The packaging sector is undergoing profound change. As we learned in part one of our three-part interview with Neil Cameron and Fredric Petit, leaders of our new #SustainablePackaging fund, the industry is poised to boldly adopt new technologies to help it pivot to a less carbon-intensive, less wasteful model.
In part two, we discuss where the pressure for the packaging industry to transform is most acute, the buoyant startup ecosystem, and where Emerald’s “secret sauce” of corporate matchmaking can play a productive role.
This sets the stage for part three (coming soon), which talks about the hardest technical challenges in the packaging space and the ideal role of regulation.
Where on the packaging value chain do you currently see the most pressure to change?
Fredric: The brand owners—particularly fast-moving consumer goods firms—have all committed to very bold net zero targets for 2030 and beyond. This includes making commitments with the Ellen MacArthur Foundation, the Alliance To End Plastic Waste and the Principles for Responsible Investment, among other industry-wide initiatives. In order to meet these goals, they need the upstream players—the converters and the raw material producers and whatnot—and the entire adjacent industry—producers of adhesives, labels, ink, resins, coatings and the like—to step up. Then they also need participation of the after-use part of the value chain, namely the waste management companies doing all the collecting, sorting and recycling.
You can see the need for much stronger alignment along the entire value cycle about what actually can and cannot be recycled, reused and repurposed. This is leading to growing efforts to simplify packaging, to integrate secondary and tertiary packaging, and to take steps like moving from rigid form factors to shrink film, for example. If you walk into any retailer these days, you’ll see a big push to use more cardboard boxes instead of plastic because the former—along with paper—is perceived by the end user as more sustainable (which it is, as long as you don’t use the wrong kind of coating and film on the inside). So the paper and pulp industry is seeing an opportunity, while the plastic industry is seeing a threat, one they’re addressing by trying to boost recycling rates in order to reduce their footprint.
Neil: What’s exciting is that all the points on the value chain care right now. When you’ve got this kind of alignment, you have the potential for real change because it really does take a village to achieve success. Everybody has to be engaged. Everybody has to win. The standard four questions we ask any entrepreneur on the value chain are: who uses, who chooses, who profits and who pays? And the more complicated the answer is, the more likely it is that technology adoption will be slow. In this space, technology adoption can be extremely complicated, except that everybody wants to win right now. So you have people who are willing and interested in playing a role in the adoption of this new technology all around the value circle. If everybody wants it, then it’ll happen.
Fredric: We are also seeing a mindset change. For example, the US company WM is one of our limited partners. They recently changed their name from “Waste Management” to “WM” because waste management companies are now repositioning themselves as raw material producers. Some even claim waste doesn’t really exist—it is actually a resource.
Taking a step back in the value chain, a lot of claims were made by brand owners that “my packaging is recyclable”. To anybody who says its product is recyclable, I like to point to my iPhone and say, my iPhone is also recyclable—I wouldn’t want to put it through that kind of process because it would cost you hours and tons of energy to recycle it properly—but it is technically recyclable. Now, fortunately, institutions like the Ellen MacArthur Foundation are narrowing the scope of when you can and cannot claim that something is recyclable or not recyclable. This helps to align the whole ecosystem and achieve some much-needed transparency. Because even with strong willingness, we’re not going to achieve circularity without transparency around these claims.
How would you characterize the packaging startup ecosystem right now?
Neil: It’s effervescent. When I first joined Emerald, we had 50 or less packaging opportunities a year, all un-investable because there was no particular appetite for those technologies, no appetite to buy startups and little push to be disruptive in the packaging space. Since 2017 we’ve seen a four-, five-, six-fold increase in deal flow. And the quality of that deal flow has increased as well, whereas historically, we were looking at opportunities that were of marginal technical interest. Now we’re looking at almost an order of magnitude more startups per year. And the technical depth, the quality, the innovation factor, if you like, is immeasurably higher.
Fredric: There is now a very strong pull from the industry, very strong interest in solutions. And that creates a push from all corners of academia and the startup world to come up with these solutions. That push only comes when there is capital available. In recent years the focus was much stronger on renewable energy and software-as-a-service, so that’s where most of the capital went into. As Neil mentioned, packaging was less exciting—it was always a space with lots of sustainability problems, but there are so many challenges in industrial sustainability more broadly, and that sector was not ready to act. Things have now definitely changed.
How specifically do you view Emerald’s role going forward with the new fund?
Neil: The new fund creates the space for Emerald to be the “tide that lifts all boats”, to quote the axiom. Fundamentally, it’s important for us to invest in startups that can deliver a financial return. That’s the primary function of a venture capital firm. But it’s also important for those startups to deliver impact, and we are uniquely positioned to find a home for them. If we see a path to a near-term financial return, then we’re happy to invest. But sometimes all we do is make introductions, and that’s exciting in and of itself because our corporate partners can do much more than just buy a minority equity stake in a startup and help it grow. They can engage with that startup as supplier, customer, or partner in manufacturing, technology development, joint venturing and so on.
Any startup that speaks to Emerald has three potentially positive outcomes. One outcome is that we see a path to an investment and we engage in deeper diligence. A second path is that one or more of our limited partners may also want to get engaged. So, in addition to an indirect position in the company through our fund, they may choose to co-invest, and that happens frequently. By far, the most common outcome is that we don’t see a path to a near term investment, but we create strategic value via our network of corporate partners.