Backed by an all-star roster of strategic advisors and investors including actor Leonardo DiCaprio and circular economy pioneer William McDonough, a fledgling venture capital firm just announced the final close of its first $45 million fund. Called Regeneration.VC, the firm focuses on seed and series A investments in circular and regenerative approaches to consumer industries.
Why the focus on this segment? According to Smith, consumer supply chain accounts for 45% of global emissions. At the same time, climate- friendly apparel and consumer packaged goods provide a $4.5 trillion business opportunity, he says. The fund focuses on three areas: design (packaging and materials), use (products and brands) and reuse (reverse logistics and marketplaces) .
“Consumers have power,” says Michael Smith, general partner and co-founder. “We can vastly improve the planet through our buying decisions.”
A Circular Technosphere
A significant inspiration for the fund came from McDonough’s work on the circular economy— reusing or extending the life of materials in products. (McDonough is now a strategic advisor). For the fund, that translates into investing in companies making or using such materials, as well as upcycling, repairing and reselling stuff.
The process involves a “circular technosphere”, in which technology allows materials to move and circulate throughout the supply chain, and a “regenerative biosphere”, or natural systems for absorbing carbon, like trees—a carbon cycle flow, during which things are returned to the earth, regenerate the soil and draw down atmospheric carbon. “We’re marrying technology with biological processes,” says Smith.
For Smith and Dan Fishman, co-founder and general partner, a variety of changes in regulations and consumer sentiment are leading to big changes in the behavior of big brands. Already, numerous major corporations, from Nike to Unilever, are committing to circular strategies by 2030. And the EU recently came out with regulations regarding circular economy plans, Plus multiple states in the U.S. are working on circular-economy related rules. To keep up with all this, ”Big corporations know they have to do something,” says Smith. “And this is a meaningful way to engage in that process.”
As for DiCaprio, he’s both a strategic advisor and investor, serving as what Smith describes as a “sounding board” for the fund. Smith says he can’t reveal how much DiCaprio has invested, but describes him as “a major investor”. According to Smith, he and Fishman have known DiCaprio for a while. They approached him early on, about two years ago, and, says Smith, he signed on early as an investor.
Supercharging Early-Stage Ventures
The partners’ assessment of the investing landscape led them to early stage ventures. During their research, they found that most investment in the sector currently targets later-stage companies. What was lacking was money for businesses just getting market acceptance and revenues, but needing capital and expert advice to get to the next level. “We come on to supercharge that,” says Smith. They put together their basic framework in Nov. 2019 and started raising capital in Feb. 2021.
Regeneration has invested in five startups already, starting in April 2021, with a sixth to be announced soon. That includes such companies as Cruz Foam, which turns aquaculture processing waste streams into a certified compostable polystyrene alternative, and Arrive, which provides rental- and resale-as-a-service to global retailers and brands. The plan is to invest in about 17 investments, with a typical investment size of $1 million at a seed stage and $1.5 million to $3 million for Series A. Half of the fund’s capital will go to initial investments, with the rest for follow-on investments as companies grow.
Ultimately, “We want to see dozens of funds doing what we’re doing,” says Smith. “We’re planting our flag with the idea that this is a place you should care about.”