What is the better place to launch a circular statup, the US or Europe?

In this episode, Maya Hassa, Principal at Circular Innovation Fund, discusses regional differences in circular business models and stresses the possibilities a fund can offer startups when working with corporate limited partners.

This episode is part of VC for Circularity – the Venture Capital Perspective on Circular Economy Startups.

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Maya Hassa, Principal at Circular Innovation FundL
https://www.linkedin.com/in/maya-hassa/

Patrick Hypscher, Circular Business Strategist, PaaS Expert
https://www.linkedin.com/in/hypscher/

Chapters

00:00 Intro
01:34 Introduction to Maya’s Background
01:57 Understanding Circularity at Circular Innovation Fund
02:27 Investment Goals and Metrics
04:24 Corporate and Financial Investors
06:31 Broad Investment Scope and Strategies
12:54 Regional Differences in Circular Economy
18:08 Challenges and Opportunities in Circular Economy
24:27 Future Trends and Final Thoughts

About

The Circular Innovation Fund (“CIF”) is a global growth-stage venture capital fund led by Cycle Capital and Demeter, leading cleantech capital managers, focused exclusively on circular innovation, striving to positively contribute to climate change mitigation and the circular use of resources.

Further Links

https://circularinnovationfund.com/

Transcript

[00:00:00] Intro

Maya Hassa: The circular economy is built upon localized supply chains and localized networks. And so when you’re looking to disrupt a business model from linear to circular, you have to build a really tight, localized geographic base. And because Europe is smaller, I think these types of models just work easier there. Whereas in North America, we see a higher concentration of industrial technologies.

Patrick Hypscher: My name is Patrick Hypscher, and this is Circularity fm, the podcast about understanding, building and managing circular business models.

Welcome to, VC for circularity, the venture capital perspective on circular economy startups. This series explores how venture capital investors look at circular business models, promising technologies, and bringing commercial and circular impact together. You can find an overview of the series as it gets published at Circularity vc.

We kick off the series with the Circular Innovation Fund, which has a broad investment focus, so we get an introduction to the topic. If you want to have a one page summary of this conversation, please go to circularity FM and sign up for the newsletter.

[00:01:34] Introduction to Maya’s Background

Patrick Hypscher: She studied renewable resource management at McGill University in Canada. After her degree, she joined a Cleantech VC before she was selected as a Clean Energy Leadership Institute fellow. In 2021, she moved to Cycle Capital and later to the Circular Innovation Fund, where she’s now a principle. Welcome, Maya.

Maya Hassa: Thank you.

[00:01:57] Understanding Circularity at Circular Innovation Fund

Patrick Hypscher: How do you understand circularity at the Circular Innovation Fund?

Maya Hassa: We look at circularity as, technologies and business models that reduce resource extraction and extend the useful life of materials. Whether it’s designing for end of life management or emphasizing the reuse or recycling of materials and resources. Our goal and mandate as an investor is to reduce resource extraction and reduce landfill waste.

[00:02:27] Investment Goals and Metrics

Patrick Hypscher: And do you have any specific goals or thresholds there or focus on specific types of resources?

Maya Hassa: We are a generalist when it comes to circularity, but when we’re looking at the impact of a technology or a business model, we focus on reduction of landfill waste and reduction of the carbon footprint of a certain material or a certain industry. So we’re looking at greenhouse gas emissions and we’re looking at waste reduction.

Patrick Hypscher: Do you have like a North Star internally that you use as a thresholds? I say this is the minimum impact a certain investment should have?

Maya Hassa: So we don’t have a North star metric because we invest across different industries. And impact baseline measurements for different types of impact vary depending on the asset that you’re looking at. So for example, we’re looking at waste avoidance, we’re looking at carbon emissions reduction, but we also look at the volume of water recycled and the energy inputs used.

That can be difficult when you are looking at business models that are taking into account the full lifecycle of a product. And especially when something gets into the hands of a consumer and you’re trying to evaluate what carbon emissions are associated with a product in its post-consumer existence.

