Venture Capital investments in Circular Economy – The next big investment trend?
On April 18 2024 we had a vibrant discussion with Otto Birnbaum (Revent), Jenny Dreier (EQT Ventures), Andrew Shannon (Circularity Capital) and Morgan Sheil (World Fund) about challenges and opportunities in the Circular Economy on our “Investing in the Circular Economy” event together with Google cloud and 80 amazing participants from across all fields.
Here are our key takeaways:
Circular Economy (CE) is more than emission reduction
- Circular Economy is a massive lever to reduce emissions BUT you can’t just boil it down to carbon emissions
- CE offers many more advantages beyond emissions – from biodiversity protection over resource conservation to strategic supply chain independence
- The field is extremely broad – but attractive investment opportunities can be clustered in three main buckets: Circular Use Models, Circular Products & Materials, Enabling Solutions
- Typologies and playbooks for deeptech tech ventures can often be applied to CE – the Climate Brick by EQT was a brilliant example
Measuring impact in CE remains a challenge
- In the climate field, carbon emissions are an established proxy for impact; however, how do we measure the “circularity” of a business?
- While LCAs offer product-based information, what is a measure for the systemic impact of a business in its complex economic environment?
- What is impact measured against? Identifying and assessing the choice customers would have followed in absence of the CE solution can be a solution but is challenging
- In the long-term, standardised “impact statements” – analogous to the established financial reporting such as IFRS – might emerge
Sacrificing return for impact will not lead to sustainable businesses
- Customers still do not accept “circular premiums”. Circular businesses need to demonstrate financial success without relying on such premiums
- Sacrificing impact OR return is neither acceptable nor needed for VCs- strong impacts will drive strong return for VCs, and picking the right investments is key
- The best opportunities have circularity built-in in their business model – increasing profits are linked to increasing circularity (check out winnow solutions, reducing food waste and costs by up to 50%, nicely highlighted by Andrew Shannon)
- Comparison to / competitiveness with business as usual is key!
Circular Economy will soon offer vast new opportunities – awareness is still low, however
- A circular world implies an unseen shift of all businesses – and therefore a vast space for investment opportunities
- After the energy transition, upcoming CE regulations (eco design, right to repair, green claims,…) kick of the next big transformation
- The resulting pressure for innovation will be massive as these regulations affect almost all industries
- These regulations are not just penalising: in fact, they are intrinsically opening up market opportunities. For instance, the need for collection of use-phase data of products obviously offers many sustainability and economic chances
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