Aly Bryan: With dramatically increasing rates of deployment of things like solar panels wind turbines, electric vehicles, transmission and distribution infrastructure in order to meet the growing demand on the, the grid. And now the conversation is largely focused on data centers, right? That's really why critical mineral recovery has sort of come top front of mind is because we don't have enough, we need a lot more than we have, and our existing mechanisms for recovering it are not as good as they could otherwise be.
Patrick Hypscher: My name is Patrick Hypscher, and this is Circularity.fm, the podcast about understanding, building and managing circular business models. Welcome to VC for Circularity, the venture capital perspective on circular economy startups. In the last episode, we listened to Charlotte Lafont, principle at Ring Capital. Charlotte talked about what impact driven startups need to secure VC funding. Today's episode will be about the growing importance of critical materials in the circular economy, and how modular localized recovery solutions, as well as better reverse logistics infrastructure can build more resilient supply chains. But before we start, I have an offer for you. If you want to get the actionable one pager about this conversation, sign up for the Circularity.fm newsletter. You can find it at www. circularity.fm
Patrick Hypscher: A Recovering Management Consultant turned VC Investor. She's a Senior Member of the Investment team at Closed Loop Partners Ventures Group, where she invests in Pre-seed, Seed and Series A stage companies focusing on accelerating circularity globally. She works with founders across electronics and metals, retail, supply chains, and the build world to scale circular business models that just make economic sense. Welcome Aly! Aly Bryan: Thank you so much for having me, Patrick.
Patrick Hypscher: Aly, what's your favorite part of the circular economy?
Aly Bryan: Oh my goodness, I think my favorite part of the circular economy is everything that happens after the initial receipt of an object, so the reverse logistics side. It turns out that we've built these incredible linear take-make-waste systems and put relatively little thought into how things go through the backwards. And so I find that piece of the supply chain so interesting and energizing, to think about how do we recover and reuse those materials just from a logistics perspective.
Patrick Hypscher: Closed Loop Partners is a firm at the forefront of building the circular economy. Founded in 2014, the firm is comprised of three key businesses that create a platform for systems change. First Closed Loop Capital Management, an investment group that manages venture capital, lower middle market buyout private equity, and catalytic private credit investment strategies on behalf of global corporations, financial institutions, and family offices. Second, the Center for the Circular Economy, an innovation center that tackles complex material challenges and implements systems change to advance, circularity. And third Closed Loop Builders, an operating group that incubates builds and scales circular economy, infrastructure and solutions across the United States, including one of the largest private recycling companies in the US. The firm's venture capital strategy, the Closed Loop Ventures Group invests early stage capital into companies developing breakthrough circular solutions for materials that underpin wider sectors of the economy. They partner with founders and companies who we think how products are designed, manufactured, consumed, and recovered with the shared vision of re-imagining supply chains and eliminating waste.
Patrick Hypscher: Aly, what initially attracted you to the team of Closed Loop?
Aly Bryan: So when I was joining the team at Closed Loop, I think I was, I was really hungry to work on the forefront of innovation, and to work with entrepreneurs who were really early stage in developing truly transformative technologies. I'd spent a really long time working sort of with large corporations, who were in the journey and trying to move those same things forward. It turns out it's actually very challenging to do so within large bureaucratic organizations. And so being able to work on the forward edge of innovation and, and work with entrepreneurs, two people in an idea to create more conceptual and concrete ideas to scale um, was really interesting and energizing to me. And then, there's also just something really magical about the team at Closed Loop Partners. I think this is an organization that was founded with entrepreneurial spirit at the core. And so when I originally became connected to the team here, I was really drawn to the idea not just of supporting entrepreneurs, but also working within an entrepreneurial culture myself.
Patrick Hypscher: And we know that Closed Loop has a wide field of activities. So how does ventures sit within the largest strategy of the firm?
