E518 | Julia Binder (IMD), Manuel Braun (Impact Hub) & Enrique Molina (CircularCo): Circularity as Strategy, Not Sustainability

0:00What if the biggest business opportunity of our time is hiding in plain sight, in what we throw away. Today, we're taking a fresh and honest look at one of the big strategic shifts happening across entrepreneurship, the circular business revolution. While most companies chase the cheapest option, they're missing a fundamental flaw in how we do business. The problem really is that the current model is just too cheap. We're just trying to optimize for where the cheapest resource and externalize social environmental costs. But what if there was a completely different way to think about growth? Circularity is a paradigm shift.

0:32A different logic in how we should run the economy just makes a lot of sense. This isn't just about sustainability. It's about survival in an increasingly fragile world. We need to be more resourceful, that we want to de-risk our supply chains, that we want to make us less dependent in our global supply chain. The pioneers are already building something bigger than individual companies. When it comes to circularity, it's a phase of development that is requiring much more ecosystem thinking, working in partnerships and collaboration, but maybe even down the chain much more with multiple stages of the value chain.

1:07The question is, will you be part of the revolution? It's an open call for people to actually join forces. We all need to play our role of like, okay, let's be part of this. Let's create some great change of the way we are creating business. Discover how the smartest founders are turning waste into their greatest competitive advantage. Join us for this episode of the EUVC podcast.

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4:04This show is not investment advice, and the hosts of this episode may be invested in the funds and companies featured. Welcome back, my dear friends. This is another episode of the UBZ podcast. I hope by now would you consider your community-powered backstage pass into European venture. Today, we're taking a fresh and honest look at one of the big strategic shifts happening across venture and entrepreneurship, which is, of course, the circular business revolution. For that, of course, I have my dear friend and co-host for these episodes, Enrique Alvarado Hablutel. His name still manages to fuck up my tongue.

4:44He's a partner at T-Impact Capital, of course, and as I said, our dear co-host for this. We're also joined by Julia Binder. I am the professor and director of the Center of Sustainable and Inclusive Business and Manuel Brown. And they are both the authors of the book, The Circular Business Revolution, a Practical Framework for Sustainable Business Models. So while it can be sometimes a little bit difficult to get concrete and into the nitty-gritty of this special topic of circularity, sustainability, impact, all of these things. If there are any that can do that, I guess it's our two guests today.

5:22Welcome, Julia. Welcome, Manuel. Thank you so much. We're really delighted to be here with you. Thanks for the invitation. Of course, of course. Enrique, I know that you're good friends of the two here and super excited to bring them on. Could you put a few words while you had this excitement. Of course, of course. Thank you very much to all of you for being here. I think it's really a pleasure for me to open up this discussion with the audience and with people in general to hear from the first hand about what's going on in circularity, especially for venture capital, especially for ventures. It's the field where I feel very comfortable because I have people who know a lot about this and who are building it through examples.

6:09And they even have a book that is, for me, honestly, a great framework to put things together. I have it here, by the way, I have my notes and everything. So let's start that. I've been listening to Julia's courses with Manuel, we've been in discussion. So I couldn't think about anyone else to really give us an idea of what is going on right now in circularity in Europe in terms of venture capital and ventures than them. Let's start with a big question. Why is 2025 a turning point for circularity? And what makes this moment different from past sustainability hype cycles? What we're seeing right now is very different from everything that we have seen before.

6:51We see at the same time sustainability and AI disrupt almost the entire workforce, the entire venture space as well. And I I think what we're seeing right now is that the topic itself, let's say circularity, may still be difficult to grasp for many. But the concepts, meaning that we need to be more resourceful, that we want to de-risk our supply chains, that we want to kind of make us less dependent in our global supply chains. I think this is something that now really strikes a chord. This is where everybody who is mindful of what is going on right now understands the importance of future-proving your business.

7:23And I think one of the things that we've been diving very deep into and also with the book is about this notion of how do you understand your signals for change? What is going on for your respective industry? And if we look across industry, there's so much going on. And I'm sure Manuel, he will dive deep on some of these developments. But from a bird's eye view, we have disruption. Circularity can be an answer to that disruption. And I think maybe just to also say one more word, how we interpret circularity and sustainability to back us back just a little bit. I think the importance here is that we see it as a means towards an end.

