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I think that we have some advantage by being in Tennessee is that we weren’t already indoctrinated into what like the Silicon Valley West Coast type of startup environment looks like where it’s super high burn rates and a ton of money and you have to go super, super fast. It’s really advantageous to be here in Tennessee is because one cost of living is super low, so like our lab literally is in a garage on a farm house that was built in the 18 hundreds.
Jay Clouse: 00:00:28
Startup investment landscape is changing and world class companies are being built outside of Silicon Valley. We find them, talk with them and discuss the upside of investing in them. Welcome to upside.
Eric Hornung: 00:00:56
Hello Hello Hello. Welcome to the upside podcast. The first podcast, finding upside outside of Silicon Valley. I’m Eric Warner and I’m accompanied by my cohost Mr. Policies and procedures himself, Jay Clouse. Jay, how’s it going? You have no idea what that nickname means, do you?
Jay Clouse: 00:01:14
Unless it was you talking with, uh, a friend of mine. No, actually, no, I don’t.
Eric Hornung: 00:01:19
Well, when we started upside, we said that there has to be one thing that we do really well and that’s consistency. We can’t miss episodes. We have to have processes in place so that way everything is consistent, it flows, it feels professional, it feels right. And last night you sent me a message that said this week’s episode is already queued up on the website and mailchimp, Yada, Yada, including the transcript, which is a new feature that I’d like you to talk about. So I just wanted to shout out that you’re doing a kick ass job on the back end making everything look incredible on the front end.
Jay Clouse: 00:01:55
Oh yeah. I thought for a minute you had some inside knowledge about the conversation I have literally yesterday about terms of service and privacy policies on websites. I was like, how did you know? that was That was a private coaching call a yes, yes. I am happy that we’ve gotten this process down. Doing the transcripts. We have our transcripts made by a robot is used, is created by ai and it’s pretty good, but we still have to go through and fix some things up and that’s a, that’s our intern, Jacie, but it takes time and then we got to get that up before we publish the what, the, uh, the episode and it’s coming together. It’s looking pretty nice. Now if you go and you look at the episode online at Upside Data Fm, you can see with every episode we’ve created a transcript and shared it there. And so, uh, you can kind of go through and come through few years. Then on the show that you like and you want to learn more about that. You can always go back and find it there in the transcript.
Eric Hornung: 00:02:48
Awesome. Well, Jay, what are we doing here today on upside?
Jay Clouse: 00:02:52
today on upside, just like any week on upside, we’re talking to a founder, a founder outside of Silicon Valley, which we believe there are more of who are being successful than popular media or popular culture. What lead you to believe with a, it’s a great time to start a company outside of Silicon Valley and we’re here to talk about them. We’re also here to get better thinking as potential angel investors. This is you and I’s outlet for learning on the fly about how to evaluate startup opportunities
Eric Hornung: 00:03:23
and we’re going to do that in three phases. The first phase is the upfront, which we’re working on right now, and we’re going to talk through some research, some things that Jay and I looked at. Then We’re going to go into the interview and then a debrief and we’ll get to what the debrief is a little later.
Jay Clouse: 00:03:37
Today we are talking to Tony Bova, who is the co founder and CEO of mobius, formerly known as grow bio-plastics. Tony is a phd student at the University of Tennessee where he studied the production of bioplastics, created from Lignan, which is a waste product at the forestry and paper industries. mobius is focused on converting organic waste to biodegradable plastics for use in agriculture, horticulture food service and beyond. So Eric, this is going to be a little bit of a nerdy technical chemical episode a little bit the way that fresh for I was.
Eric Hornung: 00:04:13
And I, I kinda liked that. I think we had some really good responses from the audience and some good insights on French fry. So I’m kind of expecting the same here on mobius.
Jay Clouse: 00:04:23
The company was founded in 2016 in Knoxville, Tennessee to this point they’ve raised about $135,000 from competitions and awards and they’ve received about $340,000 from state and federal grants with $200,000 of private investment. I liked the way that looks. I like this diversified funding approach, which I think is underutilized and a lot of ways for a lot of startups and I, the startups who are creative in getting some of that funding, whether it’s grants or pitch competitions, signal a good trait for the founders that they’re resourceful and able to find some of this cash that’s non dilutive, which is great.
