Why strategic investors are important for startups

Nathan Beckord

One person’s trash is another person’s… plastic?

That’s the discovery of Tato Biggio, co-founder of UBQ Materials, an environmental startup that turns non-recyclable trash like oil-stained pizza boxes, mixed plastics and soiled diapers into petroleum-free plastic alternatives.

“People probably think most of the waste is plastic,” Tato said, “but in reality, 80 to 85 percent of the waste is cardboard, paper and food leftovers.”

Rather than competing with the recycling industry, UBQ complements it by taking on areas that otherwise would be unattainable. Not only is UBQ chipping away at the planet’s growing trash problem, it’s also more energy efficient. Instead of using incinerators that operate at temperatures of 1,000 degrees, UBQ can turn trash into plastic at temperatures equivalent to a typical frozen pizza, which uses about one-sixth to one-eighth of the energy required to produce standard plastic.

Traction is not out of the question as many big companies are looking for more sustainable alternatives to their plastic use: Pepsi uses UBQ for its pallets; McDonald’s uses plastic alternatives for its trays, tables and chairs; and even luxury brands like Mercedes-Benz are replacing plastic parts in their cars with petroleum-based plastics.

But innovation doesn’t come cheap. Since the company was founded in 2012, Tato and his team have raised multiple funding rounds. In a podcast episode, Tato spoke about his fundraising journey over the past decade and also spoke about the importance of finding strategic investors and “smart capital” early on.

The early days of startup funding

When UBQ was founded in 2012, investing in environmental startups was less common than it is now: The Paris Agreement on climate change wasn’t adopted until 2015, and Thatto didn’t start noticing a shift in the investment sector until nearly 2019, when its recommendations came into effect.

So Tato and his team did what most companies do with a seed round: leverage angel investors and their own company accounts. But when it came time to look beyond their own funds, Tato knew they needed to adopt a different mindset.

Waiting for strategic investors

You can get a check from anyone with enough justification, but it’s never just about the money: Tato wanted what he calls “smart capital” — strategic investors with industry experience who could help him navigate the rough spots.

As luck would have it, he struck gold: He asked around and was introduced to a family that owned a plastics manufacturing conglomerate, whose patriarch quickly warmed to the idea of ​​making plastic from something other than petroleum-based resins.

“He saw the potential of this technology. He researched it thoroughly. We were able to start raising significant amounts of funding to develop the technology,” Tato explains.

This partnership proved particularly fruitful: Not only did the investor reinvest in a subsequent round, but the head of the fund ended up working with Tato as co-CEO of UBQ Materials. The collaboration works because the two CEOs are aligned on their mission to create a green, sustainable alternative to plastics, which is exactly the kind of alignment Tato was looking for in a lead investor.

“There are a lot of sad stories because there is no right coordination between partners. So, it is not easy to find partners to work with, but it will be much easier in the future,” he said.

The second company to invest in UBQ Materials is venture capital and private equity firm Battery Ventures, and Tato is especially grateful for the company’s contributions.[Battery] “It has proven to be extremely valuable in terms of corporate, legal and business advice, networking and heart,” Tato said.

UBQ raised $170 million over time, with help from Plastics Specialists and Battery Ventures, without making any significant changes to its cap table.

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Expanding funds through VC investment

Despite the strategic investors on board, the time came when UBQ needed to significantly increase its funding: Tato engaged venture capital firm Eden Global Partners in fall 2023 to close a $70 million funding round.

In the process of vetting the right partner, Tato remained focused on fit and alignment. He knew UBQ wanted to grow its presence in the U.S., and it was only natural for his next financial partner to be based in the U.S. Furthermore, he found Eden’s business culture to be very similar to the one he had cultivated at UBQ, further facilitating the alignment he needed.

This latest round of funding will help the Israeli-based company expand its operations in the U.S., adding sales, marketing and production facilities. Though the company has been in business for more than a decade, Tato knows there is little room for error. UBQ doesn’t have the security of a large plastics conglomerate, so the technology and execution must be perfect. So while expansion is on the horizon, the company wants to get the foundations in place first.

“We need to establish a baseline,” he said on the podcast, “and create a licensing package for the technology. The more we can control it and ensure that our licensees have oversight in the right way, the more quickly we can scale it.”

Engage supporters, including strategic investors

Tato shared some thoughts on what he would tell his younger self, and those starting out in fundraising. The main lesson: keep your backers close. “Stakeholder engagement is crucial to the success of any business,” Tato said.

This doesn’t just apply to the venture capital or private equity firms you invest in. He also suggests maintaining close relationships with suppliers, legal advisors, accountants, and other professionals who support your business. When problems inevitably arise, they’ll be much more likely to help you find a solution.

This article is based on interviews with Nathan Beckord and Tato Biggio In an episode of Foundersuite How to raise Podcast.

About the Author

Nathan Beckord said: Founder Suitedevelops software for startups that are raising funding. Nathan Funding Stackis a new platform for venture capitalists and investment banks to raise capital and support their clients and portfolio companies. Users of these platforms have raised over $9.7 billion since 2016.

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