Aly Bryan: Absolutely. So Closed Loop does have a lot of different pieces and parts, and has been operating now for more than a decade. I think one of the things that's really interesting and exciting about being on the venture side is one we're the only team with a global mandate, and so we work across the world to identify innovations that are ultimately gonna scale solutions to the circular economy. We also work with innovators at a much earlier stage, and so as a result we see every aspect of business building alongside them. The benefit of doing that in the context of the broader Closed Loop Partners ecosystem is we have also built organizations, through both our Center for the Circular Economy, through Closed Loop Builders and Circular Services. And so being able to leverage the learnings from what it is to, to need to build and build at scale for circular business solutions is a huge advantage to the entrepreneurs that we work with within ventures.
Patrick Hypscher: Mm-hmm. Right. So you mentioned that the, the ventures team is more active at the earlier stage. So how do you invest there in circularity?
Aly Bryan: Yeah. So we invest in pre-seed, seed and early series A stage companies that are looking to commercialize circular solutions. We do underwrite to the US market, and so what that means is we are looking to see that a solution can scale in the US, in order for it to be a good fit for our fund. That largely just has to do with the fact that a lot of our relationships and networks, while global, are absolutely anchored within the US. And so we wanna believe that a solution can scale here for it to be the place where we're gonna be able to add the most value to the team, to the business that they're looking to scale and to the learnings associated with supply chains within this country specifically. When we are looking to identify the kinds of organizations that we're looking to invest in, I think one of the things that is always incredibly, incredibly important is team. And being able to work with founders who see the challenges, and have the humility and are looking for people to work collaboratively with them. We do not want to give a check to an organization and then have them sort of disappear often in the ether, you know, we invest in companies because we think we can help. And so we really look for founders who are looking for that same helping hand in order for those to be the right places for us to, to be partners and putting capital.
Patrick Hypscher: And does this startup already have to be active in the US market?
Aly Bryan: No, they don't. So while we want to believe that a solution can scale here, they absolutely do not need to be operating in the US already for them to be a good fit for us. And in fact, we have investments around the world, everywhere from Australia to Singapore, Israel to various European countries and also South America. And so we have invested in a lot of organizations that don't yet have a US footprint, we just need to believe that the solution can scale here. Primarily what that means is we are not underwriting to regulatory risks. So to the extent that there is regulation in another geography that is driving adoption of a specific type of technology, for example Digital Product Passports in the EU, that's not necessarily gonna be the right fit for us because we don't have that same regulatory infrastructure here in the US.
Patrick Hypscher: Yeah, true. And, one more question about circularity in in general. So it's, it's an undefined term when you say you invest in circular business models. So what's the scope there?
Aly Bryan: Yeah, so for us, we look at it through a sort of a materials first lens, and so what that means is we are thinking down to the molecular level of the materials that we're looking to keep in circulation. Everything from materials innovation, so what are the new types of materials that we should be commercializing to allow for less pain in our recycling infrastructure moving forward. Supply chain, logistics, infrastructure, a place that I spend a tremendous amount of time because it is incredibly inefficient in a lot of ways. And then also end of life recovery and re-valorizing of new materials. Now, by virtue of being circular systems, very often the waste products that we're looking to valorize become those new materials that we're looking to input on the front end. But ultimately that's how we tend to look at it. We don't have as much of a sort of sector approach as much as a materials approach. So we'll look at food and ag inputs, we'll look at metals and minerals, we'll look at water and other material types.
Patrick Hypscher: And I guess also like digital solutions that facilitate these processes you just described they are also in scope. Aly Bryan: Absolutely. So that would be within the supply chain logistics operations heading around how we're improving efficiency of existing processes. Patrick Hypscher: Right. And do you see any solutions out there that are not the right fit for your venture dollars?
