The BioDesign Newsletter

Issue #008

Why its time to finance

As sustainable policies, like the EU’s Green Deal, apply pressure on companies to reflect and report their carbon emissions, fashion brands are increasingly aware of the impact of their raw materials and Scope 3 emissions. With brands like Kering (owners of Gucci and other luxury brands) looking to reduce their greenhouse gas emission by 40% by 2035, the sustainable materials scene has been gaining more attention as a potential solution to reach these goals. This sentiment was strengthened by experts across recent events, including the SynBioBeta conference in San Jose, Rethinking Materials and the Planet-Saving Innovations exhibition in London. 

But for large fashion houses to reliably integrate these novel solutions, the materials need to have price parity to existing materials as well as having reliable production. This requires start-ups successfully funding and executing a plan to scale their manufacturing capabilities and bringing down their unit costs. 

Who is funding this development and why might investors be hesitant? The main group of investors for these materials remain the venture capitalists, who are searching for solutions that could address environmental challenges, such as Breakthrough Energy Ventures and Giant Ventures. However, increasingly brands are demonstrating an interest in getting these products into the supply chain.

So what is the bottleneck on getting a start-up the funds necessary to get to this point?

Chicken and egg: Start-ups are vocal about brand collaboration and blank checks, but a key issue for brands is the technology readiness level (TRL). Beyond material properties, brands need to consider the time, resources and stability of a potential producer, before loosening their purse strings.   

This has become a chicken or egg situation. While brands want the materials with minimal risk to their profitability and supply chains, innovators argue that early investment and collaborations are needed from brands to offer the security of demand needed to scale. The brands’ apprehension is no doubt a reflection of burnt fingers from both Bolt Threads and Renewcell, where production pause and bankruptcy led to an inability to successfully scale and steady themselves in a supply chain. 

Deal Structures: As always with innovations, all parties are seeking ways to de-risk their investments while advancing the technology.

Whilst classic equity funding will always have a place, rethinking the deal structures to find a new model could provide all parties with a more acceptable level of financial stability. Pairing this with strategic alignments can straighten out the road for scaling and developing an ecosystem for sustainable growth. 

Offtake agreements, a legally binding agreement between a producer and a buyer for the producer’s future output, is a structure which offers security for startups and can support them in finding financing more easily. This option looks to solve the chicken and egg situation. 

An alternative deal structure that would allow multiple brands looking to dip their toes in the water, is joint ventures. Although this approach conflicts with the exclusivity agreements some brands may be looking to secure. Yet when a brand can exclusively have nothing versus a whole industry having a reliable production partner, it may be worth reconsidering exclusivity deals. 

Patience & jargon: The development of new materials is a lengthy process. The production of some of these new materials at scale requires building out a team with the right expertise, in some cases, running reactor vessels around the clock, and finishing a product ready for a buyer. This lengthy process is further prolonged when teams encounter unforeseen engineering problems at the scaling stage. With a limited understanding of technologies and processes outside of the start-up ecosystem, a communication barrier between all parties, brands, investors and start-ups, can cause a lack of transparency of realistic timelines. 

Funding is an essential component of any company and despite the demand for sustainable materials past industry failures has left an aura of apprehension for many investors. The increased interest in the industry is sure to open lines of communication for all parties, but will they be able to navigate these funding hurdles and strive toward competitively priced materials?

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