Main Sequence partner touts boundary-pushing possibilities of next-gen circular economy innovation

For partner Gabrielle Munzer, the ideas that propel the firm's work - particularly around decarbonisation and the circular economy - are both meaningful and hopeful.

As part of a broader series on the circular economy that has included Main Sequence portfolio companies Samsara Eco and Xefco, Munzer chats with Business News Australia about technologies that are challenging definitions of how we view circularity, enabling next-generation supply chains that could better utilise resources and food systems to sustain a growing global population.

She highlights three key pieces Main Sequence looks for in circular economy startups - feedstock, process and product. Not everyone gets this right, but her message is "the door is open" when progress has been made. 

"First of all, we can be wrong so don't be too disheartened. Keep going, keep talking to investors, and come back and see us," Munzer says to the deep-tech founders who are yet to achieve that crucial financing breakthrough.

Supplying two-thirds of its cheques at the pre-seed or seed rounds, Main Sequence has played a major role in backing Australia's deep-tech commercialisation since it was created by the CSIRO in 2017, supporting companies whose valuations have soared into the hundreds of millions of dollars.

It is thus no surprise that Munzer encourages founders with "kernel of the idea stage" innovations to pitch. Even though only a small fraction will garner a deeper investment-based relationship, she believes the venture fund always brings something valuable to its interactions with entrepreneurs.

"My own view is that investing capital is the least valuable thing we do. It’s really the colour of the money – what you bring to the conversation, the insights, the opportunities to connect a founder with someone in industry or talent, or other better suited sources of capital," she says.

Munzer says the deep-tech venture sector has seen a "meaningful shift" from its nascent period when she joined the fund as a senior associate in 2019.

"We have about 130 institutional co-investors, and that includes some domestic co-investors but a very large portion of that would be co-investors from offshore who have come into this market to participate in the rounds of our companies," she says.

"I think that's good evidence of how, broadly speaking, the appetite for deep tech has increased over time. On average our companies have raised $3 for every $1 of MSV investment.

"What else is really positive for the overall appetite in this space is a number of government sources of capital have come online – that includes non-dilutive capital through policies such as the Australian Economic Accelerator the last couple of years, and of course the National Reconstruction Fund, which is really well aligned around national priorities, seeding the next industries."

Of the multiple targets in Main Sequence's portfolio, Munzer says circular economy themes are most closely aligned with the fund's decarbonisation goals. Scientific breakthroughs are allowing for new opportunities to either reuse or extract better use out of scarce resources.

"Circular economies are going to be critical for decarbonisation and we think will form an essential element of future supply chains, both improving the existing ones and then creating whole new ones where they don't currently exist," she explains.

"Taking heterogenous feedstock and valorising it into a virgin-equivalent product is complex and requires a lot of innovation, but that is biology’s superpower.

"In simple terms, a lot of the companies in our portfolio that you think of as being circular economy are springboarding from our work in the synthetic biology space."

So does this mean the traditional definitions and notions of what constitutes circular economy innovation are changing? 

"I think that's right," Munzer responds. "I think we’re pushing the boundaries of the definitions as next-generation circular economies come in and improve things further."

"Plastic recycling is a great example. We’ve had a plastic recycling supply chain for decades – it’s mainly downcycling where every time you're looping the plastic it structurally degrades, it’s inferior, it decolours, and now you’ve got this next-generation circular supply chain through enzymatic technologies such as Samsara Eco’s, which can make the virgin-equivalent product from very heterogenous feedstock."

From an investment standpoint, when it comes to circular economy startups the fund is looking at the per-unit cost to acquire feedstock, how economic and sustainable the process is as well as its ability to scale, and finally what is the market for the final product. Can it be easily plugged in to existing supply chains?

"We think frontier technologies can be enabling circularity that makes the economics really compelling," Munzer says.

"One of those is a company called EntoZyme – I would classify it as one of the companies that is helping to evolve the circular economy space and next-gen circular supply chains."