So there’s a significant uncertainty factor introduced when we’re looking at end of life. But we use up-to-date industry specific baseline metrics to compare the impact of our portfolio companies on an annual basis and set targets for improvement. So we don’t look at a minimum amount of greenhouse gas emissions reduced as a criteria for investment, but we try to set goals that are realistic and aligned with what is currently a market rate impact for this type of industry.

[00:04:24] Corporate and Financial Investors

Patrick Hypscher: You already mentioned your limited partners, how important is circularity for them?

Maya Hassa: Yeah, so our limited partner base is varied and they have different motivations, whether it’s publicly announced sustainability targets, reducing the carbon footprint of their supply chain for the corporate partners, or in the case of, financial investors or asset managers, it comes down more to meeting sustainable finance disclosure regulation and SFDR and other sustainability reporting standards.

And we’re an SFDR Article nine Fund, which means that our portfolio should be making a positive impact on society or in the environment. And we have non-financial objectives at the core of our investment offering.

Patrick Hypscher: You already mentioned a difference between the financial and the, the corporate investors. Are the corporate ones more specific about circular solutions? Do they show let’s say more interest beyond the financial return? Also, when it comes then to, to collaboration?

Maya Hassa: Absolutely. Yeah. So the corporate, investor base that we have has specific mandates depending on their specialization. So for example, some of them would be focusing on reducing the amount of plastic packaging in their, distribution channels and they ask us for recommendations on different new materials that they could be using or looking, evaluating business models together. Whether it’s packaging, return models or using cellulose materials that of plastics.

Other more industrial investors are looking for reducing the amount of petrochemical based inputs in their supply chain. So we’re looking at biodegradable, non-toxic alternative raw materials for specialty chemicals, whether that’s coatings, adhesives, emollient, all these types of chemistries that could be found in everyday products but have significant either eco toxicity or eco or bioaccumulation impacts that are often not taken into consideration in the general climate tech space.

[00:06:31] Broad Investment Scope and Strategies

Patrick Hypscher: Just listening to the, the examples you gave, I feel like the scope you have, the investment scope seems to be pretty wide. Does it feel the same to you and and how to handle it?

Maya Hassa: Yeah, it’s wide. We look at industrial water treatment technologies. We look at reverse logistics solutions. So alternative business models where you have products as a service or leasing models. We look at bio-based materials and we look at advanced recycling technologies for thermoset composites, for example, which are, they’re used in various industries, including aerospace, but also in the renewable sector. So some wind turbine components are thermoset materials and need to be recycled because a lot of renewable infrastructure is coming to its end of life and we need to figure out what to do with it.

So yes. Our investment thesis is very broad. We are generalists. But we always have the same goal in mind, and that is, again, waste reduction and reduction in resource extraction. So if a technology meets that mandate, then we know we’re heading in the right direction.

Patrick Hypscher: I imagine that some of your corporate investors also have. Venture units that directly invest in companies. So what’s the difference for, let’s say, startups to cooperate with you where there seems to be an extra layer compared to the direct immediate corporate VC?

Maya Hassa: Right, so. On first pass, I would say a corporate VC is limited to a specific sector that is relevant to the mothership. We have the flexibility to be opportunistic and evaluate technologies across industries and select the ones that we think will have the most significant impact

Patrick Hypscher: Okay.

Maya Hassa: In terms of access to further joint development programs and, you know, access to working together with a corporate partner that’s obviously something that a corporate VC arm has to offer as well. But I think what a separate VC firm can do is offer help with governance and have the involvement of a strategic potential customer or potential acquirer at arm’s length.

So they have skin in the game indirectly as an investor in our fund. But they also can have a certain distance from a startup. And that’s really important from an intellectual property perspective. And enabling a startup to still have a bit of negotiation power in their commercial agreements with the strategic so that’s another part of it. But happy to talk more about co-development programs and, and how we work with those.

Patrick Hypscher: Makes sense. Can you give some examples of your corporate limited partners?

Maya Hassa: I can give a few. So LPs include prominent consumer goods companies across Europe and North America. Those include L’Oreal, those include Masonite. We also have a handful of industrial players such as the French Energy company, Xcels.

Patrick Hypscher: Okay. And so if one of your portfolio companies wants to, let’s say partner up more with a firms like the ones you just mentioned. How does this process look like? I, I assume it’s only available to your portfolio companies, I guess.