7:57So we see circularity as a means towards better business, more profitable business, but obviously also more sustainable business. And I think for the longest time, we have been striving or have been trying to position sustainability and circularity as an end in and of itself. And I think what we're seeing now is it's a very powerful enabler. And this is where I believe we now see much more traction. And before I hand over to Manuel, circularity, how we understand it is, we're moving away from these linear economies where we take make waste. We use a lot of resources. We waste a lot of these resources as well towards more of this closed loop approach where we see actually waste as a resource.

8:36And this should already be an interesting business case for most in the space because it clearly says there is some money to be made. There's a massive business opportunity. And I think this is what we're seeing as well. Maybe to add to that, for me, circularity is a paradigm shift, a different logic and pattern in how we think and how we should run the economy. It just makes a lot of sense. For me, eventually, it would replace the linear economy. What makes me optimistic is that we see more and more signs that it's working and that it is just a better way of running the economy. So we see more and more signs, for example, that circular business models, they are quite successful.

9:19If you take resale or re-commerce, quite a big trend, right? Many companies are making a profitable business case there right now. And it's gaining. It's getting bigger. Vintage is a unicorn, right? So, I mean, this is a real opportunity. On the other hand, just to emphasize what Julia said, I think circularity is also not nice to have. If we look at the current geopolitical situation, some of the dependencies that we have when it comes to critical raw materials, for example, how risky some supply chains are, it's also an answer of creating an economy that is safer, less risky, and more resilient in terms of crisis, particularly in the global situation that we have currently.

10:07and that seems not to be something which we will fix quickly in terms of the political dimension to this. So we need to find an answer on the economic dimension, which is for me, the circular economy. I'd love to ask Enrique, maybe you have a perspective here as a European investor. Julia, you put it super well when you said that we've kind of moved over these past years or in this cycle, moved from the moral and the hype, I don't think you used exactly those words, but that's at least how I would put it, to real value props around reducing waste and supply chain resilience and so on. I'd love to ask you about Europe in this context, because especially the supply chain resilience part is, of course, something we learned through COVID.

10:52And it's one thing that we're seeing everyone on shoring or taking production back and everything because of circularity. And yes, we do so or less waste and more thoughtful production processes. Yes, that's part of it. But it's definitely also because of the resilience of the supply chain and flexibility and so on. Could the three of you talk about the role of this and how much everything is being described and this is actually the lead over circularity or is it just the marriage of two concepts now that kind of makes it all make sense in a better way than what some people might call the past hype cycles.

11:35I think you put it really rightly. I think one of the things that is super important is that in the past, we tried to position circular economy as a response to sustainability issues. And it is. And it's great. However, what we realize right now, it's also a response to many of the economic issues we're facing. And by the way, it's one of the only concepts in the sustainability space that does so. because most of the time when you look at sustainability, it basically means that there is this problem of economic growth and environmental impact. And there are very, very few solutions and answers out there.

12:05And the circular economy caters to both worlds. It caters to very much a business mindset. And so if you're really only in there to make money and to make better business, circularity is for you. And if you're in there to save the planet and pass on something that is valuable to your children, circularity is for you. So I think this is what really helps us now. this realization that this caters to both worlds is what makes it so appealing and so interesting right now. Versus, again, in the past, we've used to position it solely as a response to sustainability. And I think this is where, yeah, it was adopted by some, but it still struggled to really have mass market appeal.

12:43Affinity. Thank you for that perspective. I would take it from the angle of investments, right? Like, it does make sense. If you put it in context, if we continue making investments that are just in a linear based approach. The economic growth will not leave us to anything to manage in the future. So if you invest right now into things that are actually having this circular approach, then you will create a more regenerative way of investments. As simple as that, right? So you take systemic approach to that. How do we change the whole system by looking after these kinds of concepts that help the whole way to create value, financial value from an approach that is circular.

13:33I'd love to ask you a bit about the rewriting of the narratives in venture and specifically in climate and impact and sustainability and circularity. I spoke, Julia, to you before about Pale Blue Dot, where I asked, did you know them? And you said, no, actually not. And then I told you a funny story that I'll relay here. And we, of course, we had Pale Blue Dot win the European VC Awards in the climate impact category. So a bit of a bias here. But it was, after all, a board of five very esteemed LPs in Europe that said so. But now it's out there. It's sad. It's very clear. Obviously, I'm good friends with Hampus and the team.