EntoZyme is addressing the industry for black soldier flies (BSF), whose maggots can eat a variety of organic waste streams before they are processed into other products. A standout Australian story in the space is Canberra-based Goterra, which collaborates with the likes of the City of Sydney and fish feed company Skretting to enable a more circular economy.

While Goterra's innovation relates to its industrial processing infrastructure for BSF in modular units, EntoZyme seeks to add value through genetics.

"Black soldier flies are great at processing heterogeneous organic waste streams, and there are large-scale production facilities, but when the flies eat the waste all that they make is commodity goods like fertiliser and animal feed or very basic oils," Munzer says.

"Why we find EntoZyme fascinating is it's a really early-stage company that is changing that whole paradigm. It is essentially a group of synthetic biologists at the frontiers of engineering complex organisms like insects.

"They can engineer the flies to eat a broader range of waste streams than is currently possible, so that opens up opportunities for whole new locations and residues to be in scope. The other thing they can do that's powerful is they can engineer the flies to make much higher value products, from functional additives for animal health to higher value oils to industrial enzymes."

This is one of many interesting ideas the Main Sequence team has come across, with Munzer noting early-stage founders are very welcome.

"We do have instances where we might meet someone and invest within a matter of weeks. Just as often we might meet someone where their ideas are just forming and spend six, 12, even 18 months in touch to help them through their ideation phase for how they might develop a business model," she says.

"A lot of the pieces are around looking holistically at those three spaces I mentioned - feedstock, process and product – and making an evaluation of whether you've actually got a business that stands up, as well as the sustainability footprint.

"In addition, it would be questions like can this business achieve a regional activation? That’s something that we’re really excited about. We think whole new circular industries can emerge in regions that can valorise waste that wasn't otherwise used.

"Of course we’re always looking at the fundamentals of how strong the team is, how developed and frontier the tech is, how big the target market is for the products, and whether they can be virgin-equivalent or perhaps even virgin-enhanced."

Munzer says Main Sequence sets up a very particular infrastructure around deep-tech founders who may need extra help bringing together the "commercial scaffolding" of a business.

"That means we're pretty hands on....rolling up the sleeves and helping with a lot of the early business build – a lot of the early hires, and very specifically defining milestones that are going to get the company as quickly as possible to a value inflection point so that we can put in more capital and scale the business," she says.

"Most of our founders are career academics who have dared to slip on an entrepreneurial skin, and it’s one of the most exciting aspects of our work to be able to partner with people who have really given their life to trying to extend the boundaries of our knowledge, and then have the courage to step into a business domain.

"Mostly we find it's because these founders want their work to have more impact in the world."

Whilst so many companies in the portfolio have gone into greater things, for those who weren't selected Munzer readily admits the team can be wrong, urging founders to "come back and see us".

"When you’ve got to the next level, achieved the next milestones, we’d love to speak again," she says.

"More specifically in this space I think it’s great to speak to other founders who are pioneering this kind of work. Other examples would be companies like Uluu making biodegradable plastic replacement from seaweed, or Varden, which is making plastic-free, plant-based packaging that is fully biodegradable, home compostable from waste.

"The waste stream can be food, cosmetics, pharma. They have a high oxygen barrier and high water vapour barrier, and that means it's possible to cover multiple sectors. They’ve got a big factory in Melbourne and they've been working on this for 12 years."

As the interview draws to a close, Munzer says she has to "literally pinch herself" a lot of days because the work at Main Sequence is so fulfilling, describing how it resonates with the words of a poet she admires, Mary Oliver, who wrote that "...there is no nothingness…what we are made of will make something else".

"Those ideas propel our work and it makes it very meaningful and very hopeful," she says.

"On a very personal level, my Mum, who I was really close to before she passed away, she’s been the biggest influence on my life. She was always kind to the earth, never wasteful, read widely, and she was probably a big influence on my life in terms of understanding how valuable it could be to build businesses with empathy for a planet that needs healing.

"I do think circularity is something we understand in an innate way."