From Trash To Treasure: Why Circular Economy Startups Are Fast Gaining Investor Traction

Circular economy startups are fast gaining traction, and in the coming years, investor interest will shift toward this vertical. New ventures and entrepreneurs developing disruptive ideas to build a more sustainable economic model are also attracting customers.

The underlying mission statement of a startup in the circular economy sector is to minimize waste and pollution. They also develop innovative ideas to reuse products and materials for longer to lower environmental impact.

These new ventures treat waste as a valuable resource to recycle and repurpose into new products. As a result, they lower dependence on the earth’s resources to get new materials for manufacturing. That’s how they attempt to lower the human carbon footprint on the environment.

The Circular Economy is Poised for Exponential Growth

Research indicates that the worldwide circular economy market was valued at over $339B in 2022. It will likely experience a CAGR of 7.59% and reach over $526B by 2028. The market for recycling and repurposing digital products will grow at a CAGR of 24.3% from 2023 to 2028.

The sustainable approach, designed to maximize resource efficiency, can potentially lower greenhouse gas emissions by 70% by 2030. This model will also lower the waste cities generate by 80% within the same time frame.

The exponential growth in this sector is an attractive incentive for startups to come up with exciting ideas for recycling. Some sectors with the largest market share in the circular economy include food, clothing and textiles, electronics, wood, plastic, glass, and reselling products.

Read ahead for detailed information about why circular economy startups are fast gaining traction. Let’s explore why investors are keenly interested in this sector, making it easier for entrepreneurs to raise funding.

Understanding the Principles Behind the Circular Economy

Reusing and Repurposing

The core principles of the circular economy are producing and consuming products that are made by reusing products. Instead of discarding products that have reached the end of their lifecycle, they are kept in circulation. The objective is to minimize reliance on the earth for fresh resources.

Instead, startups attempt to keep the existing resources in circulation for as long as possible. In this way, they attempt to minimize waste creation. The circular economy essentially views waste as a valuable resource and leverages innovations to create new revenue streams from trash.

Not just startups but established corporations are also building in-house divisions to recall and repurpose discarded products. That’s how they demonstrate responsibility and commitment to preserving the planet.

A good example is Levi’s, which collaborated with Cotton Inc.’s Blue Jeans Go Green initiative. The two companies worked to recycle unwanted jeans into insulation material for buildings.

Companies like Souface, Adidas, and H&M made waves by releasing athletic wear made using ocean plastic.

Repairing for Extended Lifecycles

Aside from repurposing and recycling materials, companies are reversing the planned obsolescence manufacturing model. Products are now designed to last the consumer’s lifetime and are durable and repairable.

Spare parts are now available so customers can prolong usage by making minor repairs. This practice extends the product’s usable lifecycle and encourages customers to be responsible with their choices to minimize waste.

On their part, consumers welcome the option to save money on purchases.

Reversing Logistics to Lower Waste

By deploying reverse logistics protocols, startups can encourage customers to return products at the end of their lifecycle. Customers can get discounts on the new products they purchase, and the brand can recover some materials to produce more.

Closing the loop is a win-win solution for both consumers and manufacturers. A good example is the Apple Trade In store, which accepts not just old iPhones but also batteries and cables.

Customers can also return monitors, iPads, and watches and get credits toward their new purchases. Aside from actual products, companies also offer to accept packing materials for reuse.

Renting and Leasing

Circular economy startups are fast gaining traction by leveraging the share-and-collaborate-to-use models. Consumers have the option to rent or lease products instead of purchasing them outright.

This option is easier on consumer pockets but also ensures a long-term recurring revenue stream for startups. Demonstrating a robust ARR in the pitch is always an attractive feature for investors. A good example is the car leasing business model.

Companies purchase big-ticket cars and lease them out to customers for a fixed time interval. People can lease the car, enjoy its ownership for a couple of years, and exchange it for a newer model. This strategy works out to be cheaper than owning a car. The company ensures a steady income from the rental agreement and recovers the cost of the car with a profit.

Keep in mind that in fundraising, storytelling is everything. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor on Facebook, with a $500K check that turned into more than $1 billion in cash.

Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.

Customer Buy-Ins – Circular Economy Startups Are Fast Gaining Traction

If you are innovating new ideas for the circular economy, know that finding a market for your products is easy. Customers are committed to environmental causes and eager to support businesses that focus on sustainable practices. And whose mission statements align with their values.

This factor allows you to demonstrate a ready customer base in your pitch deck, making fundraising more streamlined. Startups that advertise using upcycled and recycled materials are in high demand thanks to eco-friendly and aesthetically appealing products.

Commitment to Protecting the Planet

Customers are open to supporting such brands as long as they don’t compromise usability and fashion sense. In fact, going green and sustainable is catching on in a big way since buyers are conscious of the impact of their purchases on the community and planet.

On their part, brands are transparent about their ethical practices in operations throughout supply chains. Starting from sourcing materials and manufacturing products to packaging and disposing of waste.

Broadcasting information like this helps build trust, and social media is a great way to achieve this objective.

For example, the international brand UNIQLO has set up donation boxes in its stores where shoppers can drop off old clothing. The company accepts both UNIQLO and sister brand GU clothes that it later reuses or recycles to make new products.

