Navigating Early-Stage Funding For Circular Economy Startups

Attracting early-stage funding for circular economy startups is quickly becoming streamlined. In today’s world, sustainability is not just a buzzword but a crucial necessity. Startups with innovative and disruptive ideas are emerging as crucial players in transforming industries.

Their mission statements are all about redefining waste, promoting reuse, and creating innovative products from recycled materials. Although a nascent vertical, investors see the value they can add to the economy. However, founders must demonstrate a robust value proposition to get funding.

Read ahead for detailed information about the potential opportunities that circular economy startups can access when seeking early-stage funding. You’ll get insights into how to navigate this complex landscape and the many capital sources to tap.

Understanding How the Circular Economy Operates

The circular economy is an economic model involving the manufacture and consumption of products with the objective of extending their lifecycle. The underlying principle is to minimize dependence on fresh, natural resources by reusing existing materials and products.

To do this, startup founders develop new techniques to reuse, repair, refurbish, and recycle materials. That’s how they attempt to disrupt the traditional linear economy, which operates on the ‘take, make, dispose’ model.

Customers welcome the opportunity to save substantially by getting products repaired or exchanged for new versions at discounted rates. They also have the option to lease, share, or subscribe to the products they need instead of purchasing them outright.

In this way, the circular economy model is essentially a win-win solution that works well for users and companies. On their part, manufacturers save significant expenses by purchasing recycled materials that are more economical than fresh inventory.

Transitioning to a circular economy model benefits multiple verticals in the US. For starters, these industries include battery manufacturing, electric vehicles (EV), electronic equipment, and the built environment.

Statistics estimate that the shift to recycling management can significantly lower raw material inputs. Further, this strategy could unlock $883B to $1.5T in new revenue streams and economic value. These figures add up to 4% to 7% of the US GDP or gross domestic product.

A sustainable economy can reduce greenhouse gas (GHG) emissions by 370 million to 850 million tons of carbon dioxide equivalent (CO2e) per year. These numbers translate into a drop of 7% to 16% of total GHG emissions in the US.

With so many positives and customer interest, investors also see the potential for high returns when startups grow quickly. At least 65% of customers are likely to choose brands that demonstrate values like responsibility, recycling, and sustainability.

Basic Principles on Which Sustainable Startups Work

The circular economy landscape operates on basic principles, including innovations to repurpose and reuse trash. Startups devise new methods to use waste and end-of-lifecycle trash as resources for converting into usable products

Larger established brands may also demonstrate their responsibility to the planet by encouraging customers to return products after use. Customers can donate their old products, deposit them for cashback incentives, or get store credits for new purchases.

The repair and reuse consumer philosophy is also emerging, with people preferring to return their items to the company. On their part, brands have reversed the planned obsolescence strategy and now offer spare parts and repair services.

Brands are also dedicated to manufacturing products with an extended lifecycle that continue providing value for longer periods.

Reverse logistics is another fast-upcoming trend, with companies accepting packaging materials and reusing them. Renting and leasing high-ticket items like luxury cars is another strategy manufacturers and dealers offer consumers.

People need not purchase the products they want to use but can lease them for a few years. Dealers can make much more money out of leasing these items. And consumers need not spend a lot of money on expensive things, but can also enjoy using them.

The subscription model is yet another strategy that works well for consumers and companies. Sellers can create a steady revenue source and again, users need not pay high sums to purchase the items. Gaming applications, media streaming services, and shopping platforms like Amazon Prime are only some of them.

How Early-Stage Funding for Circular Economy Startups Helps

Innovating and developing new techniques in the circular landscape is typically capital-intensive. That’s because startups may have to invest in extensive R&D before creating product prototypes that can sell. They must also conduct detailed market research to identify the waste that can be reused.

Sourcing inventory, processing it, and then converting it into new products may involve ideating and developing Intellectual Property. New equipment, tools, and machinery to process waste are areas where disruptive concepts are welcome.

The industry also needs fresh talent with perspectives that think out of the box. Since a lot of trial and error can go into creating new prototypes and ideas, founders need heavy capital infusions. They also need investors willing to extend their holding periods until the startup yields results.

Knowing how to build a target list of investors is a great step when you’re ready to raise finding. Check out this video I have created explaining how it’s done.

Best Sources of Early-Stage Funding for Sustainable Ventures – Start With Grants

Founders looking for funding and support for their startups in the regenerative vertical should start by applying for government grants. The federal government has set aside funds to support startups in this space. Awareness of the importance of sustainable solutions has prompted this initiative.

For instance, the Environmental Protection Agency (EPA) has set up the Bipartisan Infrastructure Law. Also called the Infrastructure Investment and Jobs Act, this program offers $275M through Solid Waste Infrastructure for Recycling grants.

From 2022 to 2026, the organization has given out $22M annually and will continue until the funds are exhausted. Their objective–Building a Better America. The federal government also recognizes the need to develop skill sets and a future workforce for the circular economy.

The U.S. Department of Commerce’s National Institute of Standards and Technology (NIST) has given nearly $3M in grants. This funding has been made available to six universities to support educational programs and curricula creation. These programs focus on training on extending the plastic lifecycle.

