How Strategic Investments Can Scale Emerging Molecular Recycling Technologies

For many capital-intensive technology sectors like solar energy, biofuels and water infrastructure, there has been a “valley of death” where capital is critically needed to support technology commercialization between the lab to pilot stage, and then from demonstration facility to the first commercial facility. During this path to critical mass, without sufficient revenue or capacity, many companies face the challenges associated with building operational leverage before reaching commercial scale and while conducting costly technology and customer pilot testing (1). Many other technology companies fail at this stage. 

As molecular recycling rapidly evolves as a diverse technologically intensive, industrial sector, this gap has also proven to be a challenge for many companies operating in the space. In a study of 60 companies, we found that it took an average of 17 years for a molecular recycling company to move from lab to pilot to growth stage (2). Today, many often rely on strategic grants and loans to fill the funding gap and finance their technologies through the early stages of the company.

How to Transition from Lab to Pilot

1. Navigating the early stages of development to breakeven and secure the capital needed to continue scaling the technology
2. Forming strategic partnerships with organizations familiar with the molecular recycling space
3. Securing staggered investments for immediate future capital commitments  
4. Conducting a phased roll out to provide ongoing investor updates, build trust with partners and prove viability for further funding 

PureCycle Technologies’ Solutions 

PureCycle Technologies leveraged these strategies to develop its technology, which takes post-consumer and post-industrial polypropylene waste and purifies the materials of colorants and additives to create high-quality food grade polypropylene content. 

Strategic Partnerships

The PureCycle technology was developed by P&G in 2013 and licensed by PureCycle in 2015. The technology started small, hitting initial process goals. As additional tests were able to replicate the purification process to a point of successfully creating high-quality recycled propylene from dirty polypropylene inputs, PureCycle began to build out its business model. Since the company’s purification process was developed by P&G, PureCycle greatly benefited from an elevated profile.  

PureCycle was the first portfolio company of the venture capital firm, Innventure, the first global, open-architecture venture firm dedicated to sustainability. With experience taking disruptive technologies and building businesses around them, Innventure was key to commercializing PureCycle’s purification process (3). The firm’s experience was critical (4); the right partners can often expedite speed-to-market, saving a company millions of dollars.

In the midst of building its first plant in Lawrence County, Ohio, PureCycle announced its partnership with Milliken, a global industrial manufacturer, and Nestlé S.A., the world’s largest food and beverage company. Milliken formed an exclusive supply relationship with PureCycle, while Nestlé worked with PureCycle to develop new packaging materials to reduce plastic waste. Other companies such as L’Oreal have followed suit (5). These strategic partnerships across the recycling value chain––including consumer packaged goods (CPG) companies, converters and resin producers––further de-risked and accelerated the technology’s commercial route to market.

In 2019, PureCycle successfully produced the first initial batch of ultra-pure recycled polypropylene from waste carpet from their Feedstock Evaluation Unit (FEU). They transformed the discarded carpet into clear Ultra-Pure Recycled Polypropylene (UPRP) resin through their proprietary plastics recycling technology. Leveraging the FEU demonstration unit, this ended up being the best way to showcase the technology to partners, given that the unit itself is 11,000 sq/ft and 50 feet tall (6). 

Staggered Investments
For an early stage, disruptive technology company, it is critical to partner with investors who understand the space––the feedstock risks, end market commodity price fluctuations, and technology alignment to sustainability goals within CPG companies––and are not only willing to commit capital immediately, but are also willing to reserve capital for future commitments. PureCycle’s seed capital investor provided a very large letter of credit that the company was able to draw upon, and some strategic partners agreed to tranche funding based on achieving milestones. Furthermore, secured offtake agreements, feedstock agreements, permits, and fully negotiated (Engineering-Procurement-Contract) EPC contracts, helped advance the development of the facility, and mitigated risk for investors looking to see significant progress and milestones. 

Not only was it PureCycle’s association with major multinationals and key strategic partners that derisked investment for investors, but also the merits of the technology, its broader applicability and strong team. Having a viable product to show investors, as well as a unit to conduct process improvements and ensure strong mechanical performance, aesthetics and throughput, proved critical to secure funding for the company. PureCycle offered a differentiated product output that was in high demand in the market. Polypropylene’s diverse use cases, strong market pull and attractive greenhouse gas (GHG) profile proved to be an attractive investment for Closed Loop Partners, an investor in the company. Through the operation of the FEU and prior to closing on the bond, PureCycle identified a number of technology improvements based on operating the FEU which include: creating redundancy with extruders on the front end, adding non-stick coating to increase the amount of contaminants that could be present in the feedstock, using steam jacketed piping, and automating waste handling.

In late 2020, PureCycle completed a $250 million bond raise through municipal bond and debt offerings that are being used to roll out the second phase of the company’s commercial plant in Ironton, Ohio. This plant is expected to produce over 105 million pounds (47,000 metric tons) of ultra-pure recycled polypropylene (UPRP) per year. As PureCycle saw increasingly strong demand for their UPRP, the Company began the process of de-linking the price from commodity pricing while selling the UPRP at a premium to virgin polypropylene resin manufacturers. Given the abundance of waste polypropylene available that PureCycle can process, like carpet fiber, the company secured long term contracts for the feedstock to supply the commercial plant production and entered into long-term offtake agreements with leading global customers and Fortune 500 partners for the UPRP generated from the facility. Moving forward, PureCycle intends to expand its global footprint and have 30 commercial plants operational by 2030 and 50 plants by 2035. In 2021, PureCycle Technologies PureCycle Technologies (NASDAQ: PCT) went public on NASDAQ via a SPAC merger with Roth CH Acquisition I (NASDAQ: ROCH).

Call to Action

To lay the groundwork for successful capital raises, molecular recycling companies need to take the extra steps to derisk loans and investments as much as possible. This will require forming early partnerships to strengthen the business model of the technology, continuously improving and developing the technology at every stage, and creating products that align with market need. Ultimately, from proof of concept to early commercial stage, molecular recycling companies must identify strategic partners and investors who are supportive of and aligned with molecular recycling technologies. By staggering investments, molecular recycling companies are also better positioned to draw upon additional reserves of capital when needed, especially during the growth stages of the company.

^[1] Process of Technology Commercialization – Valley of death  – the problem is that when private alignment and capital is needed at most, risks are unfortunately high, and the organization may be unable to attract resources needed.

^[2] https://www.closedlooppartners.com/research/advancing-circular-systems-for-plastics/

^[3]https://www.globenewswire.com/news-release/2019/09/25/1920757/0/en/PureCycle-Technologies-Celebrates-Successful-Run-of-Groundbreaking-Plastics-Recycling-Technology.html

[4] https://purecycletech.com/2020/11/frequently-asked-questions-about-pcts-purification-technology/

[5] https://www.globenewswire.com/news-release/2019/07/18/1884973/0/en/PureCycle-Technologies-and-L-Oreal-signed-an-agreement-for-the-supply-of-Ultra-Pure-Recycled-Polypropylene.html

[6] https://purecycletech.com/2019/09/successful-run-of-feedstock-evaluation-unit/