14:15But what he said, which I thought was absolutely incredible. And the reason why I bring up Pale Blue Dot in this connection is, of course, because many people say, well, can you be a generalist? Aren't they just a generalist that focuses on climate? And in a way, what Hampus says, and I'm paraphrasing, so it's going to be on my back saying this. But what he kind of says is, well, we're generalists with a common sense. And the fact of the matter is that the world is burning and we've got to solve that. And at the same time, much of what we're solving with climate and impact and circularity models is basically we're solving a world that's really stupid and has stupid production processes.

15:00So in a way, it's enough not to be dumb. And when we spoke about that, Julia, we also ended up on the conclusion. That's exactly why venture is so important in this space. because right now there's very strong incentives to invest in anything that gives you short-term profits in everything except for venture because venture is patient money. And the point is that it takes 10 years, it takes 15 years to rewrite how we produce steel. You can't do that in two, three years and make money on it. You've got to have that long-term perspective. And I'd love to have the take from the three of you both on this generalists with a common sense statement, but also the stupidity of existing production processes.

15:50I can go first on stupid production systems and supply chains. It's definitely a passion topic of mine. Look, I think in many ways, the problem really is that the current model is just too cheap, right? So as long as we're just trying to optimize for where the cheapest resource is, no matter what, and we externalize social environmental costs, meaning if I screw up my workforce, if I'm just taking whatever from the planet, if it's free and it's renewable, which it isn't in most of the cases, and if I just act for my own interest, and this rewards me on the market, right? If I get the best product out of it, think Timo and others, Shailin, which is really just about quick, fast overconsumption.

16:31As long as this is rewarded by the economic framework, it's very difficult to do the right thing. I think for many of us, it's not that we're getting up one morning and think that this is the best way to do it, but the economics framework really locks us in this kind of thinking and acting and doing. So you've mentioned very rightly, I think, when we're looking at who is best positioned to actually change that, usually the biggest innovations, and this is not surprising, the most radical and disruptive ones don't come from established firms, also in circularity. It's oftentimes startups that show the path.

17:01It's oftentimes startups that show it's possible to think differently. and again I think a lot of this is also that we are locked in in this thinking of cheap linear and fast and circularity requires us to rethink and I think this is where we need a different investment pieces we need a different economic framework and we need to reward those that actually do the right thing and not those that do what you call stupid Just to add to that I think you're emphasizing on one point which is quite important we're definitely seeing the innovators dilemma here are also happening. So for very big organizations, it's often easier to exploit and to capitalize on investments which they've made in the short term than to explore and to innovate in the long run.

17:47And in circularity, we see that as well. Often because it involves quite a radical change and a different mindset to move into. So for example, if you take bio-based materials, really changing the composition of the product and the design choices. That is something which might be needed, but it might be very hard for really big companies. So you need young companies that are able to innovate in that way. And it's also related to production processes, right? When it comes to recovery and recycling, for example, we are also often looking into new processes, first-of-a-kind facilities, which will take a while to finance and to return the investments which they need to collect.

18:31So both these are examples, biobased materials, but also new recovery technologies, which require new forms of innovators in order to break that innovators dilemma that we also see here taking place. Yeah, and on my side, I will take it from two different angles. I was also there with the EUVC community in London. It was amazing. And I had this discussion about, yeah, the statement of Hampus, right? Like, I just don't invest in dumb things. It's so clear, right? Like, I think I can recall to that as a way to see how we behave, how we consume. I don't buy dumb things, right? Like, so I'm not part of that.

19:13And I should also, every, every individual, be part of something that you believe. not on the way that there's no consciousness, but being at least aware. And then the other one, through these discussions also, I was having a discussion with Andreas Klinga from Prototype, right? Like everything seems impossible until someone simply does it. Yeah, Michael Jordan and every sport man is doing it, right? Like it makes it look simple after they try and try and try. But then you need more people engaged to say like, ah, well, it was not so simple, but we did it. But it is possible, right? Let's go to another part that is perfect around everything is impossible until someone does it.

19:57Let's talk about founders and the most common business model archetypes that you see founders adopting and where the execution lies in this, where the execution trouble lies in this. Maybe before we go into where we see most of them, maybe just to briefly talk about what kind of business model opportunities we see, and then we'll see how this connects to the market realities. Because I think one of the important add-ons that we believe we bring to the conversation is a little bit translating this hypothetical promise of the circle economy to something that is very tangible, let's say exploitable for business models.