Aly Bryan: It's a really important question. I think aside from if it's underlying regulatory infrastructure, it's not necessarily gonna be the right fit for us since we're underwriting to the US market. I think there are absolutely some solutions that are not gonna necessarily be the right fit for venture dollars. I would really look at it through two categories. Category one would be what is the exit potential on a business? We do not underwrite to IPO, we underwrite to M&A transactions. And so what that means is we need to believe that there's someone that is gonna want to buy the thing that you are building and want to buy it at a point where it's a sufficient step up from the valuation that we came in at. So there are some markets where there just aren't enough buyers, or there are the buyers that are willing to buy or not willing to buy at a price that would be appropriate for venture dollars having come in previously. So I think that's a whole category of solutions that are gonna be harder for for us to be able to invest in. There's another category of solutions that I would say are, are the same, but a little bit different, which is really CapEx intensive solutions. That's not to say that there are not ways to build CapEx intensive businesses with some amount of venture dollars, but what we've seen disproportionately over the course of the past 18, 24, even 36 months, is a lot of organizations have looked to build high CapEx businesses using only venture dollars as inputs. Don't have the sophisticated capital stack that's needed to appropriately support that from a debt, from an equipment lease financing, and from other sources of capital, from, you know, joint ventures and other sources of capital perspective. When you're building really heavy CapEx solutions with largely venture dollars, that's also not gonna be the right fit for us.
Patrick Hypscher: Okay. Yeah. And you mentioned that you want to also you invest in the team and you want to collaborate with the team and also help the team, especially in the US market. So how do you work with your portfolio companies to grow and scale the business?
Aly Bryan: Oh my gosh, we're all hands on deck. To be honest with you, I feel like I spend a tremendous amount of my time working hand in hand with our founders on pretty much anything under the sun. I think the right relationships with our founding teams are those when we are the first call, when something doesn't go according to plan. That might not always be the case if we're a smaller investor within an organization, but we always want to feel that, that we are a resource to our organizations when they are looking to make big strategic decisions, when they're negotiating big corporate partnerships or other sort of contractual relationships. And when they're navigating the challenges of building businesses. I have two different founders that are actually in New York this week, and both of them have devoted significant chunks of time to just coming into our office and spending time with us. Because the the value of being able to brainstorm in one case on more sort of commercial go to market plan, and in the other case on more people related questions around hiring within the organization is seen as, as so valuable for that.
Patrick Hypscher: Mm-hmm. Wonderful. Let's look at your materials first approach, and we want to talk a bit about critical materials. So you have this approach and I understand that critical minerals and metals have been a central focus for your team over the past 18 months. So first of all, what is a critical mineral and why do they matter for the circular economy?
Aly Bryan: This topic, I feel like has been front and center in the context of both the investing landscape, but then also more broadly within conversations related to climate over the course of the past 24 months. Critical minerals refer to the metals and minerals that are needed that are seen as potentially being within short supply. There's actually different, different government entities in different parts of the world have designated lists of what they sort of designate as as critical minerals. The list in the US can vary depending up from 15 to something like 30 different metals and minerals that are seen as being crucial for, um, critical infrastructure, um, and particular critical infrastructure associated with the energy transition. And that we are likely to have some kind of shortfall associated with our need of it in the near term. So when we're thinking about critical minerals within the circular economy, we're thinking about what are the ways that we can appropriately valorize waste sources of those materials that are already here, they've already been imported, we've already used them for an initial life. And we're probably tapping into them less than we could otherwise be in order to be able to service our new manufacturing and, and demand for those materials.
Patrick Hypscher: What's the reason why this topic of critical minerals got more popular in the last months?
Aly Bryan: Yeah. Well, fundamentally I think it's because we're seeing that we're gonna run out, and we understand that the supply and the demand are correctly mismatched. There was a period of time a couple of years ago, where they were seen to be significant shortages of materials like lithium that were used in and are still used in EV batteries. We've seen some of that lesson, it takes a long time to get new to get new mines permitted and online. And so this. The concern in the industry was largely that the amount of time that it took to ramp up new capacity and processing capacity for those materials was miscalibrated with the amount of time that we had until we were going to need those solutions. And so, um, with dramatically increasing rates of deployment of things like solar panels wind turbines, electric vehicles, transmission and distribution infrastructure in order to meet the growing demand on the, the grid. And now the conversation is largely focused on data centers, right? We need a lot of it. We don't have very much of it, and the pathways that we have in order to ramp up processing capacity are very often really long roads and not always the most healthy or good from a biodiversity lens or, or what have you. And so that's really why critical mineral recovery has sort of come top front of mind is because we don't have enough, we need a lot more than we have, and our existing mechanisms for recovering it are not as good as they could otherwise be.
