Montreal-based cleantech investor Cycle Capital and its French partner have raised US$108-million to back companies and funds focused on the circular economy in an initiative that was spearheaded by the cosmetics giant L’Oréal SA.
In the circular economy, products and services are designed to eliminate waste and extend life cycles, while minimizing carbon emissions and other environmental impacts. As a global personal care product company, L’Oréal must contend with those issues in its packaging and distribution.
The proceeds are from the initial fundraising phase of the Circular Innovation Fund (CIF), a 50-50 joint venture of Cycle and Demeter, a venture-capital manager headquartered in Paris. L’Oréal is the anchor investor, having put US$58-million into the fund.
Ultimately, the partners aim to raise US$160-million for the fund, which will be managed by Cycle’s Benoit Forcier in North America and Demeter’s Mathieu Goudot in Europe.
CIF will seek out companies and funds in numerous industries around the world that concentrate on technology for such things as packaging, bio-source product ingredients, replacements for microplastic beads, recycling as well as reducing carbon emissions in supply chains.
Cycle currently invests in cleantech companies developing technology to cut greenhouse-gas emissions, such as Montreal’s Enerkem, the biofuel and renewable-fuel producer that recently completed a $255-million financing round. Cycle has $600-million under management.
Cycle and Demeter jointly submitted plans when France-based L’Oréal held a request for proposals for a circular-economy fund, said Andrée-Lise Méthot, Cycle’s founder and managing partner. Cycle has had a long relationship with Demeter, having previously teamed up in cleantech funds. The two have focused on venture, private equity and infrastructure investments.
“We were in competition with big guys. We were the tiny ones in the crowd. But we won,” Ms. Méthot said. L’Oréal, which had revenue of €32.3-billion ($44-billion) in 2021, was won over by the partners’ previous success with circular technology – “turning brown molecules into green molecules,” she said.
Besides the funding, L’Oréal is also providing its own experts to work with CIF, Ms. Méthot said.
Other initial investors in the fund include France’s Axens, the fuel-conversion technology company, and family investors including Haltra and Claridge.
CIF will target companies that are in the later stages of requiring venture capital as their products and services come to market.
“We will do 12 to 15 direct investments in companies. The average size of investment will be US$10-million, considering, of course, the initial investments plus the following investments, which are quite common in venture-type deals,” said Stéphane Villecroze, Demeter’s managing partner.
On Thursday, the partners announced investments in two funds: New York-based Closed Loop Venture Fund II and European Circular Bioeconomy Fund.
CIF is set up to comply with Article 9 criteria under the European Union’s sustainable-finance disclosure regulation. That means it will measure its impact, and continually monitor non-financial performance, including greenhouse-gas emissions, use of natural resources and gender diversity among companies in its portfolio. Managers’ compensation is also tied to these measures.
“You have a lot of people speaking about sustainability, and it’s more branding than real,” Ms. Méthot said. “I can say it’s really real when it can affect your pocket as a manager, and I think it’s great thing to do.”
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