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GANNI co-founder Nicolaj Reffstrup. Image credit: Jakob Landvik

Q&A: Biomaterials startups are ‘not necessarily configured for venture capital,’ says GANNI co-founder

April 4, 2024

Deep tech and high fashion rarely appear in the same sentence — a point Nicolaj Reffstrup hopes to have a hand in changing.

Reffstrup is best known as the co-founder of quirky-meets-über-cool fashion label GANNI, which he founded with his wife Ditte more than 20 years ago in Copenhagen.

Nicolaj stepped down from his CEO role at the company in 2018 to focus on planetary responsibility at the company. He’s also one half of the founding team of Look Up Ventures, an investment platform that backs startups in energy, carbon, food, and, of course, materials science.

GANNI itself is no stranger to the biomaterials space, having already committed to phasing out virgin leather from its product lineup and launching partnerships with startups developing alternative materials. For instance, the company recently teamed up with Modern Synthesis to launch the former’s signature Bou Bag using a leather-like alternative derived from bacterial fermentation. [Disclosure: AgFunderNews parent company, AgFunder, is an investor in Modern Synthesis.]

Just don’t call it leather. “Be careful if you can to avoid comparing yourself to existing materials,” Reffstrup cautioned startups in a recent interview with AgFunderNews ahead of his speaking slot at the Rethinking Materials summit in London in May. Comparisons ultimately lead to disappointment over the differences, ignoring the potential for totally new materials and experiences altogether, he argued.

Reffstrup added that biomaterials and other deep tech startups may also want to consider alternative, non-VC routes of funding.

Read on for Reffstrup’s insights on funding hard tech, the opportunities and challenges for alternative materials, and how Look Up Ventures is helping startups navigate this new and hugely important area.

Nicolaj is speaking at the upcoming Rethinking Materials conference in London next month. Use the code AGFUND10 to get a 10% discount and take advantage of early bird pricing by booking here before April 4, 2024.

AgFunderNew (AFN): When did you start looking at sustainable materials?

Nicolaj Reffstrup (NR): When we embarked on GANNI as a project, it was not baked into it. I was not aware that the fashion industry was in a worse place than everybody else at that point.

Around 2013 we started on what was then our CSR [corporate social responsibility] journey. And by 2016 we doubled down on reducing our carbon footprint. We started monitoring and offsetting to impose a carbon tax on our activities — nothing beats financial penalties when trying to adjust human behavior.

CO2 reduction has been a huge priority for us since then. When we mapped out our carbon footprint, we realized how important it was to find new, innovative materials, because, in our case, the product is 80% to 90% of our carbon footprint; the actual materials are two-thirds if not more of that.

AFN: How is GANNI working with novel materials and what are the challenges?

NR: The challenge we see at GANNI is fairly simple: we have very clear carbon reduction targets of 50% by 2027 compared to 2021 in absolute terms. We can only get there if we switch to materials with a better carbon footprint. So we need startups and incumbents to bring innovative new materials to the market.

There’s a huge demand for climate-friendly commodities that are on par with [the materials] you can get out there already, so if you can bring that to market, then the market is there.

There’s a massive challenge in [doing] that. There’s a science component, an engineering component, and a marketing component.

The science part: Our experience so far is that you can iron out a lot of kinks that come with developing a new product faster than we thought. There are of course some profound technologies that have huge promise — like Rubi Laboratories  — which might take longer than others because there are a lot of moving parts. But otherwise, more generally you can get to a fairly material stage relatively fast given that you often rely on years of aggregated research before spinning out your start-up.

When you get to the engineering or the scale-up phase, you need to bring down the unit cost. There are funding issues, there’s talking to the market to truly understand what they demand not just in terms of quality but also price point. You need to drop into existing infrastructure or supply chains; like what can it commit to in terms of volumes, the timeframe, and stuff like that. 

So as it turns out, the engineering or the scale-up phase of your project is a bigger challenge than most people expected, and often more challenging than the science part.

Bou Bag by GANNI and Modern Synthesis. Image credit: Modern Synthesis
Bou Bag by GANNI and Modern Synthesis. Image credit: Modern Synthesis

AFN: How have these challenges manifested as you’ve worked with these companies?

NJ: We run a department or virtual team that we call “Fabrics of the Future” where we work with around 30 different innovative new materials at different stages, supporting them, understanding them, talking to them, and trying to get them to a commercially viable stage. We offer them a clear path into the core of our business. We ask the right questions for them to understand the market, et cetera, and then we end up with a project like the one with Renewcell where we have done a couple of co-labs – [including GANNI made with Circulouse]. We’ve tried out their product, we are willing to pay the premiums that they desire, and we nominate them as a supplier to one of our sub-suppliers.

And then they go belly up. [Renewcell declared bankruptcy in February of this year.]

AFN: How many times has that happened?

NJ: It happened with for instance Mylo [a leather-like material from Bolt Threads], which we were quite far with. We had launched a couple of marketing initiatives, and if they could have delivered at scale, we would have gone full in with them on a product category.