Patrick Hypscher: And so this is a bit like, let's say the physical supply and demand side. Did you see any influence of the political dimension?
Aly Bryan: So, so I think there is absolutely a conversation around security and disruptions to supply chains that has led into this. And so going back to sort of 2020 and the COVID-19 pandemic, we started to experience really serious disruptions to legacy supply chains. That really has continued forward and, and we see sort of peaks in challenges across our supply chains and various things that are making it more challenging to access materials. And so I would say that the conversation around critical minerals, metals, there have been countries, there have been moments when some of those materials have been put on export restriction lists, right? And so it's no longer been as easily accessible as they have been historically. That means sourcing them from new places is even more important. And so where we spend time is thinking about how can we devote and try to source those materials from recycled means, instead of looking to source them from new extraction. Which again, takes a long time, requires a tremendous amount of permitting and has other knock on negative externalities that, that we maybe wouldn't want to be scaling.
Patrick Hypscher: Yeah. And before we go on looking at the market and software, hardware, can you give us some more examples of let's say interesting critical minerals we're talking about? I mean, you mentioned lithium already, but what are the other ones that are in focus?
Aly Bryan: Yeah, so there's a long list here, and there's both critical minerals and then there's also a list of just like minerals and metals that we need to be able to build the things we need at scale. So on the rare earth side, you're talking neodymium, dysprosium, antimony, various other sort of harder to access, lower volumes available in the existing mining supply. And then on the just pure play, like we use a lot of them and we're only going to continue to use more of them. Things like copper and aluminum also come up, right? So, so it really, runs the gambit between things that we use and talk about every single day to you know, metals that people have never heard of, but ultimately are absolutely crucial in things like hard drives or MRI machines, magnets, that kind of thing.
Patrick Hypscher: Okay. And how did you at closed loop assess the market for critical minerals? Considering the amount of materials and also the geopolitical scope of that.
Aly Bryan: Yeah. So like I mentioned, I think historically our focus in metals and minerals has been through the lens of electronic waste. And that's largely just because it's, it's a relatively more established sort of part of the supply chain. The reverse logistics actually do exist, and folks have visibility into the kinds of places that they can take their materials, make sure that it's going to go on to a next life. The value that's of the materials that are contained within a cell phone or a laptop is actually sufficient enough to justify the recovery mechanisms that would need to go in it. But when we really sat down probably two years or so ago to start thinking about what is this next generation of our thinking on metals and minerals and critical minerals in particular look like, we really looked at it through sort of a small loop and a large loop circularity lens. So on the small loop side, what we mean by that is activities that we can advance to either extend the life of existing materials and circulation, or to prevent those materials from having to go all the way back to a smelter or a processing step to be ultimately reintroduced alongside other virgin grade materials. So that's small loop circularity. And then on the larger loop we're talking about, okay, how do we actually recover these materials at their true end of life? And ultimately funnel them back through a traditional recycling process that would have those materials go back in alongside virgin quality materials into the next generation of, you know, aluminum that's gonna go into an automotive chassis or something like that, right? Within the small loop circularity, we think a lot about, um, design for and then ultimately disassembly and deconstruction. We've made an investment in a company called Molg that is looking to advance deconstruction for solutions like servers, that's important for a couple of reasons. One, it means you're able to keep existing assets in circulation longer because you have better access to repair parts, whereas previously you may have have had to get rid of an asset or decommission it in advance because you didn't have the repairability capabilities associated with that. Two, it allows us to then recover the highest value materials when it is at its actual end of life, so hard drives and other solutions, and not have to do so through an aggressively energy intensive pathway in order to do so. And so when we're thinking about small loop circularity, it's really, you know, reuse pathways, and then deconstruction, de-manufacturing rather than other sort of recovery pathways. And then when we think about large loop there's sort of a couple of steps there. One is how do we