By Emily Cai [Contributing Writer, Footwear Materials Specialist at On Running]
September 12, 2022
In 2021, the Material Innovation Initiative (MII) reported that $980 million dollars of funding were poured into next-gen material innovation — more than doubling 2020’s funding.
The MII’s report was not surprising to those working in the materials space. With issues like climate change and exploitation of natural resources top of mind for consumers and corporations alike, the potential for new, sustainable materials is promising. Following the alternative protein trend, next-gen materials have been named the next industry to invest in due to an expected 80% compound annual growth over the next four years, making the industry worth $2.2 billion in 2026.
Unfortunately, that $2.2 billion valuation would amount to only 3% of the market share of the materials industry, with animal-derived and petroleum-based materials continuing to dominate. This data shows that while current funding for next-generation materials is promising, much more is needed to ensure biomaterials replace conventional options in order to achieve the maximum environmental impact.
Material innovators primarily rely on two sources of funding to refine and scale up their developments: brands and investors. In Part 2 of the Funding Next-Gen Materials series, we explore how investors can support the industry’s growth. Read Part 1 here to learn more about the role of brand partnerships in this industry.
Overcoming Challenges at Every Round of Funding
These material innovations have the potential to curb carbon emissions and reduce our reliance on fossil fuels, yet most are hardly ready for next season’s runway. Material start-ups often need to go through many rounds of funding before their products can be widely used.
In early rounds, the funding may be used to scale up proofs of concept and to develop standardized processes. For example, after our latest round of funding last fall, BUCHA BIO was able to expand to our Houston headquarters. The new space allowed us to open a wet lab to accelerate the development of our Shorai™ biomaterial. Later rounds of funding may be used to bring technologies to pilot scale and further refine them for commercial use and distribution.
Each new phase of production and funding brings about fresh challenges. Processes that have succeeded in a lab may encounter new challenges when reproduced at a commercial scale. The technology may need to be rebuilt with each new round of development to handle larger scales of production. New material innovations need longer research timelines to account for the iterative nature of development. Therefore, start-ups often seek the support of investors for their higher tolerance of risk in exchange for greater reward.
Investors, unlike brands, are typically much more accustomed to supporting new innovations through the early stages of uncertainty. They are not putting their image, product quality, and supply chain schedule at risk the same way a brand partner may be. They are often willing to invest in higher-risk ideas to gain higher returns on their investment. However, how desirable the terms are may shift with the tides of the market. Market shifts due to geopolitical and other external factors may cause investors to choose to fund a company in exchange for more equity than is favorable for the company.
Regardless, it is clear that consumer demand for sustainable materials in fashion is on the rise. According to a 2020 McKinsey & Company report surveying consumer sentiment across Europe, 67% of consumers consider the use of sustainable materials to be an important purchasing factor. In the United States, MII and North Mountain Consulting Group also led a 2021 study that discovered that over 90% of participants were at least somewhat willing to purchase next-gen materials, with almost half of them reporting a high likelihood of purchasing. In China, the results were even greater: 70% of participants reported a high likelihood of purchasing next-gen products. The opportunity for investing in next-gen materials is growing globally.
A $500 Billion Dollar Opportunity
The Apparel Impact Institute (AII) calls for tackling a combination of existing solutions and scaling innovative solutions to meet the UN goal of net-zero industry emissions by 2050. The AII emphasizes the importance of innovative solutions, which includes scaling next-gen material technologies, in meeting this goal. According to their recent report, “Innovative solutions account for 39% of the total emission reduction potential and therefore play a crucial role in reducing the industry’s impact.”
The MII also identifies white-space opportunities for next-gen material solutions beyond leather alternatives. New alternatives to down and fur, as well as finishes and dyes, could help round out a portfolio of more holistically sustainable materials for multiple purposes.
The MII has reported that $2.3 billion has been invested in next-generation materials since 2015. That number continues to grow as innovators and brands come closer to scaling these new technologies. However, much more is needed to accelerate solutions to achieve a net-zero industry by 2050. The AII and Fashion for Good calculate that a total of almost $500 billion investment is needed in both existing and innovative sustainable material solutions in order to meet this goal.
At the end of the day, material innovators cannot rely solely on any one source of financial support. Brands and investors, as well as philanthropy, the government, and other sources, all must work together to accelerate progress to achieve this more sustainable future.
Despite these challenges presented to both innovators and investors, what is most important is that all parties align in their mission for creating a more sustainable future. In this regard, BUCHA BIO remains grateful for the positive response and support we have received from both brands and investors who share our vision.
Learn more about BUCHA BIO at https://bucha.bio/
