If you are a bit like us, the chances are that if you are passionate about something you want to understand it well. And if a new angle pops up, you want to dig even deeper. There is one question that’s been on our minds for quite a while now: ‘How can we create the critical mass for the circular economy to become the new normal and how to move from talking to doing?’. We at MissionC believe the answer lays in three essential factors: technology, people and money. No rocket science, but it is easier said than done. Lack of capital available for circular businesses is one of the most common and biggest barriers to massive scale up of the circular economy. So we have been digging …

We believe that conscious tech-powered business is the ultimate solution to reverse the dangerous environmental & social threat hanging above us. The good news is, the right technology is available – from numerous renewable energy sources, storage technology, recycling solutions, data and digital platforms connecting the value chain to drive resource efficiency. We ‘just’ need to massively scale-up and attract big money into the business developing these solutions. So no wonder that money is the topic discussed on all fronts right now. To be more precise, it’s a combination of money and the right actions. We have to stop being ‘nice about things’ and ‘politically correct’. There is no time for excuses anymore. According to the IPCC report, we have 10,5 years to cut our CO2 emissions before the consequences will be catastrophic. Circular economy has the potential to be a great climate change mitigation strategy and at the same time also an economic opportunity on a macro and micro level. It is based on dematerialization and different consumption patterns. At its core are business models based on closing the material loops.  To make it impactful the overall system change is needed, ideally enhanced by penalizing the heavy polluters – this is not a choice but a must at this stage. Tick Tock.

With only 9% of the world economy being circular, there is a major opportunity for the organisations to adjust their business models towards circularity and thus create a long-term competitive advantage and long term customer relationships. It is so exciting to see that financial institutions have already been developing products to finance circular economy – from VCs, banks, institutional investors to governments. Additionally, alternative forms of financing are gaining popularity, such as crowdfunding and peer-to-peer financing. But it is still not enough. We need more!


To understand the financing challenges, let’s take a step back and have a look at two important aspects of financing circular economy: circular business models and business maturity. First,  a strong viable business model needs to be in place. In other words, if the business model is not set up right – solving an actual problem while being able to make money over time, it will be difficult to attract financing. Perhaps just stating the obvious here, but there is a major misconception that lack of financing is the issue. Assessing the validity of the circular business models has been found the #1 step in considering circular investments, according to the Circular Economy Finance Guidelines published by the Dutch banks ING, ABN AMRO and Rabobank last year.

Generally, circular economy is based on the premise of products and materials constantly re-entering the production cycle and that way generating significant material, water and CO2 savings.  While the definitions and divisions of the business models vary a little, we distinguish circular inputs, sharing products through digital platforms, offering services instead of products, product life extension and resource recovery. Some of these business models present new challenges to the investors as we deal with a whole new bunch of complexities.

Then, depending on the business maturity stage – from start-ups to corporates, different risk applies and circular businesses have to be funded by different sources of capital. This leads to a conclusion: to effectively accelerate the transition to circular economy through financing, a wide range of financial instruments is needed from a broad spectrum of investors.


The underdevelopment of the circular financing system seems to be an issue particularly for circular start-ups and scale-ups using technology but not necessarily creating it. We have discussed this challenge for example with the Dutch start-up Ozarka: ‘As a result, circular economy start-ups struggle with how to position themselves to get the support and financing they need.’ Since there are many interesting solutions solving critical problems we as humanity face, we need to continue engaging financial players to develop constructions and instruments to increase the maturity of the financing system to a similar level as the software ‘industry’. As Beth Massa – the founder of Ozarka, told us: ‘It’s a vicious circle: in order to attract private funding, you need the scale but to scale-up, you need the initial investment. Which is much harder if you are not a tech-based company.’

The cash flow gap: In order to scale up their operations, circular businesses often require pre-financing. The challenge – especially in the case of the leasing & ‘pay-per-use’ business models is, that cash inflows are coming back in small installments and are spread over a longer period of time. This creates a negative gap between cash outflows and inflows and presents a big challenge for the classical valuation models, most investment decisions are based on.