make the existing recovery process more efficient? The way that we recover automotive scrap, for example in the US, leave something to be desired, I'll say it that way. Uh, we use really large shredding machines, in some cases we're using sortation, in a lot of cases we actually don't, and then we largely ship those materials back overseas. And so that's a tremendous source of domestic materials that rather than mining today, the incentives are such that, you know, they just get sent overseas and then maybe at some point they're coming back in. And now maybe we're having to pay even more in order to bring them back into the country. So we've made an investment in a company called Valis Insights, which is looking to improve the efficiency of that scrap metal processing. So how do you actually ensure that you have visibility into the value that's embedded into that scrap to change how you're thinking about the decision to do that extra sort or to not do that extra sort? So I think those are a couple of areas. And then the last area, which is where we're actually we'll be announcing investments in this space in the next couple of weeks is when you're at the shred or you're at black mast, you're like actually at the end product of material. What are the right separation and recovery pathways to allow for, um, you to recover the copper or the gold or like various specific materials that are already in sort of a post shred space. And so that's sort of the final area that we spent time.
Patrick Hypscher: And is there also in some way, um, the, the topic of alternative materials covered? So there's also innovation going on where you try to reduce the dependency on these critical minerals. So is this some something that falls in either of the two loops or is it somewhere else or not relevant?
Aly Bryan: Yeah, in some cases it does sort of enter. There are actually a handful of folks that are looking to commercialize, um, you know, harder than steel solutions into the market. Something like that would be harder for us to get immediately excited about just because of the adoption timeline for commercializing those new solutions within the space. There are others though, so to take the built world, for example. We see a lot of movement back towards timber as an alternative to traditional materials that are more energy-intensive with a lower embodied carbon associate with it. So I think you see it in a couple of places. The other place that we see it pretty often is in the innovations that are happening around battery chemistry. We have not made investments in the battery chemistry space, nor would we largely because ultimately it's just a little bit indirect circularity for us, right? Like ultimately you're saying these are materials that are more easily accessible, they cost a lot less to be able to manufacture even lower than the cost of the battery. But it's not actually a recovery play fully. And so we haven't made investments in that space.
Patrick Hypscher: Okay. And, how do you see the ratio of software and hardware innovation in these processes you just described?
Aly Bryan: So across our portfolio we tend to be about 50/50 hardware and software. I would say as we are watching the evolution of what's happening with AI enabled tools, there is a question of to what extent will hardware solutions or will software solutions be able to continue to differentiate themselves against sort of business as usual within the market. So for us, I think we often find ourselves more comfortable than other investors within climate or circular economy with a hardware component to a solution. Because right now in particular, that physical processing, that physical product, if it's a sampling product, like what the Valis team is commercializing or physical movement of inventory is actually a competitive moat that is a lot harder in some cases to replicate than a pure play software solution. So historically we've had about a 50/50 split within our portfolio. Both software and hardware solutions are needed. The way that we evaluate software companies looks a little bit different than the way that we evaluate hardware companies. I think there are a lot of investors that are very, very sophisticated software investors. Who look for specific performance metrics that maybe are not always as perfectly aligned with the state of the industry. And so the other really important question that we find ourselves asking is, you know, is this a software solution that is replacing another software solution? Is it a software solution that's replacing an Excel workbook? Is it a software solution that's replacing handwritten notes on post-Its? And I think very often in reverse logistics, in circular supply chains, you're finding yourself inch closer and closer to post-its. And so the question of how do you support those kinds of companies in scaling, when it's really a question of adoption, right? People with the post-it notes have no interest in using another system than the post-it notes , um, then it is about building, you know, this beautiful, perfect software interface.
Patrick Hypscher: Yeah. At least they write it down and don't keep it in their heads. Aly Bryan: That that's true. That's true.
