Podcast #2005.07

Investment criteria, recent deals, and future prospects

With Rob Kaplan

Listen on Google Play Music

About Rob Kaplan: Founder and CEO of Circulate Capital, an investment management firm dedicated to incubating and financing companies that prevent the flow of ocean plastic waste to the world’s ocean and advance the circular economy in South and Southeast Asia.

About Sumeet Singh: Sumeet is CEO at GoMassive. He has over 15+ years of experience in finance and fundraising. At GoMassive he focusses on Pollution & Climate Tech Investments. 

Sumeet: Tell us a bit more about your investment sweet spots. It’s mentioned on your website that you look at investment across technology, services, infrastructure. This is like running three different funds, very frankly, because of the needs that are very different. What are your return expectations?

Rob: At the end of the day, the Circular Capital Ocean Fund, which we’ve raised just over a US$100 from these corporates, is in many ways a larger-scale demonstration or search fund. And we started by saying we needed to find scalable investment opportunities in this sector and demonstrate that it’s investible. And use that demonstration to crowd in capital from larger institutional investors who currently are waiting on the side-lines watching to see if waste and recycling and something that they should allocate capital to.

So that’s why our strategy is quite flexible. We can do both debt and equity investments and we consider ourselves full value chain investors. We do look at innovative materials and business models that potentially reduce the use for single use plastic, and instead encourage reuse or returnable models. But the vast majority of our value chain and of our pipeline is, is a collection sorting, processing, recycling, manufacturing, using recycled materials. We invest across that full value chain because we’ve seen many investors struggle because they only invest in one slice of that chain. However, these chains are so integrated and kind of blurry that unless you have a full view of how waste is being collected and also how it’s being manufactured with, you’re not going to be able to effectively understand how to invest in the recycling side. So that’s really why we built such a broad program.

We’ve looked at over 200, almost 250 investment opportunities across the region. We do tickets of US$2 to 10 million. Our target markets are India and Indonesia, but we can invest across South and Southeast Asia.

We just announced our first two investments, two exciting companies. First is in Indonesia, It’s a pair of inspiring women entrepreneurs, one of whom is a Harvard grad who kind of just fell into her passion for the topic of plastic pollution and recycling. And the other is a talented engineer who literally built her first recycling line by hand.

In India we’ve invested in a great company called Lucro. It’s a team of very innovative engineers and entrepreneurs that have focused on flexible and film plastic. They built an expertise working with this type of material that many recyclers leave behind and they don’t see that there’s inherent value in it. And Lucro has actually built a technical expertise in how to manage this waste. So we’re investing in them to help them expand their post-consumer collection systems and open their own collection centres, but then also to scale their recycling capacity so that they can sell recycled granules to other manufacturers across India instead of just using it for their own manufacturing as well.
Page Break

Sumeet: You have looked at 200 investment opportunities in the region so what kind of sector specific challenges have you seen in India? And what type of companies are you finding v/s what would you like to see more of?

Rob: India has obviously significant waste challenges. You don’t have to walk too far outside your front door to see it. And this connects to the incredible economic growth and where waste management recycling infrastructures has failed to keep pace with the level of waste generated.

To put some numbers around it, India generates about 277 million metric tons of solid municipal waste annually. And about 70% of that is collected and 87% of that is dumped in open dumps. So, India has a really strong collection system. It benefits from it’s strong informal sector that manages most of that and also municipalities and the public sector that have regulated it.

Some of the challenge though is once it’s collected, it can still leak, right? If it’s not going into a proper management system after the point of collection, it’s like putting water into a leaky bucket. So while we see a lot of great opportunity to strengthen the collection system, most of our investment strategy to date has been focused on building a market for those recycled or collected materials. By investing in processors who can add value not just by sorting and collecting the material, but processors that add value by cleaning it, flaking it, pelletizing the waste. Much like what Lucro is doing.

Sumeet: And do you think these capacities will be a build in a decentralized manner. Will there be multiple players which are going to emerge or there’s going to be one large, winner takes all scenario. How do you see this? Because this is all about capacity building and capital building.

Rob: I think it depends on what time horizon you’re looking out after. So, we have a five-year investment period and I think it will continue to stay decentralized over the coming few years. Where you’ve got local focused SMEs and start-ups who are working within their communities.

It takes at least five or so years to really build that business model. I think that you can expand into other communities across India. And I don’t need to tell you, but the difference between doing something in Mumbai versus Delhi is pretty significant. You can’t just show up and open a recycling system there just because it’s technically still part of India. So much of the collection is in waste and recycling overall is based on decades of relationships with informal networks.

We see a lot of strengthening of the existing decentralized infrastructure, but it gets to where we see exits happening over the next 10 years. When you think about that kind of time horizon, I think there’s a good chance we’ll start to see some roll up and private equity activity, buying up some of these smaller, well established regional players to build a national approach. I think that’s kind of what we’ve seen in other markets over that kind of time period. And we should expect to see something similar here.