Maya Hassa: Right. So we do regularly share deal flow opportunities with our corporate and industrial limited partners. And if an investment is of interest to them and it’s in their sector, then we’ll make an introduction whether or not we’re considering an investment. So there’s an opportunity there.

However we can also make the appropriate introductions to help with business development, piloting, gaining sectoral expertise, building out distribution channels, conducting product co-development, R&D for our portfolio companies as well. And another model that we’re testing currently is investing a portion of, or allocating a portion of our invested capital towards a joint development program with a relevant corporate or industrial lp.

In which case we would ask them to also match the capital invested in order to have a budget for a program where they would be able to develop a product together, pilot a technology, whatever it is that they deem necessary. And that would also enable the LP to have a bit of skin in the game and the company to get the opportunity to work with them but in a more governed scenario.

Patrick Hypscher: As far as I know, you’re more like mid to later stage. And I would assume that at that stage it’s not so much about product development anymore. So the companies you invest in have a more or less mature product, and it’s about scaling it and growth.

Maya Hassa: So yes, we invest across series A and series B stage companies. And I’d say we’re flexible with that because it, it all just comes down to nomenclature anyway. We do we have made investments in pre-seed and seed stage companies through our accelerator program. And that’s something that we’ve run together with L’Oreal looking at alternative packaging solutions and upcycling waste within their manufacturing processes.

And through that, yes, companies have had direct access to them and have had the opportunity to work with them in some cases. However. At a later stage, yes, these companies should have achieved a product market fit. However, when you have a platform technology, especially when it’s in chemical space or consumer goods space, you’re developing a portfolio of different products.

And sometimes those products vary depending on your customer. So different tweaks need to be made, testing needs to be performed and in those cases co-development of a product is a necessary part of the sales process, and every time a new customer is onboarded, this needs to happen. Cosmetics and personal care products is a primary example. And that is one that we’re looking to develop currently.

Patrick Hypscher: Okay, clear. We kind of acknowledge that you, you have like a broad investment thesis. So. The beauty of that is you oversee a lot of developments.

[00:12:54] Regional Differences in Circular Economy

Patrick Hypscher: Where do you see the most traction in circular economy right now?

Maya Hassa: Yeah, so I would say it’s, it’s no surprise that Europe is leading the way in circular innovation. The regulatory landscape around waste and emissions promotes circularity. But it also I would say promotes the development of early stage businesses in this space. Whether it’s the European Green Deal or the eco design directive or sustainable finance instruments. Like different grant programs and green bonds. I think Europe is really ahead of the game. And just looking at our deal flow stats, we see double the amount of investment opportunities in Europe versus North America. And another statistic I can give you is that typically when we’re looking at the focus of the startups in Europe versus in North America, European startups are usually consumer focused. They’re usually looking at different business model alternatives because the circular economy is built upon localized supply chains and localized networks. And so when you’re looking to disrupt a business model from linear to circular, you have to build a really tight, localized geographic base. And because Europe is smaller, I think these types of models just work easier there. Whereas in North America we see a higher concentration of industrial technologies and typically at a later stage, actually than we do in Europe. So European startups are generally early pre-series A or series A in, in North America we see bit later stage opportunities.

Patrick Hypscher: I just wonder whether the fragmented landscape in Europe that facilitates the development you just described, is also a limitation when it comes to scale that you then also can only scale in your limited ecosystem.

Maya Hassa: Yes. I would agree that it is oftentimes a limitation. For example when you’re looking at product as a service or repair models in Europe, I’ve seen quite a few examples of appliance repair business models that work very well. And also returnable mail packaging models that work very well.

In the US, I think because distances are greater and maybe also just. You know, the mail delivery system works a little bit differently. It, it could be more privatized than in Europe. It’s more difficult to implement. We sometimes just have to accept that a certain company is going to be limited to its home geography.

And typically we avoid these types of investment opportunities because we are a global fund and we’re looking for something that’s a little more scalable.

So. It’s a double-edged sword because those are really important models and important in proving out the economic viability of circularity and reducing waste and, and all of the things that we’ve talked about.