Patrick Hypscher: When we talk about reverse logistics, it's also in many cases, a bit of a allocation issue. So you have some recycled materials here, and on the other side of the country you have someone who would like to have it at a certain price and a certain quality. So, is the topic of platforms or market makers also something that sits let's say between software, hardware, or is this a category you're looking at that's relevant?
Aly Bryan: We have seen quite a few folks that are operating sort of platform solutions within the space. I think there are a couple of questions in our mind. One is who is actually holding the inventory? And if anyone is taking possession of the inventory, then it's a question of what are the costs associated with holding that inventory? If no one is taking possession of that inventory, then it's a question of timing. Like, how quickly are you able to onboard the inventory that is to be sold, and how quickly can you identify the seller? And so there are friction points on both sides there, right? Like, if you're you know, taking apart a building and you need to be able to move the aluminum within seven days because they need to turn it over and the next people that are building there like need the space. If you can't find a location in seven days, then ultimately it's gonna go towards the most available option, which unfortunately in a lot of cases is more likely to be a landfill or a suboptimal processing pathway, right? And then on the purchasing side, I think very often you find, particularly for large corporates, they're looking to qualify such large volumes at such specific specifications that their qualification processes can take more time than you might have in order to clear the inventory. And so again, it comes down to the actual logistics of the system itself. It's one thing to create a beautiful interface, but I think for us, we have struggled to see, how you actually change the hearts and minds, sort of on both sides of that equation, to say we are either going to be more comfortable holding this inventory for longer or we're gonna be able to list it earlier. So that people can sort of access it more asynchronously with when it is, you know, pulled out of the building itself or longer purchasing timelines and relationships on the corporate side that allow you to be able to, to clear large volumes of inventory at a specific specification of performance.
Patrick Hypscher: Mm-hmm. Right? Yep. Everyone has to change a bit. Aly Bryan: And that's hard, right? It takes time. I think the good thing about the transition to the circular economy is the system will work better when we're there, right? We look to invest in companies that are, that are making things easier, sort of at every stage in the journey, that is not always going to be the case for every circular solution.
Patrick Hypscher: Yeah. You already mentioned a few companies you're invested in. What are the ones you can highlight here in this context?
Aly Bryan: Yeah, so I mentioned a handful already, so you know in our investments in companies like Molg, who are doing automated disassembly of servers, they also spend a tremendous amount of time thinking about design for disassembly, and have collaborated with folks like Dell on commercializing solutions for disassembly. So as the CEO Rob likes to say best way to make circularity stick is to make it less sticky. How do we use less adhesives, less glues, less infrastructure that makes it hard for us to take things apart. So that's a core part of our portfolio, our collaboration and, and partnership with Molg. Valis Insights I also mentioned who are doing on the scrap processing side, so working collaboratively with scrap processors to improve recovery efforts. And ultimately to both starting with a sampling product, so saying, how do we better sample, so that you are getting less feedback that your product is less good than you thought it was from the folks that you're selling it to today. But ultimately moving over towards that how do we incentivize scrap processors in the US to sell back here domestically rather than choosing to sell overseas is sort of the whole infrastructure associated with that is evolving and changing over time. Our private equity team has also invested in a handful of folks across the across the A and electronics recovery landscape. So folks like Sage Electronics, Electronics Recycling International, Apkudo and others. And so there's a whole cohort of sort of more electronics and e-waste recovery companies that we work with on that side as well.
Patrick Hypscher: And on all of these examples is there a match between let's say supply and demand on the recycled materials side? So, I mean, there's this general narrative that most of the production of ICT devices is happening in Asia. And if we do we cover them in North America and Europe, I mean, it's nice we have them. But do we also have the demand then domestically for these kind of materials?
