Put yourself in the shoes of an investor that is considering investing in a startup. You have already investigated standard company components such as team, financials, and the market. Now you have to define which questions you will ask the founders to evaluate the company risks and opportunities from a circular perspective.
That was the task that participants at the workshop: ‘Circular Investing: Redefining Risks in Circular Economy’ during World Circular Economy Forum in Brussels were asked to work on.
More than 80 circular economy pioneers took part in the workshop organized under the Nordic Venture Challenge project, and the message was clear: gather your input on how to develop a Circularity Due Diligence tool for early-stage companies.
Among the participants was Thomas Pussila, Director of the Circular Economy Centre:
“I decided to participate in this workshop because I wanted to see what’s going on within circular economy-based investments. This is very much on my table, so I was really looking forward to joining the workshop and hearing the solutions and comments from the other sides of the world.”
What is Due Diligence?
Due Diligence is the rigorous analysis of a company or opportunity before a business decision, like an investment or acquisition. It involves a critical assessment of a company's financial health, legal standing, operations, market position, and potential risks.
The goal is to acquire a comprehensive understanding of the opportunity to make well-informed decisions.
Need to identify opportunities first
The workshop participants were divided into groups with the overall mission of not only understanding circularity risks but also to discuss and identify the opportunities, which plays a key role in attracting capital into the green transition.
Virginia Vegas, Managing Director at the Venture Challenge explains:
“Much of the work done so far in the topic of circularity due diligence is focused on risk assessment. But if the goal is to attract more capital into the circular economy transition, then we need to focus on the opportunity first, and the risks second.”
“Investors measure both the opportunity and the risk of an investment and make investment decisions based on that. And investors are willing to take higher risks, if the opportunity it presents is also larger.”
Among the defined risks were lack of practical knowledge, lack of data, low return of investment and regulatory uncertainty. On the other hand, the participants also saw opportunities such as long-term resilience, new value chain collaborations and market opportunities and a better company image.
What is Circularity Due Diligence?
Circularity Due Diligence integrates circular economy principles into the traditional investor due diligence process. It focuses on assessing a company's commitment to resource efficiency, waste reduction, and sustainable business models.
The aim is to identify early-stage companies with long term viability in an increasingly resource conscious world.
More capital to circular companies
In 2023 the Nordic Venture Challenge project went into a new phase - The Nordic Venture Opportunity. One of the aims of the new phase is to create a tool ensuring that circularity becomes a part of the due diligence process of investors to make it easier for companies with circular business models to attract capital.
Read more about the Nordic Venture Opportunity
“To proceed with the green transition, we need private capital. And in order to get that we need to give investors the right tools to understand how they can invest in circular companies,” says Virginia Vegas.
“The goal in this workshop was to bring circular economy experts and address this topic together. What does circularity due diligence mean and how can we integrate circular economy principles in the standard investment process. We are happy to see so many participants in this workshop. They have done a great job, now it is our turn to work. We will collect and go through all the input that we have received.”
The workshop is one of several workshops taking place this spring with the purpose of collecting knowledge for the new circularity due diligence tool.
