1Mby1M Deal Radar 2011: MicroGREEN Polymers, Arlington, Washington

Anything we do to reduce the amount of garbage that gets dumped into landfills is as beneficial to us as it is to the environment. Recycling is important, particularly the recycling of nonbiodegradable materials like plastic. Companies like MicroGREEN Polymers, Inc. in Arlington, Washington, are doing their part to make recycling easier and more affordable for companies such as restaurants, grocery stores and other places where plastic containers and signs are used regularly.

MicroGREEN  is a privately held green technology company that uses a patented, trademarked microcellular expansion technology called Ad-air to significantly reduce the financial and ecological costs of many plastics. Ad-air infuses solid-state plastics with bubbles that expand the plastics, making it possible for plastics in one form to be converted into signs or packaging. MicroGREEN’s product has an internal microcellular structure that makes it lighter in weight, more insulating, strong and highly reflective. Unlike other expansion technologies for plastics, Ad-air does not involve petrochemical blowing agents or volatile organic compounds in the manufacturing process. Ad-air enhanced plastics can be recycled in their existing recycling streams. The technology can be applied to dozens of plastics used in print and signage, food and beverage packaging, general packaging, transportation, building materials, appliances, and consumer electronics applications.  MicroGREEN’s current focus is on applying the Ad-air technology’s benefits to polyethylene terephthalate (PET), the plastic used in water bottles, to take advantage of the world’s most developed recycling infrastructure.

MicroGREEN Polymers uses its patented Ad-air technology to create its tradmarked InCycle sheet. InCycle sheet is a revolutionary transformation of recycled water bottles (PET) into a low-source, recyclable, printable plastic sheet stock, and is offered as a cost-effective, sustainable substrate to the print, signage, packaging, and food service industries. InCycle is made with recycled PET, which is mechanically expanded to make it lightweight while reducing the amount of plastic required. Signs and packages made from InCycle have a significantly lower environmental footprint and lower cost. Most important, signs and packages made from InCycle are 100% recyclable in the PET recycling stream that exists today, which enables retailers, consumer packaged goods (CPG) companies, and quick service restaurant (QSR) operators to continuously recycle their signs and packages, rather than send them to landfills.

Dr. Krishna Nadella is co-founder and chief technology officer of MicroGREEN. Nadella co-founded MicroGREEN Polymers when he was working on his master’s in mechanical engineering at the University of Washington. He saw the potential for the technology being developed to radically change the economics and environmental impact of recycled plastics, so he licensed the technology from the university and founded MicroGREEN Polymers. While getting MicroGREEN Polymers up and running, Nadella also received his Ph.D. in mechanical engineering from the University of Washington with a focus on microcellular plastics.  In 2011, Nadella was awarded the University of Washington’s Diamond Award – Early Career in recognition of his contributions to the field of engineering.

Thomas Malone is Chief Executive Officer of MicroGREEN Polymers, Inc.  Malone has 30 years of experience as a serial entrepreneur in the environmental space. He believes that “making more with less is good economics and good for the environment.” Malone’s first successful venture created highly-efficient wood burning stoves for the developing world to reduce rainforest depletion.  In his second venture, he developed, patented and launched technology for reducing material in the packaging industry.  With his third venture, he launched a technology to reduce protective packaging material for commercial airfreight shipping.  Malone has been a member of the Institute of Packaging Professionals since 1998 and has won several awards. He earned an MBA from Pepperdine University, and a bachelor’s degree from the University of California, Santa Barbara.

At the 2002 University of Washington business plan competition, Nadella and other students won second place by pitching an idea to transform the food packaging business through a new plastic manufacturing process. The business plan was based on a patented technology, now called Ad-air, which had been developed by Dr. Vipin Kumar. They received a three-month option from the UW TechTransfer department. Shortly thereafter, Nadella accepted a summer entrepreneurial fellowship at UW where he was chosen to mine the UW’s TechTransfer department for compelling technologies that could possibly be licensed. By 2004, the technology was progressing well and MicroGREEN Polymers entered into a formal agreement to license three patents from the UW TechTransfer department.

There were several factors coming to a head in 2006 when MicroGREEN Polymers was coming to market. There was a true awakening of consciousness brought on by the release of “An Inconvenient Truth,” which opened at the Sundance Film Festival in January 2006. Suddenly, environmental impact was top of mind. Governments, both local and national, had started to recognize that measures had to be taken over the next 10 years on many fronts. Since then, a slew of regulations in national and local governments to slash the environmental impact of packaging has appeared, and the numbers continue to increase globally.  For example, in Seattle, EPS (expandable polystyrene) has been banned for all food service containers and cups, and there is currently discussion about expanding that ban into other areas of packaging. Other cities throughout the U.S. are following suit.  The California Senate has legislation, which is currently on hold, to ban the use of EPS in all take-out containers statewide. The European Union is exploring a number of regulations regarding plastics. This makes the regulatory environment ripe for expanding the use and recycling of PET, the world’s most recycled plastic with the largest existing recycling stream worldwide.

