked, and materially more financeable than the underlying ground reality supports. The capital that commits on the basis of the deck without checking the ground frequently finds itself in possession of a different project from the one it was promised, and the recovery from that mismatch is rarely clean.

What ground truth looks like

Ground truth, in the sense I am using the term, is the description of the project as it would be assembled by someone who has spent meaningful time on the ground, talking to the people who would actually deliver it, walking the actual sites, reading the actual contracts, and meeting the actual regulators. It is more textured than the deck, because it includes the things that the deck has smoothed away. It is also more uncertain than the deck, because the smoothing has not happened.

A ground-truth assessment of a project will typically reveal that some of the counterparties described in the deck are at an earlier stage of engagement than the deck implies, that some of the regulatory milestones have political dependencies that the deck does not surface, that some of the operational team are in roles for which their actual experience is thinner than the deck suggests, and that some of the financial projections rest on assumptions that the people closest to the operational reality would not endorse without considerable qualification.

Each of these is a finding. None of them, individually, is necessarily fatal to the project. The cumulative picture is what matters, and the cumulative picture is almost always materially more conservative than the deck would suggest.

The methods that produce ground truth

Producing a ground-truth assessment is principally a matter of relational time. It is hard to do at a desk and impossible to do entirely through documentation. The people who can produce it are the people who can be trusted by the operational team on the project, who can ask questions in a register that is not interrogative, and who can interpret the answers with the discount factors appropriate to the particular jurisdiction and project type.

Several specific methods, in my experience, contribute disproportionately to the ground-truth picture.

The first is unstructured conversation with operational team members away from the principal sponsor. People who are working on the project day-to-day have a more honest reading of where it actually is than the people who are presenting it to capital, and they will share that reading in conversations that do not feel like diligence interviews. The conversations need to be conducted in a way that does not compromise their position, but the information they yield is among the most valuable available.

The second is direct contact with the counterparties named in the deck. A counterparty who has, in fact, signed a binding offtake agreement will describe the engagement in one register; a counterparty who has, in fact, signed a non-binding expression of interest will describe it in a different register, even when the deck has presented both as equivalent. The information that distinguishes them is not always obvious from the documents but is reasonably accessible in conversation.

The third is a careful read of the regulatory and contractual documents, including the ones that are not in the data room. The data room, like the deck, has been curated, and the documents that would complicate the narrative are sometimes absent from it. The work of identifying which documents would matter and locating them, even when they have not been provided, is part of producing the ground-truth picture.

The fourth is direct site visits. The site, when actually walked, often presents differently from the photographs in the deck. The infrastructure that was described as 'in place' is sometimes in place; sometimes it is being constructed; sometimes it has not yet been started. The local operational environment — the ease of movement, the visible presence of regulatory authority, the pattern of community engagement — is also part of the ground-truth picture, and is hard to assess without being there.

What to do with the gap

The most common error I see, once the ground-truth picture is assembled and the gap with the deck is documented, is for the originator to conclude that the deal is therefore unworkable and to walk away. This is the wrong conclusion in most cases. Almost every project I have worked on has had a gap of some size between deck and ground, and most of them have closed successfully on terms that reflected the gap rather than the deck.

The right conclusion, in most cases, is to renegotiate the terms of the engagement in light of the ground-truth picture. The capital structure may need to be adjusted, with more conservative gearing or more conditional drawdown. The counterparty commitments may need to be firmed up before further capital deploys. The operational team may need to be supplemented with senior people whose experience matches the actual challenges, rather than the deck-described challenges. The regulatory milestones may need to be re-sequenced, with later milestones contingent on earlier ones in ways the original structure did not require.

None of this is hostile to the project. It is, in fact, what gives the project a realistic chance of succeeding. The sponsors who push back against the renegotiation in defence of the deck-truth framing are, in my observation, the sponsors whose projects most often fail. The sponsors who engage with the renegotiation constructively, even where they disagree with specific points, are the sponsors whose projects most often close on terms that hold.

The originator's role

The originator who insists on the ground-truth framing is, in some sense, doing an unwelcome job. The deck has been produced precisely so that the project can be presented in its best light, and the originator who insists on looking past it is introducing friction the sponsors did not want. The originators who avoid this work find that their counterparties are easier to work with in the short term and that their mandates close less reliably in the long term.

The discipline I would commend, after thirty years of doing this work, is to treat the ground-truth assessment as the primary deliverable of the engagement, with the deck-versus-ground reconciliation as the document that the capital actually decides on. The deck has its place — it is the marketing document — but it is not the document on which serious capital should commit, and the originator who produces a useful ground-truth assessment is doing the most valuable thing they can do for the parties on both sides of the engagement.

The cost of doing the work

The ground-truth assessment is not free. It costs time — typically several weeks of focused engagement before the assessment can be considered substantive — and it costs the relational capital that comes from asking probing questions of people who would prefer to be asked easier ones. The originator who does this work pays these costs at the front of every engagement, and most engagements do not produce closed transactions, so the costs accumulate disproportionately on the engagements that do not proceed.

This is, in some sense, the structural problem of the work. The originator who skips the ground-truth assessment has lower per-engagement cost in the short term and saves the relational capital for the engagements that close. The originator who does the assessment carefully has higher per-engagement cost and spends relational capital on engagements that turn out to be unworkable. In the short term, the disciplined originator looks less productive than the undisciplined one.

In the long term, however, the picture inverts. The disciplined originator develops a reputation for engagements that close on terms that hold, and the counterparties who matter learn to send their genuinely substantive opportunities to them rather than to the originators whose track records are filled with engagements that started promisingly and ended badly. The relational capital that the disciplined originator appears to spend on the unworkable engagements is, in fact, being invested in the reputation that produces the closeable engagements that follow.

A closing observation

The deck is what the project would like to be. The ground is what the project actually is. The work of the originator is in the gap between them. After thirty years of this work, I have come to the view that the originators who do this work well, and who insist on doing it before capital commits, are the ones whose engagements close cleanly and whose reputations are durable. The ones who skip the work are the ones whose engagements produce the disputes that occupy the rest of us for years afterwards.