The third of four lectures on circular incubation by Archetype Ventures and KAMAN was held on May 21 as part of the incubation program of CIRCULAR STARTUP TOKYO.
The content of this lecture was “Circular Economy and Finance” and “Circular Economy and Startup Practice.”
Circular Economy and Finance
The lecture began with a talk by Hirokazu Kitahara of Archetype Ventures, a venture capital firm that supports investment in start-ups that solve social issues.
Current Global Situation
In Japan, there is no direct data or reports on how much money is being invested in the circular economy. However, globally, Kitahara showed that $6.2 billion in 2022 and $7.3 billion in the first quarter of 2024 have been invested in startups related to the circular economy.
In the field, there are many startups in innovative digital technology areas, including a number of “unicorn companies,” unlisted startups with valuations of $1 billion or more.
The Close Intertwining of Finance and Business Strategy
Vinted, featured as a case study, is a Lithuanian company that offers a service similar to Japan’s “Mercari” that allows individuals to buy and sell used goods. Vinted took five years to build up its business and received its first financing from a well-known venture capital firm. Since then, the company has been expanding the amount of financing while building its business, and since 2019, it has been actively pursuing M&A opportunities in the marketplace, data science, and logistics areas.
Kitahara commented, “Some companies, such as Vinted, have been self-financing for some time after their establishment. There is no need to rush to raise funds from venture capitalists.” He also called attention to the strategy of aggressively pursuing M&A and growth.
Next, Kitahara introduced a case study of Back Market, a refurbish marketplace business that connects resellers with users. The company has partnered with over 800 refurbishers in 16 countries in Europe, the U.S., and Japan, and serves over 6 million customers.
Unlike Vinted, Back Market received seed financing immediately after its establishment in 2014, and has continued to expand its business globally, raising funds from multiple venture capitalists as its business progresses.
Through these two cases, Kitahara showed that financing and business strategy are closely intertwined. Rather than following a set strategy of “just raise money for now” or “raise money every two years,” it is necessary to think flexibly according to the progress of the business.
The Importance of Championing an Attractive Story
As we have seen, Kitahara interpreted that globally, the circular economy is seen as an area where investment is possible. However, compared to global investors, Japanese investors are less interested in the circular economy. That is why we need to be careful about who we are talking to and devise business explanations that will be understood by each investor.
Vinted and Back Market were also able to raise funds at high valuations and corporate valuations by talking about their vision and advocating an attractive equity story, and they were able to develop their businesses flexibly and grow into unicorn companies. That is why it is also important in circular finance to be able to tell an attractive story and vision to investors, Kitahara concluded.
Why start a business now?
Taking over the baton from Kitahara, Satoshi Nakamura of the company explained the basic concepts in startup financing and practical considerations in the first year of business. Specifically, Nakamura shared with the participants the basics of startup financing, including the importance of understanding one’s own funding needs, fundraising methods, and capital policy considerations for the former, and recommendations for signing a founder-to-founder agreement and how to select venture capitalists for the latter.
Nakamura then explained that “the circular economy is an area that attracts a lot of attention, but that’s why investors also look at the emo aspects, such as the thoughts and original experiences behind the startup, which are important to show why you decided to start a business in this area now and whether you are truly enthusiastic about going through with it,” and “it’s also hard to show technological superiority unlike software and other products. In addition, unlike software, it is difficult to demonstrate technological superiority in this area, so it is necessary to supplement this by demonstrating competitive advantages such as the involvement of internal and external collaborations.”
Circular Economy and Startup Practices (KAMAN, Inc.)
The second half of the presentation was given by Shingo Yoshizumi, President of KAMAN, Inc.. Yoshizumi launched a new business creation program at Sony Corporation and supported more than 100 teams of large companies, ventures, universities, and NPOs in their startup acceleration programs to launch new businesses. He then founded KAMAN, Inc. to build a regional recycling-oriented society.
KAMAN launched “Megloo,” a common regional reusable container sharing service to reduce take-out disposable container waste. The service was selected as the first project in Japan by the Alliance to End Plastic Waste (AEPW).
Megloo users can easily use the regional reusable containers for free with their smartphones, and after use, they can return them to any local store or return box that is compatible with the system. Although the Megloo reusable container sharing service requires more time and effort to operate, it can significantly reduce CO2 emissions and waste, and can be implemented at the same or lower cost than paper-based containers. However, while there is some operational effort involved, the service can significantly reduce CO2 emissions and waste.
In addition, global trends in reusable containers are also progressing, with the Netherlands introducing a tax on disposable containers in July 2023, and Germany mandating the option of reusable containers for takeout in January 2023. In response to these trends, Megloo continues to work toward the goal of “moving from a throw-away society to a circular society” and to become a part of the national infrastructure.
The Importance of Value Provision
As mentioned above, before founding KAMAN, Inc., Yoshizumi supported acceleration programs at Sony Corporation. As a mentor, he has observed many businesses and found that the formula for a successful business is a clear “value proposition” (product value).
There are various key points to a business, such as team, funding, technology, and business model, but Yoshizumi said, “If there is no market need in the first place, no matter what you do, it won’t work.” That is why it is important to think about products and services that customers want while verifying the needs from time to time in the process of making a business plan. In terms of customers, focus on neither the innovators nor the majority who want to choose whatever is new, but rather on early adopters who currently have a compelling need and have already begun to take action. While conducting verification, it is necessary to clarify the value proposition (product value), for example, “A customer has a certain issue, and there is an alternative solution, but the customer is dissatisfied with xx, so we will propose xx.”
Make the Most of the Program
In closing, Yoshizumi told the participants of CIRCULAR STARTUP TOKYO, “The circular economy is not a boom, but a market that cannot be avoided. Despite this, there are still very few companies in Japan that are putting it into practice, so this is a great opportunity for us to attract attention no matter what we do. I hope we can make the most of this program and work together.”
After the lecture, the participants had a group discussion about their impressions of the lecture, what they learned, and what they would like to apply to their future business development. The participants then had the opportunity to ask questions of the speakers. The question was, “How will impact investors invest in the future of the circular economy industry?” “How did you find your colleagues when you started your business?”and so on, a variety of discussions took place during the time.
The next lecture will be the last of the four circular incubation lectures. The theme is “Circular Economy and Partnership.” The lecturers are Masayuki Terai, representative of “Garbage School,” an organization involved in online community, event management, and corporate collaboration organization whose mission is to “create an exciting society through garbage,” and Akira Sakano, representative director of Zero Waste Japan, a general incorporated association. We will report on the featured lecture.