Eric Hornung: 00:05:02
Yeah. And I’d be curious to hear a little bit more about the grants and how those maybe act as accelerators because the national science foundation is one. Um, so there’s just a lot of maybe potential connections that they got through those grants as well. Yeah, totally. So, Eric, have you found anything by way of market size for this opportunity or how would you even consider the market for this? So my understanding is that the flagship product of mobius is taking this. What was it called? Lignan.
Jay Clouse: 00:05:33
Eric Hornung: 00:05:34
Lignan two N’s. L I G L I N, Lignin taking this Lignin, creating a pelletized version of a plastic that’s a, I think they call it a biopolymer. And then creating that into sheets and pots that space or they call them films. Sorry, not sheets. That space I saw the plastic film space is something around $50 billion dollars right now, which is a massive market.
Jay Clouse: 00:06:05
Eric Hornung: 00:06:05
Plastic films in general are around $50 billion are used in a ton of. They’re used in a ton of different things. I don’t, I didn’t write down the source that I got that on, but
Jay Clouse: 00:06:16
I don’t not believe you. I just didn’t come across that number and that’s, that’s a lot bigger than I was expecting.
Eric Hornung: 00:06:21
What did you come across?
Jay Clouse: 00:06:23
Well I didn’t really know how to estimate this out to be honest. I was just finishing watching a video where he was talking about sort of the core problem you starting with or when it was grow bio-plastics, which is these films they, that were used in agriculture over over plants in the field to kind of insulate them. And these plastics that we have been used to this point are thrown away after the season. They’re removed from the soil then thrown away into a landfill and could wrap around the earth 100 times over. That’s what he said. So to that end, I suppose that’s quite a bit of plastic, probably more than I realized. Uh, the one thing that I did find is that there are 230 million pounds of trash generated in the US every year. I didn’t know this. That applies to all trash. Obviously. It’s not just strictly to some of these plastic films that are thrown in the trash, but I wanted to see what the level of a waste is in United States every year.
Eric Hornung: 00:07:19
I can’t even fathom what 230 million pounds of trash looks like
Jay Clouse: 00:07:25
four and a half pounds per person per day. Do you think you generate four and a half pounds of garbage every day?
Eric Hornung: 00:07:29
Jay Clouse: 00:07:31
I don’t think I do. I feel like I feel like I’m really good on trash. Yeah. I’m. I’m not a a no impact man or anything, but I don’t think I do four and a half pounds.
Eric Hornung: 00:07:40
I order a lot of Amazon. That being said, I also get a lot of money to. Not a lot of money. I really don’t have that much money, but I do give money every month to nature conservative conservancies and shout out Four Ocean. I give them $20 every month because they are doing a good job cleaning up the oceans.
Jay Clouse: 00:07:58
Oh, I thought you were talking about the accelerator there in Cincinnati, Ohio.
Eric Hornung: 00:08:02
No that’s the ocean accelerator. Different than Four Ocean, which is some guys who are just picking up trash and scuba diving around and then turn it into bracelets.
Jay Clouse: 00:08:10
See, I thought you said shout out for ocean as in shout out for the ocean accelerator and you see what I’m saying.
Eric Hornung: 00:08:15
I see what you’re saying
Jay Clouse: 00:08:16
Its a branding problem.
Eric Hornung: 00:08:17
Let’s jump back into mobius. So the market size I found was about $50 million for plastic films everywhere. I think that’s in the world and then you can break that down a little bit further. It’s something like 6 billion for agricultural films, which I believe is maybe more where they fall and then below that you can even break that down further into 2 billion for mulch films, which is what their flagship product is tackling. A mulch film, As I understand it, Jay, goes over the rows of plants to protect from pesticides and also weeds.