Aly Bryan: Yeah, it's such an important question, and I'll use one of our other portfolio companies as an example when looking to answer it. We're also investors in a company called Solar Cycle. Solar Cycle is one of the leaders in recycling solar panels within the US. And they started a couple of years ago when there were a lot of questions around like, is there gonna be enough solar panel inventory that we, we actually need to recover? And the answer is, a tremendous amount gets damaged every year. A lot gets actually damaged in transit. So even just before, before it can get here to begin with. And so we are losing a tremendous amount of inventory and volume because it never can get installed to begin with because it was damaged when it got here, right? And so the question of building more local and distributed supply chains in order to supply at least a portion of what is needed for those markets is one that we spend a lot of time on. So in their case, I think they've explored and, and have spoken publicly about, you know, what would it mean to build out local glass like solar glass manufacturing, right? We know that we have solar panel manufacturing that's scaling within the US, there's various folks that are building out those assets. None of them are doing solar glass. And so you see for a lot of these folks, the question then becomes is there a next step value added product within the supply chain that is going to be easier for someone to purchase and ultimately plug into the supply chain that exists today? It is no, no secret that we don't have a huge, huge volume of smelting assets within this country, but we do have some, right? And so the question of how do we appropriately plug into the supply chains that do exist here today, and channel those recycled materials back into the next life of products is really important. And in some cases it is the startups that are ultimately saying, hey, we're gonna build the next step in that supply chain to make it even easier for folks to be able to recover and reuse it here. And provided there's a need, which in this case, you know, there's damage that happens when materials are shipping from Asia Pacific over to the US in order to be deployed. Those companies are finding a lot of interest and traction.
Patrick Hypscher: Okay, clear. So we're already talking about opportunities. So where do you hope to invest in that space?
Aly Bryan: Yeah. We're excited about a lot I would say, but I would say we are, we are excited about solutions that are advancing modular recovery processes. So again, like what are the ways that we are getting localized versions of a chunk of the supply chain that are economical that we are able to then use to create smaller loop and larger loop systems here within the US. So I mentioned, you know, the investments that we that we'll hopefully be announcing in the next couple of weeks largely in the, in the space around recovery of sort of end of life constituent metals. And so that's a place where we're talking relatively less hazardous processes compared to business as usual, right? Where in a lot of these processes we're talking pyro or hydrometallurgical processes that are actually relatively emissions intensive. And so for us, we get excited about solutions that allow us to hit sort of the 1, 2, 3 on emissions waste and water, right? So we only invest in solutions that are, that are advancing our transition to a more circular economy, and where it's really of strong value proposition. Where not only is it looking to advance as a more circular solution, but it's the highest and best use of those materials that they're looking to process. They're doing it at a lower emissions intensiveness than existing business as usual and less water intensiveness than existing solutions. And they're also doing it at a lower cost, right? That sounds like you're looking for sort of a unicorn in a lot of cases, in a lot of cases. Like that is core to the work that we were doing and the investments that we are making. But modular lower cost solutions that allow you to re-localize a portion of the supply chain and, and recover materials for domestic use is really what's top of mind for us.
Patrick Hypscher: Mm-hmm. And you started with and also mentioned it here again, modular. Can you elaborate a bit more? So modular I always think about modular product design and of course maybe let's say modular production facilities. So what exactly does it mean?
Aly Bryan: Historically we have built really, really large processing facilities and we have moved everything to those processing facilities to be processed and then moved further down the supply chain. We are not convinced that the future of manufacturing, the future of across industries, by the way, this is the case for chemicals, this is the case for metals, this is the case for food and ag. We are not convinced that the future of manufacturing is at that scale. Why had it done have been done historically, we're talking about a linear system where we're taking one thing from one place to another place, to another place, to another place. When we start to talk about the circular system, now you're talking about disaggregated feedstock sources that are all also looking to channel back through, what is still a linear process today. And it's more expensive than it's ever been to ship things across the country or around the world, that is not changing anytime soon. And we have this question of resilience and security within those supply chains, right? And so redundant supply chains means that something is going to be having to happen at what traditionally would've been seen as subscale. And what we believe is the case is that subscale solutions can still be economical solutions because there're savings elsewhere within the value stack that allow them to be the case. And so when I'm thinking about modular processing, I'm thinking about solutions that are economical at significantly less than, you know, the 500 million ton scale of processing capacity. But instead can source feed stocks regionally can process those materials for reuse locally and can feed into their supply the supply chains for for those new metals and minerals.
