For all their laudable qualities, delivering superior returns to investors has not been a hallmark of environmentally driven investments. During the “green investment” years, returns lagged notably. Now with the emergence of ESG standards, and more precision in measuring investment performance, the results are decidedly mixed, and environmental responsibility alone does not win the hearts and mind of investors.
This creates an uphill battle to build confidence for companies seeking to raise capital, especially those tapping into the private markets. Getting private investors to sign on is always more challenging due to investments in private companies who generally lack the kind of liquidity that public companies offer. If things go wrong, it’s hard if not impossible for private investors to get out.
This climb gets even steeper due to the venture capitalists, wealthy angel investors and private equity firms that populate it being the most skeptical investors on the planet. While public markets can be rife with emotion, private markets are driven by pure capitalist logic and the pursuit of profit.
So, I faced long odds raising capital for Evanesce, a company I founded which manufactures 100% plant-based compostable food packaging. The story had a happy ending though: Evanesce succeeded twice, raising a total of over $20 million, most recently with a $15 million round with some of North America’s most sophisticated private investors.
Given the challenge these investors pose, what enabled Evanesce to succeed? Patent protection, a new market we could create and dominate, and finally, a short path to revenue and a market we could greatly overtake.
Barriers To Entry
Patents are important to investors since they can protect a market long enough for a start-up such as Evanesce to get its legs under it and then build other economic moats to keep competitors at bay. Including locking up supply chains and customers or acquiring and retaining specialized talent. From the perspective of an investor, what’s the point of putting capital at risk if anyone can march in and diminish your share, or worse, put you out of business?
While our Evanesce Biopolymer products rely on established technology, we took pains to protect our molded starch technology with patents. And for good reason: it offers a complete replacement for expanded polystyrene (EPS) in packaging and is fully compostable within significantly less than 90 days.
From the perspective of an investor, this meant we would have a measure of space to establish an entirely new product category and position ourselves as its dominant player.
These dynamics are at play in these markets such as social media, mobile devices, and entertainment, within well-known names such as Facebook, Apple, and Netflix. However, investors also seek the opportunity to dominate less obvious, though nonetheless large and rich markets, like foodservice packaging. At $238 billion by some measures, there are plenty of opportunities for new products and disruption, if these entrants have the time to incubate behind the protection that patents offer.
While our business plan calls for the creation of an entirely new market, I knew we needed to present investors with a rapid path to revenues. With the investors willing to fund the company through the development stage, patience is not abundant. In a seeming contradiction, investors prize technology, but have limited appetite to financing it. Research and development can be tricky. There are setbacks. It takes time. The path to commercialization is not always clear.
However, biopolymer products, which have significant advantages over petroleum-based products, already have a strong foothold in both the plastic and food packaging industries. According to market studies, the biopolymer industry is valued at ~$6 billion, with growth projected to $17 billion by 2030.
The ready availability of this market would provide Evanesce the opportunity to generate revenues almost immediately. Our imminent opening of a 15,000 square foot South Carolina facility to produce our 100% compostable, plant-based and cost-competitive biopolymer straws during the pitching of our second deal was a major selling point. And in fact, this facility opened in October 2021, just as we closed the last round.
Of course, no market is wide open, even those that rely on well-developed and widely used technologies such as biopolymers. Investors knew that to crack the market we would need a management team with experience and a track record of success in the plastics, packaging, and service ware industries.
We used the proceeds from our first round of financing to build a topflight team that would give investors on following rounds the confidence that Evanesce could hit the ground running. As our South Carolina facility pumps out over one million biopolymer straws each day, the trust they placed in Evanesce has been well-founded.
Douglas Horne is the Founder and Chief Executive Officer of Evanesce. Mr. Horne was elected as a Member of Legislative Assembly for the Canadian Province of British Columbia where he sponsored projects to promote sustainability. Following several decades of running successful companies, he founded Evanesce to address the crisis of plastics.
Polylactic Acid Market Size: Grand View Research "Polylactic Acid Market Size, Share & Trends Analysis Report By End-use (Packaging, Textile, Agriculture, Automotive & Transport, Electronics), By Region (North America, APAC, Europe), And Segment Forecasts, 2021 – 2028"