There’s a cost to making supply chains sustainable — but there are big opportunities for profit as well.
Just ask any of the numerous venture capital firms that have sprung up in recent years to support startups dedicated to creating “green” supply chains and address the threat of climate change.
A particular area of focus for investors today is the so-called circular economy — a system designed to generate zero waste in production and distribution, and dedicated to the recycling and regeneration of materials.
That’s the area of focus for the aptly named Closed Loop Partners, a New York-based investment firm that incorporates venture capital, private equity, project financing and an innovation center. The last, dubbed the Center for the Circular Economy, brings together nominal competitors to explore ways to implement appropriate techniques and technologies across industries.
Ron Gonen, who founded Closed Loop Partners in 2014 and continues to serve as its chief executive officer, had been thinking about the idea for years. He has worked in the private and public sectors, including a stint in the administration of New York City Mayor Michael Bloomberg, building relationships with large retailers.
Gonen set out to create more than a standard venture capital firm, launching funds in multiple classes, including credit, growth, infrastructure and a private equity fund that acquires existing companies. Today, Closed Loop Partners manages capital for financial institutions, foundation endowments, large corporates and family offices.
For all the interest it has attracted from investors, the market for closed-loop solutions is young, Gonen acknowledges. “It’s going to require a massive shift in industry and investment,” he says, citing an estimate by Accenture that the concept stands to generate economic growth of $4.5 trillion.
The manufacturing model of the last 100 years, based on the extraction of resources and disposal of materials in landfills, “is antiquated, wasteful, and causes brands and retailers to spend more than they should,” Gonen says. “A lot of entities see significant cost savings in moving to a circular economy. We’re going to be the engine behind that.”
Countless tales by would-be entrepreneurs reveal how picky VCs can be in selecting startups for investment. Gonen has own set of standards toward that end. “We’re going to be looking for technology that’s disrupting the way industry works, and solving a pain point,” he says.
In the early stages, Closed Loop Ventures Group - the venture capital arm of Closed Loop Partners - will invest between $500,000 and $1 million into innovators in the circular economy. In addition to capital, CLVG takes an active approach to supporting each company by drawing on the multitude of resources, partnerships, and relationships across the Closed Loop Partners platform.
“We’re interested in being a long-term partner,” Gonen says. “We’re not in the business of flipping a company at the earliest opportunity, sprinkling some internet dust on it.” He points to the example of HomeBiogas, an Israeli startup that sells anaerobic digesters that convert organic waste into methane gas and liquid fertilizer. Closed Loop Partners was the company’s seed investor, and remains its largest shareholder, holding three of seven board seats.
Closed Loop Partners maintain a portfolio of approximately 50 companies across its investment platform. About half are in the early stage of development, 10 or so in a growth stage, and the rest consisting of large and established businesses. But all share a common goal of devising products, technologies and techniques that can help in the building of a circular economy.
Whether this is the best time to pursue green strategies is debatable. The COVID-19 pandemic and resulting economic recession might have caused some companies to back off from sustainability initiatives in favor of strategies for mere survival. And while the U.S. economy appears to be on the mend, it’s anyone’s guess whether growth will continue apace, or a new variant of the virus will put a halt to recovery.
Gonen believes there’s a strong market for IPOs right now. “The stock market in general is very hot. It’s just a matter of when is the right time to maximize value.”
Regardless of how the economy performs in the months ahead, he strongly believes that the push for a circular economy and waste-free world must continue. As for Closed Loop Partners, “we can move aggressively in that direction,” he says. “We’re not in the business of arguing with naysayers.”