This story is featured in the 3Q 2019 issue of the PitchBook Private Market PlayBook.
You finish a greasy-yet-satisfying lunch at the cafeteria, pick up the items from the table and walk to the trash and recycling bins. Like most well-intentioned people, you face a familiar dilemma. Used napkins. Leftover ketchup packets. A foam container. Wait, there's food stuck on it. Where do they all go? Is anyone watching? Help.
We've all been there. And our three-second plight is part of an expensive problem that's only piling up by the minute.
China took the world by surprise last year when it started banning imports on dozens of kinds of solid waste, including some plastics and other recyclables. The maximum acceptable contamination level in plastics and fiber also dropped to 0.5% in China, making it nearly impossible for recycling facilities around the world to quickly process sizable volumes of scrap.
The impact of those changes has been devastating, and for many private waste management companies in the US, plastic recycling is no longer a viable market. Like any other business, a recycling company needs to efficiently use available resources and have a healthy bottom line. The soaring cost of recycling has forced many local governments across the US and recycling processors to send increasing amounts of waste to landfills or incinerators.
Even in this dire situation, many environmentalists and entrepreneurs believe there's a silver lining. China's bold move has forced countries throughout the world to acknowledge green issues and push innovative recycling ideas toward tangible and long-term investments.
While humans could single-handedly choke our planet with waste, we may need some help to clean up the mess. Enter the robots.
One of the crucial steps in contributing toward a circular economy begins with correctly classifying what can and cannot be recycled. Even something as straightforward as a coffee cup could be complicated during disposal. Its light-weight plastic lid, paper cup and cardboard holder may appear to be recyclable components, but rules might be different for a sorting facility if it's made of virgin tree fiber rather than paper or if it's contaminated with leftover whipped cream.
Charles Yhap, who co-founded CleanRobotics in 2015, realized there might be a better way to sort trash than to expect high levels of awareness, accuracy and motivation from human beings—especially when recycling laws can be confusing and vary from county to county. The Pittsburgh-based company has developed an AI-powered robot called TrashBot that helps automate the separation process at the point of disposal.
"The idea was born out of frustration, of being confronted with an array of trash bins," Yhap told PitchBook. "Waste management processes are either dirty, dull or dangerous, and it makes sense to target robotics in this industry."
TrashBot uses cameras and sensors to scan discarded items from everyday waste—and that doesn't mean it conveniently tosses an unfinished can of soda straight to the bin bound for the landfill. These robots can "swallow" excess liquids. CleanRobotics is focusing on high-traffic facilities such as airports, convention centers and schools, but one challenge is its technology requires waste to be thrown away one item at a time with a short delay in between. The company is backed by investors including GAN Ventures, SOSV and Innovation Works.
Another player in this niche segment is AMP Robotics, which has launched an AI-enabled robotic system that can pick recyclable materials off a conveyor belt and toss them into a collection bin. Matanya Horowitz, who founded the Denver-area business in 2015, said that for the longest time, the problem in sorting trash was not the lack of robots, but the lack of a vision system that could see past complicated packaging.
Horowitz said the company's technology can identify not just the material type but the stock-keeping unit of a product, which is unique for all manufactured items. Once the SKU has been added to the database, it's more likely that the robot will identify the item moving forward. This also provides flexibility to help the recycling facility follow local regulations.
"The situation with the Chinese market has actually been good for us in the short term. It is allowing the US to think about domestic manufacturing," said Horowitz, whose company has raised funding from investors including Baidu Ventures, Closed Loop Partners and Congruent Ventures.
It's not just a couple of buzzy startups making headlines for increased efficiency to sort trash. Researchers at MIT announced in April that they've developed a robotic platform called RoCycle that can sort various items by touch. It uses sensors to determine the size and makeup of waste materials such as paper, plastic and metal.
VC investors in the US don't appear to be as enthusiastic about recycling startups helping the environment as much as they are about, let's say, electric vehicles. Some of the biggest cleantech VC deals in the past year have gone to Zoox, a developer of autonomous mobility technology, and ChargePoint, the creator of a charging network for electric vehicles.
"VCs got burned by cleantech in the 1990s when they invested in solar energy and batteries. Several folks lost a lot of money," Yhap said. "That might be one of the reasons why they are apprehensive about cutting checks toward the waste industry, which is really unsexy to begin with."
If even some recycling companies have determined that burning garbage or filling up landfills is better business right now than recycling, it seems hard to blame returns-focused venture capitalists for not being overly excited about the space. And even if VCs are dazzled by a cool robotic arm using AI to sort our trash, it will take some time before mega-deals in this space are warranted.
It's a fair argument that deploying robots to sort trash is only part of the solution and creating recycled products isn't the only way to fix the plastic crisis, but in order to help build a circular economy, let's focus on the idea of applying automation in waste management for now.
If the development of a mainstream industry vertical can be classified into three stages—define and systematize the process, automate repetitive tasks and increase production to attain economies of scale—it seems the waste management industry is only beginning to enter the second phase. Yhap said there's a whole stack of value that can be created with combining automation AI, vision and robotic systems—ranging from deploying robots to sort trash, collecting data to manage hazardous items and creating cloud-based platforms to track waste across multiple locations.
The development of breakthrough technologies from startups is a fine start, and we can hope it's only a matter of time before they establish end-to-end solutions to reduce the cost of recycling. However, these companies might need VCs to cross that bridge. According to a recent analysis by Closed Loop Partners—which invests in sustainable consumer goods, advanced recycling technologies and startups working toward building a circular economy—there's an existing $120 billion addressable market in the US and Canada for plastics and petrochemicals that could be met, in part, by recovering waste plastics.
Investors should keep an eye on the numbers behind all that rubbish because technological advancements, regulatory adjustments and climate change could push startups to scale their operations in a big way. And if VCs make the right bet now, the payoff could be enormous. Who knows, we all might eventually thank China for forcing one of the leading waste-producing countries in the world to face its broken system.