Jay Clouse: 00:08:54
Yeah. Growing up in a farm town, I’ve seen these all over the place. I did not farm directly, so I didn’t know there was a name of mulch films for them, but I totally get it. I’ve seen it. It’s all over the place. It seems like this is probably a starting point system I’m going to ask Tony about is my understanding or my guess is that this is the first biodegradable material they found through their phd program and they’re working on, but my hunch is that they have other products that they think they can make biodegradable, which will certainly expand that market, but we’ll find that out.
Eric Hornung: 00:09:31
and I wonder what their patent ability looks like and what it looks like going forward.
Jay Clouse: 00:09:36
Yup. Yup. All. Alright. Anything else before we jump in and talk to Tony?
Eric Hornung: 00:09:40
No, I’m excited. Let’s do this.
Jay Clouse: 00:09:45
Tony, welcome to the show.
Tony Bova: 00:09:46
Hey, thanks for having me. Appreciate the invite.
Eric Hornung: 00:09:49
We appreciate you being here. We will like to start with the, with the guest in a little bit about your background. So can you tell us about the history of Tony,
Tony Bova: 00:09:58
the history of Tony? That’s a good question. So I grew up in mentor Ohio about 25 minutes north east of Cleveland along the lake. Was there until I was 19. Throughout high school is interested in all sorts of stuff, graphic design, chemistry and engineering. Eventually moved to Texas and then New Orleans for a little while and then found my way back to Toledo, uh, in 2003 in 2004 where I did my undergrad. I was there for nine years and eventually graduated in 2013 with some life that happened in between. But I got a bachelor’s in chemistry from the University of Toledo and that’s really where I got interested in materials and chemistry and sustainability, which is kind of driven what I’m doing now. After I graduated, I knew I wanted to go to Grad school, started looking around for programs that had some tie in with some potential for entrepreneurship or watched enough shark tank and Undergrad to know that I liked the idea of entrepreneurship, but I knew that it was probably a bit more real than what you saw on TV. And uh, one of the programs that I was in Toledo when I was an Undergrad, was it an extracurricular program that was sponsored by the state were students who were involved in the sciences. We’re working in areas of sustainability, you know, using their different scientific backgrounds. And I worked actually with my co founder, Jeff Beagle, who’s also a graduate of Toledo on a project where we were trying to capture fertilizer runoff from farms. So if you guys are familiar with Lake Erie, there had been all these algae blooms that happen every year. The lake turns green. It was pretty pressing press and Toledo because one of the years we were there, we weren’t actually allowed to drink the water. So that kind of kicked it into gear for both of us. And working on this project, we realized that not only could we find solutions to big problems like this, but there’s a way to turn them into businesses. Uh, so we entered a pitch competition. We did absolutely terrible, but it was a good kind of indoctrination into the idea of taking science and entrepreneurship and putting together to not only solve problems that had, you know, tangible outcomes that were more than financial, but you know, to have a project that you really cared about. At the same time,
Jay Clouse: 00:12:16
I got to ask because this is a super personal problem that I’ve experienced this, this algae runoff. I’m from Solon, Ohio, where Grand Lake, St Marys, we experienced this and we had global companies coming and trying to solve it because they knew it would happen to Lake Erie. Have you ever been up there and looked at that and algae water?
Tony Bova: 00:12:34
Well, yes, so Grand Lake St Marys, like the poster child, I guess not in the positive sense, but for what can happen if we didn’t solve it and you know, Lake area being such a precious source of fresh water for like all of the northeast with all the Great Lakes. It was a really good way for us to point to this is what can happen if this is left unchecked and if we don’t do something about it. And that really got people talking. So it’s interesting to see the level of some of the algae you were like literally can coat your whole body. You just think that there are little plants, but they can get pretty gross.
Jay Clouse: 00:13:06
Yeah, it’s wild. At the time I was interning with the newspaper in Solon, Ohio and as covering this for a summer and it was just bad news bears. But uh, we’ll, we’ll save that for another time. I’m interested to hear your interest in a lot of things. And you went to Toledo. How did you land in chemistry to begin with?