But as a VC investor, we are looking for something that will also be able to scale at a greater rate and generate higher returns. So it’s. Unfortunately, the paradox that we have to deal with.

Patrick Hypscher: Can you give some more examples on the industry focused ventures you see in North America that that work rather there?

Maya Hassa: We see a lot more large scale recycling opportunities.

We see a lot of complex biomaterial scale ups or biotech scale ups versus Europe. Which is also a bit of a paradox because when we’re looking at biotech companies, we’re looking for ones that are capital efficient have, you know, lean operations and that’s, that’s something that we see more commonly in Europe. But North America has a higher concentration of materials innovation at that large scale with you know, commercial scale fermentation facilities, et cetera, that is available to startups.

Patrick Hypscher: You already touched upon certain technologies and business models. What are promising technologies uh, you see coming up in these days?

Maya Hassa: So, as I mentioned, the materials sector is one of the categories of deal flow that we see having the highest amount the highest volume.

Same goes for recycling.

And, especially when we’re, we’re looking at alternatives to traditionally petrochemical based polymers. There are huge implications for specialty chemicals and applications in food and agriculture, personal care products, cleaning products, pharmaceuticals, textiles. There’s just huge market opportunity for these types of raw materials.

And we see that as most exciting. Where it could be scaled up, especially in North America. And we’ve seen the economics to be a challenge. But it’s not impossible to scale these types of industrial plays up as well.

If I were to look for a unicorn, I think it would be a capital efficient advanced materials play that has a multis sectoral IP platform.

[00:18:08] Challenges and Opportunities in Circular Economy

Maya Hassa: You know, you sort of touched on the barriers to entry for scaling various technologies globally. I think that’s a really interesting question. Especially in circularity because you’re looking at, you know, optimizing supply chains and circular business models are based on fragmented supply chains.

You need, you know. A lot of coordination. And there are inconsistencies across geographies in infrastructure, whether it’s recycling infrastructure or, you know ability to produce certain types of materials where scaling across geographies is very hard.

Same applies to materials availability.

So for example I was looking at a packaging company that was um, cellulosic packaging, and they required a certain type of fiber to meet performance standards that their customers required. While this type of fiber was only available in a limited geography. And so this was preventing the company from being able to scale operations in North America because the type of tree that they required was only available in Europe.

So this applies to specialty chemicals as well. Certain types of natural oils or polymers are specific to a certain geography. And so there’s a limitation there.

There’s also an issue with logistics, transporting goods whether it’s for repair and refurbishment models or you know, just making sure that you are maintaining product quality standards. Manufacturing standards. This gets complicated with global transportation being added to the mix.

And also ties into traceability, which is a huge aspect of the circular economy because you wanna make sure that you can measure, where your product came from and where it’s going. The full, you know, cradle to grave or cradle, cradle to cradle rather analysis.

And so the complexity of global supply chains sometimes as an impediment to understanding those types of details.

And then lastly. Behavioral barriers because circularity requires certain behavioral changes in some cases. I would say that’s one of the most difficult changes to implement. And primary example for this type of complexity is seen in reuse or return models where people need to be convinced to bring their products to a designated location for cleaning or refurbishments. And return rates are notoriously low for these types of models.

So yeah, it’s, there’s a whole range of different challenges that we’re facing, not only geographical, but social and economic as well.

Patrick Hypscher: What else do you see? I.

Maya Hassa: You mentioned software you know, SaaS business models and how that is gaining in popularity just because of, you know ease of scale up and low capital requirements, typical attributes of these types of models. But what we’re seeing within the circular economy as an exciting software opportunity or software based opportunity rather, is resale marketplaces. And resale marketplaces that are able to offer physical infrastructure and logistics that enable users to buy, sell, and and ship their used goods.

And what we’ve seen as an especially competitive aspect for these types of businesses is if they have experience in existing online marketplace models such as Alibaba. It’s you know, notoriously unsustainable. But when you are enabling this sort of leasing, rental, return repair marketplace, then it changes the game entirely. And if you’re able to do this at a large scale and efficiently, then it’s definitely a game changer.

Patrick Hypscher: It’s this field of purely digital solutions, something you look at where you see potential.

