NewNet Industry Profile: Duncan Grierson, Sterecycle

26 August 2009

Duncan Grierson

Duncan Grierson discusses the challenges in gaining venture funding for a cleantech start-up, the growth of opportunities in the waste and recycling space across Europe and the need for governments to provide drivers to encourage investment in emerging environmental technologies.

Sterecycle is a waste management business focused on recycling and green energy. The company uses patented technologies that are capable of recycling and recovering up to 80 per cent of the typical household waste stream. Sterecycle currently has 55 full time employees and with further recycling plants will employ over 300 staff in 2013.

Prior to founding Sterecycle in 2003, Duncan was Vice-President at Lake Capital, a $1.3bn private equity firm based in Chicago focused on buy-and-build in business services. He was previously investment director at TCVC managing technology private equity funds of £150m in London, Silicon Valley and Paris. Before moving into private equity Duncan had trained as a corporate finance lawyer with Clifford Chance in London and Frankfurt.

What led you to focus on waste?

‘Before founding Sterecycle, I was previously in private equity, originally as a technology venture capitalist, and then latterly working on more classic buy-out opportunities though still with a strong organic growth focus. I was beginning to see strong opportunities in the environmental space, due to increasing environmental legislation and financial drivers.

For Sterecycle, which is a waste management business with a technology angle, the key regulatory driver has been the EU Landfill Directive, which has been implemented by the UK government via a tax on landfill which is increasing year on year.’

What challenges did you face in establishing yourself?

‘I launched the company in early 2003. For the first two years we really struggled. I could not take a salary and bootstrapped the business with £50k of personal savings, plus a £50k investment from our first angel investor, an Irish businessman. My Dad who is an engineer was also involved and helped with the early design ideas for our new process. However whilst the landfill tax that the UK government had introduced was already beginning to make local authorities consider new technologies, it was not yet at a financially painful level. We had a whole series of false dawns with partners that pulled projects including a couple of the waste majors who backed away from the technology risk. It was really only in April 2005, with the introduction of a 2nd financial penalty in the form of the Landfill Allowance Scheme, that the regulatory and financial drivers meant we could raise sufficient funds to build our first plant backed by venture capital. We raised a further angel round in 2005 when I brought on board an experienced Chairman, followed by a much larger 3rd round of finance in 2006 for £8m led by Goldman Sachs. Our 4th round in 2007, which Goldman again led, raised £12m.’

How do you find the fundraising environment?

‘It was a significant challenge to raise the initial capital a few years ago, primarily since we were pioneering the use of a new technology in a sector that typically relied on dumping waste in a landfill. We have now built and proven at commercial scale our first plant. My background in private equity probably helped raising finance from investors.

Today, there are more investors looking at cleantech, though investors are understandably keen to understand technology risk, so that there is a spectrum of appetites across different stages, sectors and geographies, from early stage venture capital investors to infrastructure investors looking for the minimum of technology risk but with it a lower rate of return.

To date we have raised £23m in financing, and we are currently raising another round for £50m. We have had significant interest, so the current fundraising environment seems to be good, though we are without a doubt helped by already having an operational plant at commercial scale.’

What do you feel led investors to focus on this area?

‘The regulatory environment is absolutely key. Back in 2003, landfill tax was only £12 per tonne, and it is now £40 per tonne and will continue to grow, year on year. This was certainly a big help in attracting investment, supplemented by the introduction of the Landfill allowance penalty scheme in 2005 that I mentioned before. Other cleantech areas such as wind and solar are also highly dependent on financial incentives of this kind. Many of these areas would not make commercial sense without these drivers.

It is probably the case going forward that areas such as these will continue to require such drivers to develop and prosper, even as technology development and improvement drives down build and operating costs.’

How important is government participation in helping to develop these areas?

‘It is extremely important for governments to put in place these broad economic drivers. But it would be a mistake for governments to make technology choices. Once the financial drivers and mechanisms are in place, then governments should leave the market to decide which are technically and commercially the best technologies to build out.’

For a growing company such as Sterecycle, how valuable is the role of private investors?

‘Their input can be very useful. Building a business requires many different skills. As a startup, you need to be dynamic and adapt if necessary, changing strategies along the way. For example, our chairman is an experienced investor and operator, and having him on board has proved very useful as a sounding board and partner.

Similarly, our lead institutional investor Goldman Sachs has also brought a lot of intellectual input and leverage, and of course, their name brings huge credibility. So angel and institutional investors can bring benefits to a company on a number of levels.’

How do you hope to develop the company following the fundraising?

‘The financing round is to fund our expansion plans. We are going to double capacity at our plant in Yorkshire, and also build our second plant in Cardiff. Our plan is to have built and be operating a total of six plants by 2013, processing around 1.5 million tonnes of “black bag” waste per annum. That’s the amount of waste produced by 3 million people each year. It is an ambitious, but deliverable target.

Most of our funding to date has been used to build and prove our new technology. The issue with new technologies in the waste treatment space is that there are a lot of people with a concept and a powerpoint presentation, but you need vast amounts of capital to develop and prove it. There is obviously an element of risk involved, requiring something of a leap of faith for an investor, and this is a huge barrier to entry. But once you get over that big hurdle, you are then into the realms of rolling out what is a proven technology, so it becomes an infrastructure play with lower cost capital. In that respect, we are in an unusual situation, since very few of the waste technology companies have broken through this stage. Plus we have also protected our technology with patents so that we can maintain our first mover advantage.’

How does the UK compare with its neighbours in Europe in terms of its developments in this area?

‘The UK is behind parts of continental Europe, especially Northern Europe, where there is already considerable infrastructure built for waste management. Of course some of the Southern European countries such as Spain and Portugal lead Europe in other cleantech areas such as wind and solar infrastructure. In terms of waste, the UK needs to catch up – according to the UK Institute of Chartered Engineers, the UK needs to invest some £10bn in order to meet its obligations under the EU Landfill Directive.’

Do you feel there are greater opportunities to be had in the less fashionable areas, such as waste?

‘I’ll admit that this was not a terribly sexy sector when I first started in 2003! But more recently, due to drivers such as the various governmental incentives it has become increasingly interesting from an investment perspective. There is beginning to be a real interest in this sector.’

Copyright © 2009 NewNet

Tags: bioenergy, biomass, policy, private equity, venture capital, waste, waste energy

This story was published on Wednesday, August 26th, 2009 at 1:44 pm and is filed under industry, profiles. You can follow any responses to article entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

One Response to “NewNet Industry Profile: Duncan Grierson, Sterecycle”

1. James tracy - PurePowerCorp.Com says:

   26 August 2009 at 7:34 pm

   I have been trying to find funding for my inventions too. please look at this page, watch the smoke destruction video.
   http://push.pickensplan.com/profile/JamesTracy

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