20:31Because we believe we need to speak market language if we want to have much more relevance with these concepts. And I think so we see a couple of these. We coined them optimizing resource use. So this is all around how do we clean our operations, How do we use secondary materials instead of virgin ones? How do we replace fossil fuel with bio-based materials? This is oftentimes an entry into the circular economy, into circular business models. But obviously, it's an important one. It's minimizing harm. How do we, even if we don't change our entire production or business models, how do we minimize harm?

21:03There is a lot happening also in the startup side. One of my favorite examples that I always give is a company called Daiku. right? Daiku is a chemical textile. It's a textile dyeing firm and it's a startup. And basically what they invented is a process by which they can dye textiles chemical and water free. If you look at the textile supply chain in the life cycle, this is actually one of the most unenvironmentally friendly steps is the dyeing of textiles because you use a lot of chemicals, a lot of water, and to top things off, you release them in local waterways, which is polluting then local community.

21:40So they developed this process by which you can dye these textiles, chemical, and water-free, which is obviously, I mean, mind-blowing and easy, right? So in a sense, that easy that everybody would buy into this. There is a real business case for that. So that would be the optimizing resource use one. We then talk about capitalizing regeneration. How can you actually make money with regenerative processes like agriculture, for instance? We talk about monetizing extended product lives. Here, Manuel is really excited about this one. It's really this question, how do we make business sense out of repair, upgrade, modernizability, remanufacturing, right?

22:15So these are the aspects that really, really come into play here, which may, again, they seem obvious, but they're very difficult to monetize. Then the one that I'm most excited about is valorizing waste. So how can we actually capture value from waste? This is where I believe we also see most on the startup scene happening. And now, interestingly enough, not necessarily in Europe, the US and so on, But this is where a lot is happening in Southeast Asia, in Africa, because they have been, by definition, much more resourceful. And I think this is so interesting because it basically really shows that there's a lot of startup and energy and dynamics coming from these countries.

22:52There's a very vibrant startup scene, actually often one where we lack capital, but a very vibrant startup scene that we are overlooking a bit here. But a lot is happening there. and really this question, how do I make just much more money out of waste, which I think makes a lot of sense. And thereby obviously circulating these resources. And then the last one, which is a bit of the end goal of sustainability and circularity, is how do we shift from ownership to access? How do we offer servitization models? And thereby really we disentangle economic growth from environmental impact because we offer the product as a service instead of selling them off.

23:27And if you think about it, it makes a lot of business sense because you want, in a world that is increasingly resource constrained, you want to have access to resources. And servitization models allow you to keep them in cycles and have access to these. And then it becomes suddenly, it makes much more sense to extend product lives and to invest in design for reassembly and disassembly. I think it's important that we try, as you can already hear from the framing, that we connect it to a business model. We don't say extended product lives because where's the business case? But monetizing extended product lives, there's a business case.

24:00You can make money with that. And we see particular startups being extremely creative in finding ways to monetize that as well. Just like structurally, next to these business model archetypes and patterns, there's one area where a lot of innovation is also happening, which is on the enabler side. I would say almost like the backbone to circularity. this is a field where many you know young innovators are going into for example can be digital product passports and everything that has to do with you know track and trace because you need to create circular material flows you need a circular information flow so you need a layer of information that allows you to connect to the products when it's in use or end of life to understand where does the material come from all of that so this is an important dimension to innovate.

24:48There is lots of things happening. Also, analytics, for example, remote sensing, so that you're able to repair devices by not being on site or to optimize based on the data that products are generating, all of this. So this is back-end innovation that is helping others. Or white-label solutions, right? I've brought up the example of resale already. That's a good one, right? because you see, for example, startups innovating, which develop solutions to enable others to resell their products in fashion. We have that with very successful platforms who run in the backend and allow the Patagonia, the North Face, and so on, all these brands at the end of the day to offer their products.

25:35Then, for example, what's the second hand? So this is, I would say, a backend innovation layer that we also need to talk about. then we want to uncover a bit the innovator space. And then you take the angle of the investor on this. I mean, and this is an example of a very nice person who is actually also a friend and a musician, Michael Smith, right? Like, so Regeneration VC. So they focus in that specific angle of how to invest in companies that are changing systemic approaches, right? And he has a great investment also. You can see it on the website and everything. Great power up. A leader in this waste analytics.