VCs drive innovation in plastics

“There’s a great future in plastics,” was the infamous line delivered in the 1967 movie “The Graduate.”

More than four decades later, the advice seems dated. Plastic is a pervasive part of society, with the U.S. plastics industry creating $374 billion in annual shipments, according to SPI, a plastics industry association.

But a handful of venture-backed startups are trying to help innovate the business of plastic production. Over the past five years, VCs have invested more than $500 million into some two-dozen companies, according to data from Thomson Reuters (publisher of PE Week).

The most recent plastics company to raise money is Novomer, which last week announced it raised a $14 million Series B round. The Ithica, N.Y.-based startup is working on making plastic polymers from carbon dioxide and carbon monoxide. OVP Venture Partners led the deal and was joined by Physic Venture Partners, Flagship Venture Partners and DSM Venturing. Novomer has now raised $21 million from investors.

OVP Managing Director Carl Weissman says that Novomer, unlike Dow Chemical or DuPont, does not use petroleum-based feedstocks for its plastic production and does not produce greenhouse gasses as a byproduce.

“Not only are you getting these materials made without releasing these gasses, but you’re actually decreasing the supply of them too,” says Weissman, who joined the company’s board.

Weissman has at least one other reason to be excited about Novomer. It is run by his former boss. Jim Mahoney’s last role was as the CEO of Surface Logix, a small-molecule drug company. Before that, Mahoney ran Prolinx, a startup that made biotech tools, where he mentored Weissman.

The bioplastics market accounts for some 570 million pounds of global plastic production this year, according to BCC Research. Still, bioplastics is growing fast, at an estimated 18% growth rate, and may reach 1.2 billion pounds by 2012, according to BCC Research.

Kleiner Perkins Caufield & Byers is one of a handful of firms that have also bet on bioplastics. The firm’s China fund invested in a $20 million expansion round for Tianjin Green BioScience in March 2008. Other investors included Northern Light Venture Capital, DSM Corporate Ventureing and Tsing Capital.

Tianjin Green BioScience makes Polyhydroxyalkanoates, or PHA, a specific type of polyester that can be used in a variety of applications. PHAs are created by bacteria that ferment sugars.

Although VCs and others believe that the transition from petroleum-based materials to bio-based materials is a major global trend, it may be a while to catch on.

Just ask Bob Crosby, vice president of finance and operations at Trellis Earth, a startup that imports bioplastic-based cups, plates, eating utensils, garbage bags and other products for resale on the U.S. market. His business, founded in 2006, has been quadrupling sales each year, he says.

Portland, Ore.-based Trellis Earth has raised $330,000 from angel investors. It initially sought a $18 million Series A in 2007, but backed down from its fund-raising in favor of focusing on its current business.

“We have positioned our products that have a substantially smaller carbon footprint than traditional plastics. It can biodegrade in five years without any special conditions and is made out of cornstarch,” Crosby says. “And we’re cost competitive. We’ve found this market to be particularly price sensitive, particularly during this economy.”


VCs are also supporting the development of technologies that will allow plastics to do new things.

Perhaps the most famous startup in this space is Plastic Logic, which is working with polymer-based semiconducting materials to build e-ink products. The company has raised more than $300 million from VCs, private equity investors and banks, according to Thomson Reuters. Investors include Dow, Oak Investment Partners, Intel Capital, Amadeus Capital Partners, Tudor Ventures, Siemens Venture Capital, BASF Ventures and others.

The Mountain View, Calif.-based company is going after Amazon’s Kindle with an eReader product of its own design.

“We have placed a big bet that plastic electronics is, indeed, a game-changing technology,” says Amadeus Capital’s Hermann Hauser. “Over time, the markets and possibilities for plastic electronics are endless.”

Plastic Logic isn’t the only company trying to blend the world of plastics and electronics. In South Korea, NanoEnics is working to develop electrically conductive polymers. The company has raised more than $2 million from two South Korean investors: Neoplux Company, Ltd. and STIC Investments Inc.

Pittsburgh, Penn.-based Plextronics (not to be confused with Flextronics) is working on semiconducting plastic technologies. It has raised $56.46 million from venture investors, including a $13 million investment round earlier this summer. Its backers include Draper Triangle Ventures, Birchmere Ventures, Firelake Capital, Innovation Works and other investors.

Plextronics makes printable polymers that can conduct electricity, a market that Ned Renzi, a partner at Birchmere Ventures expects to grow to more than $50 billion by 2015.