The Last 3 Years

Distilling what I've learned over the last three years of writing the newsletter.

It’s been a busy summer for me, and I’ve been taking a break from writing because it started to feel like a second job where I didn’t get paid. I’m still talking to start-ups though which is fun and if you are interested, please just drop me a line by replying to this email or DM on Twitter (@tpolymerist). I’m still here, but not quite as active.

One thing that I’ve been contemplating are some questions I’ve been trying to answer for myself here for the last three years:

1. Can the chemical industry make a transition away from crude oil?

   1. What are the challenges in this transition and why hasn’t it happened yet?

   2. Is it even possible?

2. Plastics, their origin and end use are problematic due to coming from crude oil (see above), but their utility and function is a lynchpin of modern society. How can we use them with causing minimal harm to the environment?

3. Start-ups in the industry seeking to address questions 1 and 2 have been plagued by bad luck, unfavorable conditions, and probably too much naivety. How can they succeed in the 2020s and beyond?

Let’s take this step by step and I’ll provide links for those who want to double click on specific topics.

Industry Transition from Crude Oil

Almost all of our modern materials require crude oil and/or natural gas either as a feedstock or as an energy source. The oil economy itself was an innovation over the coal economy. The only alternatives that I see out there are either in the form of biomass, oxidized carbon (e.g., carbon dioxide, carbon monoxide/hydrogen aka syngas), or forms of waste that we do not consider as feedstocks today (e.g., plastic waste), but we need these alternatives to scale in the next 10-20 years. We are far away from that happening and we need to go from 0 to 100 real quick (just like Drake says):

The problem with innovation at a large company is that you are beholden to the business you have now as opposed to the theoretical business you might have in the future. This is why most R&D at large companies are technical service (e.g., servicing current customers) as opposed to focusing on growth. Show me a chemical company that spends more than 5% of their revenue on R&D and I’ll show you a company who hasn’t had pressure from their shareholders to extract more profit. That sweet game changing innovation that most companies report to their shareholders is so risk-adjusted that it’s at best incremental. A little bit better, a little bit cheaper, and maybe a little bit faster.

The issue is that these big world changing innovations could take 5 years or they could take 50 years and that unknown time component makes them shitty investments. Additionally, you can succeed in something technically, but you may not have the requisite infrastructure to commercialize it. A cool technology that could provide benefit, ultimately gets shelved and forgotten, and then that time and money has to be accounted for by the executives. Why develop technology if it isn’t going to make money?

The fundamental truth to the chemical industry is that we accidentally stumbled into it through trial and error. Innovations like synthetic paints, engineered wood, asphalt roads, stretchy clothing, wire insulation, and a bunch of other stuff were developed because the stuff they replaced wasn’t very good and it was too expensive. We now find ourselves with stuff that’s quite good as far as we know and relatively low cost (as long as oil and natural gas are cheap). It’s hard to do big innovations when you need to keep your plants full, your current customers happy, and yourself employed. Once the big companies figured out the science (e.g., making polyethylene or phenol or polyamide), it was just a matter of engineering to scale it, make it cheaper, and having viable long-term businesses.

Plastics Waste: The right problem to solve?

The “plastics problem” is a microcosm of the broader issues. One question I’ve been pondering has been, “did the inventors of polyethylene have any concept that plastic pollution would be a problem?”

I don’t think they had any inkling the industry would grow to be so big and ubiquitous as it is today and thus it was probably hard to comprehend the problems that are inherent to the business that seem so obvious today. Hindsight is always 20/20.

That problem would be one of plastic waste. We have it all over the planet. Microplastics are in fish, in humans, and macroplastics are killing birds:

The problem of plastic pollution seems clear, obvious, and one that should be solvable. The solutions are debatable from just banning all single use plastics to compostable plastics to just making recycling systems better. I don’t think we get out of this problem with just technology alone. Here was a good example that happened this summer:

My wife told me this story about how she was buying an iced coffee at Compass Coffee and while the vessel that contained the coffee cup was PET (and very recyclable) the straws were a compostable plastic. When my wife plunged the straw into her cup the lid’s straw slot (with those little flappy triangles) would cut into the compostable straw and it would cease functioning as a straw. She had to go through a few straws, but eventually got to one that worked. The coffee shop didn’t have a compostable waste stream and the straws were too small to recycle so they ended up in the trash. Clearly, this is a design problem because we both love drinking iced coffee from the new sippy cup lids at Starbucks, but I think its a microcosm of the issue with compostable plastics trying to integrate into modern uses.

The implicit promise of compostable plastics is a litter free world, but reality is different. To be fair, I think compostable plastics have a lot of promise, we just haven’t figured out some of the technical aspects and their implementation yet or the end of life supply chain to ensure they are properly composted. They are an attempt at using technology as a band-aid to solve the issues with our current system of consumption and disposal. Our recycling system is the best we have, but it could definitely be better and despite claims that we recycle very little of the plastics we consume outright banning them doesn’t seem to be a viable solution either (how do you define single-use and disposable).