Early stage challenges & long-term commitments: Long-term commitments in the finance world need to be carefully considered. Since the pay-back period of some circular businesses can be longer, a circular investment would require a long-term partner. This is a challenge for businesses in the early stages, as VCs and private equity investors are typically looking for large cash returns and a relatively short exit period. To attract private equity and venture capital can be therefore quite challenging for circular start-ups, but not impossible.

Capital distribution & sustainability impact measurement: More fundamentally, the challenge in sustainability and circular financing is not the lack of capital. There is more than enough capital available globally. The issue is poor capital allocation – most of the money is invested in companies that generate positive financial return but negative value for the environment and people. And investors still struggle to account for sustainability impact. Such tools are not yet fully implemented. There are some out there – like a metric developed by Circularity Capital, a specialist private equity firm targeting circular investments, that helps to benchmark and measure the impact of individual investments across financial, environmental and societal dimensions. But since there is not enough standardisation, it still remains a challenge to account for sustainability in the investment decision. This was also earmarked as one of the major barriers during the seminar Designing Investment Policy for ESG and Impact Investing, organised by the Financial Investigator and ABN AMRO last week in Amsterdam.


Shortening the pay back period: Since the cash flows are often spread out over time, the pay back period of an investment is a major factor to consider for an investor: from ROI and risk perspective. The setup of a lease contract plays is a crucial step and businesses could consider some creative solutions to minimize the risks and increase the chance of funding. For instance, ‘collateral’ could be paid at the beginning of the leasing period. A similar effect could be reached by charging higher fees in the first months of the contract to increase the cash inflows. In any case, a business model based on a lease contract with a shorter period will be easier to finance than a contract with a period spread over 2 years.

Using EU & local government help: EU, EC, EIB and government grants also play a major role as some risks simply cannot be borne by the private sector alone. And we are seeing very exciting developments in Brussels and Luxembourg. On the EU level, new types of loans are being set up to address the specific financing needs of circular businesses, incorporating a lower interest rate and risk sharing – constructions where the initial financial hit could be absorbed by the EC. This type of financing is particularly interesting for entrepreneurs in the early stages and could help start-ups to climb up from ‘death valley’ phase before they are generating enough revenues and are eligible for VC or private equity financing. Of course, if they are ready to go the extra mile in dealing with the administrative processes.

For illustration, the EC has allocated funding of over €650 million under Horizon 2020 to Circular Economy initiatives and €5.5 billion under the structural funds. In the investment framework for 2014-2020, there is significant funding for waste management. The funds in total are reaching €150 billion.  EC has also been working on a new financing package beyond 2020. EIB can also play the role of a partner for circular investments and has provided €2.1 billion in co-financing for circular projects over the last five years. Through ‘risk sharing’, they provide finance to circular economy projects with a typically higher risk profile. Local governments are offering a wide array of grants and subsidies too. However, from our experience in the Netherlands, circular start-ups struggle to find funds for which they meet the eligibility criteria. We would like to approach this as an opportunity for the EU and local governments to work together with the entrepreneurs to simplify the application and eligibility process.

On the private investment side: VC, Private Equity, Family Offices: While these types of financing all contain private capital, they do vary significantly in terms of risk bearing, return & pay back expectations and factoring for ‘impact’ investments. Family offices are a good source of funding in the very early stage, generally being more likely to take some extra risks to support impact business. Venture capital typically presents opportunities to invest in innovative start-ups that are promoting disruptive circular economy technologies. But to be even remotely interesting for the VCs, there needs to be a clear scale-up plan. Very often, this would be a solid technological solution. Or not? After passing the lovey-dovey stage of being fascinated by the technology itself, the real work comes – sales. There needs to be a clear model of how to scale up revenues in order to achieve the tipping point VCs are looking for. The good news is that the number of VC & PE funds specifically dedicated to investments in circular businesses is increasing too. To name just some examples: Avanto Ventures, Taaleri and Loop in the Nordics area, Closed Center for the Circular Economy, Closed Loop Partners & Solvay Ventures in the US, Circularity Capital in the UK, Social Impact Ventures in the Netherlands and others.