Patrick Hypscher: Okay, yeah, interesting. Aly, I have three final questions. The first one is again from the founder perspective. So if we look at circular business models in general, what guidance do you have for founders looking to build a startup in the circular economy?
Aly Bryan: It is very hard. I think building in circularity is not like building a traditional B2B SaaS company. It is not in almost every case. It is not like building the next Airbnb or Uber. You're not, in most cases building a solution that consumers are then going to flock to. Building in circularity in most cases requires you to have really well connected relationships. Both in front of you from a supply chain perspective, and behind you from a customer's perspective. And I think there's this tendency in sort of traditional Silicon Valley venture capital to say, well, we know the solution is right and if we just fund it for long enough, people will come to it. And that is neither no longer the case within VC - it's a longer conversation, but it's also just not the case for circular business models. In order for a solution to be a scaled circular solution, you have to work with other people in the supply chain. And so the circular solutions that are gonna be the most successful are those where you are actively thinking about who's giving you materials or who you're purchasing materials from to begin with and who is ultimately going to be your customer. And to the extent that you can make those the same person, that's actually hugely valuable. But I think that that connectivity, those relationships that need to be formed within circular businesses, and circular venture capital backed businesses in particular, is just at a different level than it is in sort of traditional B2B SaaS venture capital.
Patrick Hypscher: The second question is about the future. What trends do you see in circular business in the next three years?
Aly Bryan: Yeah. I think we've talked a lot about a lot of this already, but trends towards localization, modularity, needing to process the materials that we have for reuse closer to where they, they were at end of life anyway. I think we're going to continue to see movement towards bio-based replacements for petrochemical alternatives. That's outside of metals, but sort of a, a broader theme that we also are spending you know, a lot of time thinking about, is what are the less hazardous solutions that can serve the same function as the ones that we have been using historically. And then I would also say returns, processing, reverse logistics, right? I mentioned already, this is a space I spend a tremendous amount of time in, and I think the next 12 to 18 months will really continue to demonstrate how the linear model is particularly unsuited for lower value commodity products. And so I'm thinking, you know, apparel, retail consumer goods. And so the question becomes how are we going to better utilize the materials that today we get back through returns and maybe process inefficiently or don't process at all, or processes, materials as through the end of their useful lives. And so that reverse logistics processing infrastructure is another one I would add.
Patrick Hypscher: And my last question is about people out there. So who should get in contact with you and how to do that in the best way?
Aly Bryan: Yeah. So we actually have a pitcher company portal on the Closed Loop Partners' website, and so if you are interested in having your company be considered for funding, you can feel free to fill out that form on the website. You can find us all on LinkedIn, you can find us on the the Closed Loop website as well. But absolutely we would love to continue to hear from founders building in this space as well as other investors. I know the, the whole focus of this podcast series is talking to a lot of the investors that are within the circular economy today. We need more of us. And so that would be my other salvo, is anyone who is intrigued by the prospect of investing in the circular economy, who wants to put more money to work in this space. We are more than a decade in to what we view as sort of the next stage of the industrial revolution building within circular systems. And we're gonna continue to need capital and folks that believe that this is the direction that the economy is moving.
Patrick Hypscher: Aly, thanks a lot for sharing your perspective. Aly Bryan: Thank you so much for having me, Patrick.
Patrick Hypscher: This was Aly Bryan, Senior Member of the Investment team at Closed Loop Partners Ventures Group. This episode is part of our series VC for Circularity. If you want to get the actionable one pager about this conversation, sign up for the Circularity.fm newsletter. You can find it at www.circularity.fm. My name is Patrick Hypscher and this is Circularity.fm the podcast about understanding, building and managing circular business models.