Compostable plastics are not built or designed to work seamlessly with our current system, which in itself is broken for the current materials we do have. Recycling, while it sounds good, isn’t as good as re-using the stuff you’ve already consumed. That pair of shoes you find to be disreputable and want to recycle are probably someone else’s birthday gift. For the most part I see recycling as a way to make users feel good about their consumption and if you aren’t consuming plastic then your alternatives are glass, metal, wood and paper. The wood and paper two often come coated in synthetic polymers (yes, waxes can be made from oil too) to protect them from water. A paper carton of milk might make you feel less guilty, but this concept of consumers having guilt is largely a marketing and advertising scheme to get consumers to care about the details, like the provenance of their straws for iced coffee. We should be looking at the bigger picture (see above).

I think the question of plastics’ benefit in the world is mostly the wrong question. Focusing solely on the end of life all together doesn’t account for the benefits of plastics (or just synthetic polymers in general) from lightweight durable materials used in modern manufactured goods to materials relied on daily in hospitals to keep people alive. This is a difficult and nuanced problem to try and solve (and I think it’s worth solving), but I think it’s ultimately a distraction from trying to transition away from fossilized carbon as both a feedstock and energy source. Our system is set-up to be one way—linear, as opposed to circular.

This is why I don’t think we should look to large companies for amazing innovations. They are reliant on a linear model of consumption. Instead, we should focus on start-ups seeking commercialize new technologies, materials, unlocking new feedstocks, and new ways of consuming goods. Clothing consumption is a good place to start.

It’s not that I think a big chemical company like BASF will cease to exist, but rather that they will find some other supplier to give them phenol or ethylene or whatever it is that they need to make the stuff we rely on today. Version 1.0 of a new sustainable economy would be to transition away from crude oil. Version 1.5 might figure out the waste problem. Big companies don’t have the time, will, or risk appetite to save the world, but maybe they could invest in those that do (corporate VC for the win).

Start-ups: How Can They Succeed?

I know, controversial take that I’m putting a lot of my hopes into the start-up basket, but I think the benefits of success outweigh the risks. Sure, there are tons of failures out there including Solazyme, Zymergen, Myriant, Bioamber, Elevance, Bio-on, Metabolix, and more than I have time to name and list here.

I think the big issues in product commercialization that start-ups in this space do not account for is an accurate understanding of production costs, timing, and how long it can take customers to validate a product. In their defense, usually the technology is new enough to where estimating costs, production timing, and customer validation is really difficult. Sometimes customers will only dedicate time and money to validating a sample product if that sample can be produced at scale. Usually, producing at scale means having manufacturing operations in place, and this typically looks like asking for a bunch of money from investors without any revenue. This requires a big leap of faith from investors and if the founding team has miscalculated their costs, then it’s almost impossible to pivot once your manufacturing is in place.

I think there are numerous places where one misstep from a founding team can have really negative consequences years later for the company and their investors. From the lab to commercialization there are a whole bunch of steps that need to occur, sometimes in a specific order, and often involve continuous validation of product from the lab to the pilot plant to the full commercial production. This process of product commercialization is where the large company employees have done well for decades and it’s just the issue of getting something really new a game changing out of the lab that is the big challenge (for them). I think to fix this issue we need to figure out how to bring experienced operators to early-stage companies (pre-seed/seed stage) with a focus on profitable product commercialization. The key here is demonstrating profit at a small scale and then as that technology is scaled the economics marginally improve.

In the age of the internet, innovation has largely been the job of the outsiders who seek to disrupt incumbents—inexperience is often seen as a feature. I think this attitude is inherently flawed. Often, when I speak to founders the first question I ask is:

Me: Who will be your regulator?

Founders: Uh…we didn’t think about that

Me: I’ll give you a hint, it’s the EPA, FDA, or USDA, perhaps all three depending on who your customers are and their customers.

Complaining about regulatory capture and reporting requirements might get you style points on Twitter (or X or whatever it’s called), but it will not change the fact that the chemical industry is heavily regulated. It should be heavily regulated too. If you are not mentally prepared for submitting a PMN to the EPA for your new product with an understanding on the timeline, then you are not prepared for what it takes to succeed in the business (hint: it takes longer than you think) and the margins are no where near software.

There a lot more failures in this space than there are success stories. Amyris, often hailed as a success story, is still struggling 20 years after it was founded. They recently fired their CEO (I’m told it should have happened way earlier by some insiders). I’m looking to Origin Materials and Solugen to succeed and if they can succeed than I hope others can use their strategy as a playbook for the future.

If you are a founder and want to talk let me know. I’m happy to try and help.

Tony

For the rest of 2023 I’ll try and get back on a publishing schedule. I’ll try and highlight some incumbent companies that could be areas of disruption for founders.