It’s happened with a lot of smaller startups; it’s a natural part of a tech ecosystem. Coming from a software background and a venture background [Reffstrup worked with a range of venture capital firms and startups before co-founding GANNI], you see that over and over again. That’s the ball game but it’s tough when you’re the incumbent that relies on these products to be viable at scale.

AFN: What do you look for in materials?

NJ: It differs from material to material, but in general, the product will have to out-compete a commodity being traded across a global supply chain.

We sometimes forget that as a product moves along the supply chain, for every step there’s value added to it, and somebody’s paying for that added value. That incentivizes the value chain to move forward.

In many cases, the value chain is turned upside down with textile recycling or products based on recycling. You get your raw materials at the end of the value chain, whereas you used to get it at the beginning of the value chain from the fields.

So you’re basically competing with a linear, low-margin, highly established, highly efficient value chain. You could probably get away with a 20% to 40% premium for a while. But the market tells me nobody’s willing to pay more than a 10% premium during a transition period. Ultimately, you need to get close to price parity with the alternative.

With the textile industry in particular, be careful, if you can, to avoid comparing yourself to existing materials.

For instance, with alternative leathers, the second you call it “an alternative leather,” you are compared one-to-one with calf leather.

Consumers have a perception that calf leather is an exclusive material; it’s actually maybe $25 out of a $2,500 bag. It’s a commodity; it’s very versatile; it’s made in abundance. But there’s still that perception right?

I’d much rather [startups] launch what they have as a new product, like when nylon was introduced to the market, for example.

Nicolaj Reffstrup by Alex Dobe.

AFN: What is Look Up Ventures and how is it working on these challenges?

NJ: I’ve been somewhat involved with the climate change agenda for more than 30 years in various capacities. Lately, I’ve learned that you need to engage with deep tech and hard tech if you want to support the green transition. If we want to get to a net zero state, everything we surround ourselves with needs to be transformed into a greener version.

Look Up Ventures — by the way we got that name from the movie “Don’t Look Up” — is a venture office, as we call it.

We invest off of our own balance sheet — sometimes doing SPVs with our close network of people mostly from fashion and tech — and that allows us to be totally opportunistic. We also allocate resources to understanding profound challenges and potentially build solutions for those challenges in-house. We’re stage-agnostic in our investing as the traditional concept of investment stages doesn’t always make sense when you deal with deep tech and hard tech companies. [That model] has been adopted to cater for software companies. You do your pre-seed to get to a minimal viable product, and your A and B rounds to build the market.

In this case [hard tech or deep tech], we’re in a different situation. You probably need a lot of money upfront to prove your basic science to get started on the engineering part. And then you need to build a factory, so it’s hard for you to get to a Series A because you don’t have any revenue and nobody’s there to fund your pilot plant.

At the moment, everybody’s sticking to a series seed. What we’re seeing are seed extensions or “Series pre-A” because nobody can live up to the Series A criteria, unless they are software.

So we try to think less about the stage we invest in but more in terms of scale readiness. We start with the TRL [technology readiness level] and ensure that we agree on what the TRL actually means and entails.

Then we double down on the techno-economic analysis to truly understand in detail what [the startup] thinks it can do and what it needs to overcome, where they add value; and how they intend to bring down unit costs.

Then we have a big think about how much capital is actually required to get through to the pilot plant. Are there soft grants? Is there debt available? Are there other ways of building your funding stack? How much capital do you actually require? Can we aggregate demand in the market through offtake agreements or other less tangible commitments? And are those bankable?

So we’re putting that all together to make an informed investment decision, rather than just kind of claiming that “this is a Series Seed or A.”

Through that, we’re hoping to overcome some of the issues that hard tech companies are not necessarily configured for venture capital.

For most deep tech and high tech companies, their end game is building factories and producing commodities. If I told that to a venture capital fund outside the space and I didn’t mention climate, nobody would invest in a factory that produces a commodity. That just doesn’t exist. We need a new kind of investor here.

AFN: Who have you invested in so far?

NJ: We have a portfolio of around 15 companies. The last investment we did was a top-up for Rubi Laboratories, which captures carbon to turn it into cellulose pulp. The promise [of their technology] is so massive if they can figure out how to overcome a couple of the challenges that they are faced with.

We did a later-stage investment, mostly because we wanted to understand palm oil alternatives, in C16 Biosciences along with Breakthrough Energy Ventures but we’re generally more comfortable investing at an earlier stage.

Our biggest priority at the moment though is that we’re building a platform that will drive transparency and liquidity in the market by aggregating demand in the form of offtake agreements almost like a derivative.

There’s so much you can achieve if you have the offtake agreement – look at what the amazing team at Syre is doing with polyester recycling -but there are many industries where people don’t know what it means, or they might do a pseudo one but it has so many loopholes and it’s never going to come to fruition.

There are other industries where you have offtake agreements, but they are extremely hard to come by and you won’t necessarily offer them to a startup.

We think we can get big companies to pledge to do offtake agreements so that startups know exactly what they’re working towards, and they know there’s a reward at the end of it. Then using those aggregated offtake agreements to [justify] investing in some of these companies to help them build the at-scale facilities we all need so badly.

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