As the regulatory environment changes, there is a lack of innovation in material science. The best the legacy producers of materials have been able to come up with is compostable agri-based plastics, predominately made from corn. Compostable plastics are made from agricultural crops and have the benefit of not being made from petroleum, a finite resource. However, that also means they carry the burden of diverting arable land from food production, using huge amounts of clean water. If they proliferate and absorb more land use, they will drive up food prices and compound the earth’s clean drinkable water issues. And there is no intrinsic or market value in the material for a ‘next life’ because it turns to compost. Agri-based plastics do not compost in a backyard pile; they require an industrial composter.  Since there are few such facilities, when agri-based plastic products are used in areas without industrial composters, they end up in landfills anyway. The long-term cost of using agri-based plastics is too prohibitive to make it a viable option on a global scale.

Beyond compostable plastics, legacy material suppliers still use the same old materials, like paper. Paper carries the burden of deforestation, not to mention the waste produced in the recycling process. In many packaging applications, paper needs to be poly-coated with plastic for durable properties, which inhibits its ability to biodegrade, compost or be recycled. While paper is the most commonly recycled material on the planet, the fibers break down with every recycle processing. Therefore, it is limited to three to seven life cycles.

MicroGREEN uses a recycled material, tapping into a worldwide existing stream that already has a proven end market for the material. The company expands the material to make it lightweight and cost-efficient to transition and meet governmental demands. In effect, MicroGREEN creates an infinite cycle of reuse for the recycled material.

The company’s go-to-market strategy is two pronged. First, MicroGREEN is rapidly growing in the signage space and building awareness and proving Ad-air with retailers, consumer packaged goods (CPG) providers and fast food restaurant operators. The company’s beachhead is to simultaneously work with high-volume, visionary, early adopters within these segments to expand into their packaging and cup applications. The value proposition for InCycle sheet is fairly straight-forward. InCycle sheet enables manufacturers to address the demand to transition to sustainable materials without increasing cost or sacrificing quality.

What sets MicroGREEN apart from competitors like Dart, Solo, Pactiv, Primex, Transilwrap or ConVerd is that InCycle sheet is made from less source material, environmentally-friendly to produce, made from post-consumer recycled water bottles, can be recycled repeatedly in a sustainable system and is offered at a low price. Additional key differentiators for signage applications include InCycle’s integral skin that can be printed on directly on both sides with excellent ink adhesion, so it does not require a top coat. It is UV resistant, greaseproof, waterproof, and does not blister, swell, or warp, making it ideal for outdoor conditions. The material is backlit ready and provides high image illumination. Other differentiators for packaging and cup applications include InCycle’s ‘no objection’ letter from the FDA regarding food contact. It is highly insulating, does not transfer flavors from one food to another, and provides extra protection against temperatures ranging from -20 degrees Fahrenheit to 300 degrees Fahrenheit.

Ad-air technology has a total addressable market of $50 billion because it applies to many different kinds of plastics in many different industries. InCycle for cups and other packaging represents the lion’s share of that addressable market at $15.52 billion. The TAM for MicroGREEN’s current InCycle sheet is: $500 million for flatsheet signage, $4 billion for food service cups, $2 billion for retail blister packs, $400 million for frozen RTE trays and $600 million for meat trays.

The standard price for a printing starter kit is $150. “Because we are carried by national distributors, we can only suggest end market pricing rather than dictate it,” said the founders regarding InCycle sheet and Ad-air technology pricing. “Also, being as the Ad-air technology is proprietary, this is by definition not a commodity, so blanket pricing statements on licensing are impossible.” Development contracts with two consumer packaged goods (CPG) firms, for example, resulted in over $1 million in development fees. And over the last quarter, the company has doubled its orders, month over month. With the help of channel partners such as Laird, GPA, SABIC, and AGFA, MicroGREEN products are used for signage in several grocery, hardware and general merchandise stores. Costs are calculated based on raw material costs, and the company reduced that cost by as much as 50% through its Ad-air expansion technology.

Early on, Nadella bootstrapped MicroGREEN, but since its series A, the company has used investment capital and grants to fund its operations. The Series A in March 2006 was $2.4 million investment from the Washington Research Foundation and angel investors. In October 2009, the company received $60,000 for the Zino Zillionaire Investment Fund Award. The National Science Foundation Phase 1 SBIR Grant provided MicroGREEN with $149,913 in February 2010; in September 2011, Phase 2 supplied the company with an additional $499, 941. Series B, in May 2010, produced $6.9 million in funding from Waste Management, Inc., WRF Capital, Northwest Energy Angels and other private investors.

MicrGREEN is open for Series C and hopes to close a $25 million round in the fourth quarter of 2011.  The company has current job openings in the sales and marketing departments and expects continued growth to generate the need for more production line staff. Part of the company’s growth strategy involves going after closed environments, such as corporate campuses, college campuses, stadiums, etc. While MicroGREEN’s focus is on the local North American market, the founders have begun working with select partners internationally to seed further growth and expansion when the time is right.

The founders are not opposed to an IPO. Given MicroGREEN’s size and market, an IPO might be the right exit; however, because the company’s technology is applicable in multiple verticals, multiple liquidity events for shareholders could be equally viable.

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This segment is a part in the series : 1Mby1M Deal Radar 2011