As a younger man in the salad days of my career in clean-tech financing, I frowned slightly on investors that were looking to back information and communication technology (ICT) enabled resource and energy-efficient technology companies. I thought they were not really getting their hands dirty in the gruelling but noble art of long-term capital-intensive clean technology. They were sprinters – not iron-man, multimarathon runners.
What rubbish. I feel embarrassed by these views today. My admiration for the few long-term investors prepared to stick with capital-intensive clean-tech has not waned, but it is now matched by enthusiasm for the convergence of ICTs and clean-tech, which is producing exciting business models that promise returns within more VC-friendly timeframes and that also enable environmental improvement.
Recommerce or reverse commerce – which refers to the recovery, reselling and reuse of products, usually through the internet – is a good case in point. Its growth, which is a factor of ICT innovation, has led to the emergence of new players in B2C (business to consumer), which are variations on the eBay model, and others in B2B (business to business) which are specialising in the recovery and reuse of particular product groups. It is attracting new investors to clean-tech and producing some very promising results.
eRecycling Group is a Texas-based recommerce company whose business model is, in its own words, “based on capturing, restoring and monetising the value of used mobile devices”. In plainer language, it collects, refurbishes and resells phones and tablets. In October last year it completed a $105m series C financing from its current shareholders, which include venture capital firm (VC) Kleiner Perkins Caufield & Byers and a new investor, Silver Lake Kraftwerk, a technology investor focused on energy and resource innovation.
The environmental benefit here is that precious metals contained in mobile devices get reused and kept out of landfills. The ICT innovation comes in the harvesting and collection of devices – reverse logistics – and in the identification of the premium buyer, bridging the gap between the tech-savvy consumer who is desperate to upgrade and the consumer who is happy with a reliable product at a lower price.
The German company ReBuy has a business model similar to eRecycling. Earlier last year it secured follow-on funding from existing investor Ikea-backed Swiss-based Mountain Cleantech Fund II and new investors, including Hasso Plattner Ventures, the VC established by the founder and chairman of German software company SAP. The investment followed 100% compound annual growth in the preceding two years.
Such growth is being driven and supported by several broad factors – the rising costs of energy and raw materials and a wider acceptance of second-hand products.
Recommerce is part of the much broader closed-loop economy. Its closest sister industry is remanufacturing, which is best defined by the UK Centre of Remanufacturing & Reuse as “a series of manufacturing steps acting on an end-of-life product or component in order to return it to like-new or better performance, with a warranty to match”.
Remanufacturing has been common in the automotive and heavy duty industries for decades, with companies such as Caterpillar and Rolls-Royce leading the way. Yes, the Rolls-Royce engine on the plane that flies you to meetings and holidays is second-hand. In fact, it is likely to have been remanufactured so many times that it is far beyond second-hand. But it seems to do the job.
What is stopping other industries remanufacture? One of the obstacles is that it is viable only when there are enough products available to be remanufactured. This requires manufacturers, or their outsourced remanufacturing specialists, to exert greater control over the lifespan of their products so they can collect them for remanufacturing when required. This challenge will be met mostly through the application of software. It is an investment opportunity waiting to be seized by ICT-competent clean-tech investors.
Disclaimer: Mountain Cleantech and organisers of the Centre for Remanufacturing and Reuse are both former clients of Tom Whitehouse.