Maya Hassa: We do, there is potential because circularity is so dependent on optimizing logistics there’s an opportunity for software or AI even to prove its usefulness in these types of contexts. Same goes for waste sorting, for example. I’ve seen a lot of opportunities there. I mean there’s, there’s definitely a huge inefficiency in current waste sorting models.

I. Post-consumer waste is complex. You have organic and inorganic materials mixed together. You have various colors mixed together. In some cases certain colors are very difficult to sort and identify. For example, the color black is difficult notoriously to, to sort. And so there are a lot of benefits to using AI enabled waste sorting for identifying technologies that could help make those processes a little bit more efficient.

And yeah, it’s, we’re, we’re still recycling such a low percentage of plastics even that it would help to have some enabling technologies there to improve or optimize them as well.

Patrick Hypscher: If we take that a bit further, we also need to talk about let’s save demand. Demand for recycled materials, demand for advanced bio-based materials. Do you see any industries that show a high demand for circular solutions?

Maya Hassa: Yes, I think the highest demand is coming from branded. Consumer goods products where there’s both a regulatory pressure and a consumer based pressure for reducing plastics and reducing waste. And a lot of these types of companies are looking for alternatives. They’ve also made a lot of public statements on waste reduction and embedded carbon reduction in their supply chains.

And so need to meet those pronouncements in a pretty short time span. I mean, 2030 is really creeping up on us, so if we’re to meet those expectations, then we need to move a little faster. But yeah, consumer goods companies, I would say have a very high level of pressure on them right now.

Patrick Hypscher: Do you see also their regional difference?

Maya Hassa: Absolutely. Well, yes, the regulatory landscape is much different in Europe versus North America. Single use plastic bans, I would say are more common in Europe than in North America, so yes.

[00:24:27] Future Trends and Final Thoughts

Patrick Hypscher: Alright, we’re reaching the end and I have three questions I’ll ask all of the participants of the series. The first one what’s your tip to circular founders applying for funding these days?

Maya Hassa: I think right now is a really critical moment because given the current geopolitical situation. This is not a good time for fundraising and so investors are going to appreciate a cash conscious management team that’s able to communicate resilience as a value proposition. And so circular startups that are able to help businesses improve material efficiency, reduce waste, localized production are becoming more attractive in times of trade uncertainty. And so this positions circularity as not only a sustainability measure, but also just a strategic hedge against global trade disruption.

Patrick Hypscher: Absolutely. Yeah. Which brings me to my second question and this is about the future. What kind of trends do you see in circular businesses in the next three years?

Maya Hassa: Yeah, I’m excited to see product as a service models becoming more developed. So whether it’s batteries as a service, or electronics leasing or clothing rental. I think also retailers could start shifting more towards reusable containers and better developed take back infrastructure to reduce single use packaging and to encourage conscious consumption whether it’s refill stations at supermarkets or reusable delivery, packaging, all of those are options. And yeah, again, just looking at a development of localized supply chain loops and, reducing the reliance on virgin materials, but also on potentially precarious supply chains given where we stand these days.

Patrick Hypscher: So Circularity.fm is about connecting people. What kind of people should reach out to you these days?

Maya Hassa: Companies that are raising a series A or series B equity round that have a compelling technological or business model innovation that’s aligned with circular economy principles at a technology readiness level between eight or nine showing signs of early commercial traction. We do typically look at commercial revenue as a measure of that.

And I would say, you know, that is just. A nod to circularity being a development or a bit of a revolution in the linear economic system and proving out economic viability of circularity is really important. And if a company is able to achieve that, then they should definitely let us know.

Patrick Hypscher: Alright. That was a big invitation. Thanks a lot, Maya, for sharing your perspective.

Maya Hassa: This was Maya Hassa principle at Circular Innovation Fund. If you want a one page summary of this conversation, please go to circularity FM and sign up for the newsletter. This conversation was the first in the series VC for circularity, the venture capital perspective on circular economy startups.

You can find an overview of the series as it gets published at Circularity vc, and please don’t forget, the most abundant renewable resource is your imagination.

Patrick Hypscher: My name is Patrick Hypscher and this is Circularity fm, the podcast about understanding, building and managing circular business models.