New types of financing available: Let’s not forget opportunities opening through alternative sources of financing. The ‘near banks’ like Google, Apple and Amazon platforms could provide a part of the funding for the circular start-ups, in the form of new payment facilities and working capital solutions. Again, a good option for the early stage of the business and a possible complement to the typical private funding.

Opportunities through partnerships: One of the greatest developments that we have seen: collaboration. A partnership between a circular start-up and a corporate not only helps to close the material loop on a bigger scale, but significantly increases the chances of getting funding from banks and private investors since the corporate is perceived as a sort of a guarantee.

Corporate Venture Capital: Corporates, similarly to other financial players, are increasingly establishing funds to specifically target the circular economy investments and extend their venture capital activities. For instance, Henkel announced in January 2019, closing the investment into Circularity European Growth Fund, with the investment of £5 million.

Banks play a vital role in the transition to circular economy. Out of their many functions, we would like to highlight the following three:

1) The obvious one is funding. Given their relatively low risk profile, the more mature the business is, the higher the probability of getting funding through bank loans. This typically doesn’t favour businesses in start-up and scale-up phase, unless there is a strong scale-up case, a solution that can be rolled-out over several customers, projects or industries, and is relatively unique. Banks with a strong ambition to support circular economy like ING, ABN AMRO or Rabobank in the Netherlands, can offer to utilize their network to connect the circular start-ups to other sources of funding. The most common ones we have discussed in our practice are connections to family offices, corporates, and partnership with crowdfunding platforms. So even if you are a circular start-up, you shouldn’t completely rule out the relationship with the banking sector.

2) Banks also act as an important enabler to increase the maturity of circular financing system. For example, developing valuation and risk models able to reflect the specific nature of the cash flows, advising clients on developing circular products, stimulating investments into sustainable and circular projects or providing financial incentives towards the end customers.

3) Developing innovative financial instruments is another important role – a great example is the introduction of a Green & Innovation Sustainability Bond Framework by the Rabobank and Philips, which allows the bondholders to directly invest into circularity.

System investors: And finally, the system level investors: pension, sovereign funds, insurance companies and others. By now, it should not come as a surprise that things are moving here as well. Together, these players control very significant amounts of capital and have the power to reshape financial markets. For example, PGGM – the second largest pension fund in the Netherlands, took an important step already in 2015. It had allocated €8.9 billion in solutions for sustainable development. PGGM has also joined Circular Economy 100 – a group of businesses, innovators and governments, devoted to growing circular economy. Given the long-term nature of their balance sheet management, institutional investors could be an interesting partner for circular businesses requiring a longer-term pay-back period and commitment, as discussed above.

Municipalities & fixed income investments: We don’t want to get too much into asset classes, but the fixed income sphere deserves mentioning. Particularly on a municipal level. The municipal bond market offers opportunities to invest projects around water, waste management and recycling. Also, investors could engage with local governments to encourage public policies that would facilitate a variety of circular economy strategies. Another opportunity that is increasingly opening are green bonds in all sizes and shapes, like the already mentioned corporate green bonds.

So, this happens when you start ‘digging’ into something you are passionate about. Our aim wasn’t a full-fledged research, rather understanding of the challenges and mapping of the opportunities to be able to help our clients better. During discussions with many entrepreneurs and investors over the past months, our ‘digging’ has turned into something we felt strongly about to share. Now, we want to plant the seeds for action. We need a massive scale-up. To solve the issues with circular financing and boost the circular economy to the needed tipping point, we need to raise funds across all asset classes and the most effective way forward is COLLABORATION.

We are happy to hear your comments and ideas. Get in touch with us to discuss more.

Eva Nedelkova

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