At least 65% of shoppers prioritize sustainability when choosing their favorite brands. That’s the segment you’ll target with your marketing and advertising programs.

Substantial Cost Savings

Supporting the circular economy translates into significant savings for customers that they are sure to appreciate. For instance, fashion on rent is a great initiative that allows people to rent expensive designer clothing for all genders.

Customers need not spend thousands of dollars on apparel they’ll wear at only one event. They also eliminate the costs of maintaining and storing expensive garments. Above all, they appreciate the ability to lower reliance on fast fashion, which substantially impacts the environment.

Clothing and fashion are only the tip of the iceberg. Responsible practices can divert innumerable categories of consumer items from landfills and incinerators and potentially convert them into new products.

Many city governments have started drives and deposit return recycling programs to encourage users to bring back bottles and cans. Customers can also get back $2 for every ink cartridge they return. Then again, e-waste contains precious metals like palladium, gold, and platinum.

Are you considering starting a business in the circular economy? Check out this video, where I have explained how to come up with an investor worthy business. In it, I have outlined some ideas for a business idea that investors would want to back.

Why the Circular Economy is Attractive for Investors

Circular economy startups are fast gaining traction also because of investor backing and capital availability. Investors recognize the potential that sustainable startups demonstrate, considering shifting consumer trends and government regulations.

Environmental damage, climate change, and resource depletion are critical issues the world is battling. Startups attempting to develop solutions to counter these issues typically have robust business plans and sustainable models that attract investors.

Long-Term Investment Returns

Circular economy startups demonstrate the potential to yield rich returns over an extended period. The issues they are attempting to resolve will take decades. As they continue to grow and earn profits and revenues, they are sources of continued returns.

Sustainable startups are committed to lowering costs and running with maximum efficiency in keeping with their mission to minimize waste. As a result, they are adept at using resources optimally with the objective of reusing and recycling.

The lower costs translate into higher profits and rapid growth, which investors appreciate. Business models like rentals and subscription models also ensure consistent revenue streams and a proven customer base. These factors point to long-term gains in terms of returns and benefits to the planet.

Impact-driven ad ESG angels, VCs, and family offices may also specifically look for startups operating in the circular economy. You can expect not just funding but also expertise that can build the venture further.

Customer Dedication to Sustainability

Regardless of the sector where the startup or an established corporation operates, the entire system ultimately depends on demand. Industries are only as successful as their customer base and demand for products and services.

The world is going through radical shifts toward sustainability. Companies that adopt missions to minimize their carbon footprint will always be in demand. As explained in the preceding sections, shoppers are conscious of their choices and seek brands that resonate with their values.

Any brand delivering eco-friendly products, implementing green practices, and undertaking initiatives to recycle and reuse will be in demand. This is why it makes sense for investors to support startups that cater to this demand.

Government Incentives and Perks

Entrepreneurs in the circular economy space can avail of a selection of incentives that federal governments worldwide are offering them. The regulatory and financial support they now receive encourages them to build sustainable companies.

Grants, tax rebates, prizes, loans, and tax credits are only some of the incentives. For instance, the Inflation Reduction Act of 2022 offers the U.S. clean vehicle tax credit. This credit is for recycling electric vehicle battery materials in North America.

Americas Trade and Investment Act provides $14B in incentives to startups in the sustainable fashion vertical. Any businesses deploying activities like fiber recycling, repairing, rental, reusing, and reselling can avail of a 15% net income tax exclusion.

The U.S. Department of Energy offers cash prizes worth $4.5M and $1.1M in technical support to innovators. Any startup attempting to ideate techniques to extend product lifecycles can qualify.

The Small Business Administration 7(a) loan program gives out loans of up to $5M to circular startups. They can purchase equipment or use the money for working capital or any other needs.

Federal incentives and support work to instill confidence in investors. They are open to supporting startups that qualify for incentives since they have accreditation from the government.

The Circular Economy is Now Transitioned to an Entire Ecosystem

Circular economies are fast gaining traction because the entire space has transformed into a new ecosystem. Larger corporations have started separate divisions to implement responsible practices to cut back on costs. They must adopt these practices to retain customer confidence and trust.

Alternatively, giant brands partner with small, upcoming startups to demonstrate their commitment. Smaller ventures are also open to collaborating to broaden their customer base and reach bigger markets. They get resources and capital to scale, but more importantly, validation and credibility.

Having a reputable brand backing them attracts investment from external sources. Such partnerships also benefit bigger brands since they can demonstrate responsibility to investors. Customers also benefit from cost savings and access to a greener product portfolio.

In Conclusion

The world is transitioning to new thought processes and an awareness of environmental issues and the steps that need to be taken. Consumers, producers, and regulatory organizations have swung into action to deploy the necessary measures to protect the planet.

With the circular economy taking off and making great strides, investors are entering the fray to invest capital. They are recognizing the immense potential that these startups demonstrate and are eager to support them with money and expertise.

Whether rent-and-collaborate, recall and recycle, or repurpose and reuse business models, startups that demonstrate innovation will attract investment. Ultimately, they will be the driving forces that bring in transformations with innovative and disruptive ideas.

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