The above are just two examples of the several programs available on the federal, state, and local levels. Research the specific categories they support and explore how to apply for and acquire the grants.

Keep in mind that the circular economy is an entire ecosystem. For instance, you can get support for not just developing new concepts. But also to provide technical and IT support to other startups.

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), which 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.

Apply to Incubator and Accelerator Programs

Some top incubator and accelerator programs are geared toward early-stage funding for circular economy startups. Of course, they offer more than just capital to build a product prototype. You can rely on them for a fully-equipped workshop, tools, equipment, and technical support.

Also, expect a small amount of funding, mentoring, and networking opportunities to connect with other founders for future partnerships. Networking enables introductions to investors to understand how they think.

Mingling with these entities opens doors for future funding collaborations. Check out some of these examples:

• Techstars: Operating out of five global locations, this program supports startups in climate tech, smart cities, food tech, and water conservation.
• Venture For ClimateTech: This is an accelerator program that operates out of New York. It works to promote startups working toward clean energy, transportation, and smart cities.
• Creative Destruction Lab: A non-profit organization, this program works in 12 locations across Europe and North America. Its focus is on climate tech through support for science and tech.
• brinc: This organization operates out of Hong Kong and has an extensive network to connect founders with investors and supporters. Its focus areas include biotech, carbon capture and storage, ocean carbon removal, and mineralization.
• Circular Accelerator — NextCycle Washington – This organization runs
  a series of competitions and contests designed to select promising startups and projects in the circular space.
• Circularity Accelerator – This program is a part of the WorldGBC initiative to address issues like climate change. It supports the efficient use of resources in the construction and building spheres.

Angel Investors

When looking for early-stage funding for circular economy startups, research angel investors who are dedicated to reversing climate change. Elon Musk is a great example of an angel who invested in Tesla to support electric vehicles and renewable energy. Other notable examples include:

• Mark Cuban operates out of the United States, Vietnam, and Singapore and supports software startups, blockchain, and eCommerce. And the value these industries can add to the circular economy.
• Danny Hayes works out of Switzerland and the United States. He has a history of delivering sustainable energy solutions and now supports ventures in areas like clean energy.
• Sagar Ratilal Bavarva has bases in three locations: India, The Netherlands, and Germany. His focus areas are clean energy, particularly solar energy.
• Rayyan Islam is based in Los Angeles, California, and backs startups in areas like renewable energy and biotechnology.
• Irene Maffini works out of London, England. She has invested in over 30 startups in the circular economy, sustainability, and next-gen materials.

Venture Capitalists

Although VCs are more keen on supporting established companies with further funding rounds, they do back early-stage ventures. Aside from capital, you can expect industry-specific expertise and guidance in running the company’s operations.

VCs may expect a board seat and other incentives like preferred shares and profit-sharing. However, agreeing to these conditions is advisable because VCs also carry high risk.

To attract VC attention, you’ll demonstrate that the company has the potential for rapid scalability and high profits. Here are some great examples:

• SOSV –  This VC firm operates out of USA, China, Taiwan, and Ireland, and offers funding to startups in climate and sustainability.
• Alumni Ventures Group – This VC group is based in the US but operates out of several cities across the country. Aside from climate and sustainability, this firm invests in tech and health.
• Tencent – This Chinese VC firm backs disruptive ideas in spaces like sustainability and climate along with automation. Combining the two spheres can have a significant impact.
• Soma Capital – This organization is an American VC that exclusively invests in software startups, particularly automation. But with a focus on regenerative verticals, among others.
• Union Square Ventures – This New York-based VC firm aims to leverage the internet through technology companies to have an impact. Climate and sustainability are areas of focus, among others.
• Data Collective – This VC firm works out of Palo Alto and San Francisco and is essentially focused on deep tech. Startups deploying tech for environmental impact and sustainability can approach funding.

Private Equity Firms

Several private equity firms now offer early-stage funding for circular economy startups. Some of the best examples you can fund include:

• Closed Loop Partners: This firm is one of the top PE firms in the regenerative economy sector. More than 50 corporations are engaged in the firm, and it operates out of nine countries.
• Circularity Capital: This firm was founded in 2015 with the sole objective of supporting startups in the circular economy. It works out of London and Edinburgh.
• Circulate Capital: This firm focuses on ventures demonstrating the potential for high growth. The core area of focus is plastic supply chains.
• BlackRock: This firm is the world’s largest asset manager, making strategic client investments. It has recently started a specialist arm for funding new ventures in the circular ecosystem.
• Astorg: This organization comprises investors from global locations with 30% located in North America. Operating under the King Baudouin Foundation, it works to build a healthier, more inclusive society.

The Takeaway

Do you have a brilliant concept that utilizes waste or can recycle products to extend their life cycles? This is the opportune moment to convert those concepts into market-ready products. And if you need funding to make that happen, many sources are out there.

You can reach out to investors for not just capital but also assistance with building a company from the ground up. Start by researching the concept and making sure it delivers adequate value to investors and customers.

If it has the potential to scale quickly and deliver profits, that’s the concept to work on further. Once you’re there, here’s what to do next.

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