Tony Bova: 00:13:25
So in high school I had to like big passions. One was the arts. I took all the fine art classes and I was super interested in graphic design. Um, I was always fascinated with like branding and logos and things like that. Call me a child of the eighties and television at its best, but also I was super interested in the sciences and chemistry was my favorite class. So by the time I got to Undergrad I’ve dabbled around with a few different majors and decided that after doing two years of graphic design that I really liked it better as a hobby. But chemistry, like the science always pulled me back. So got interested in that. Mostly because I started learning that at a, I don’t know, call it an atomic level in my elementary chemistry class, you can start to define what everything is made of and that making new things is a little bit of work to essentially shuffle the atoms and electrons around it. It’s pretty a reductionist viewpoint of what chemistry is, but like from somebody coming into it, that’s always been what’s kind of held onto me and just fascinates me that we can do so many things in the world just by manipulating things that we can’t see. So I took that for what it was and decided that chemistry would be my major and saw where it would take me.
Eric Hornung: 00:14:40
I’m always fascinated by the overlaps that we don’t see coming it. Was there any overlap between you doing two years plus high school of graphic design and what you’ve done now in the chemical field chemistry field?
Tony Bova: 00:14:55
I don’t know that it’s an obvious overlap and
Eric Hornung: 00:14:57
those are the best kinds.
Tony Bova: 00:14:58
Just tested this, but I personally have. I’m a perfectionist to a fault. So design is something where like if I’m talking about making a logo and like pixel perfect alignment or something like I really, there’s a lot of satisfaction there and in the science and engineering fields, like there’s a lot of high precision stuff. So from how much more precise can you be then actually designing Atoms and how they link up to make new molecules and materials and chemicals and stuff than chemistry. So also in organic chemistry you draw your molecules and that was kind of an art outlet as well. So
Eric Hornung: 00:15:34
Do you just love drawing benzene rings with like the perfect little,
Tony Bova: 00:15:39
I’m pretty sure one of the undergrad research projects I did, I synthesize a new molecule that had never been made before, which I learned later on is not as big of an achievement as I thought it was at the time, but I’m still proud of it. But yeah, like I doodled that thing everywhere. I was so proud of it. It was my facebook photo for a long time. So yeah. Alright, I’ve been there.
Jay Clouse: 00:16:01
That’s amazing. So talk to me about the progression then of your friendship with Jeff. So you and jeff entered this competition, it didn’t go your way. Did you guys continue to work together immediately following that or was there kind of a break in the action? What was that progression like?
Tony Bova: 00:16:20
We did. So on that particular project, he and a bunch of other students, we were all in this program together and they are the ones who decided to enter the competition. So my contribution was the design side. I helped kind of distill all of this very wordy, you know, science and engineering to some pretty pictures and some nice diagrams they want often pitched. And again we didn’t do as well as we would’ve liked, but we all really developed this new kind of appreciation for each other’s passions and sustainability. So Jeff, myself and another group in some of these same students decided that there was more that we could do that was tangible while we are at the University of Toledo. And so we took a little bit of inspiration from. There’s Bowling Green State University, which is like 30 minutes south of us. There are I 75 rival, if you will, if you guys are from Ohio, you know that corridor, uh, but they had a program called a student Green Fund there and what that was is essentially a way for students to put five bucks a semester into this pot of money that the students themselves could then apply for grant funding to make sustainable projects and improvements on their campus, whether it’s senior projects are eventually really big things like green roofs or solar panels or something. We didn’t have that in Toledo. And the university had a report card of sustainability in higher education and for student engagement two years in a row, they got like a d and an f. So we said that if the administration’s not going to do it, let’s do it together. So that was the first really big project that we worked on in over two years. We got this off the ground, started with an opt out or an opt in program where our students could elect to put five bucks in. And I was the president for the first year and we got some money raised and installed a bunch of water bottle refill stations on campus and then Jeff took over as president the next year and was able to get the administration and student government to pass legislation to let it be opt out. So now the fund I think has, you know, upwards of six figures in it and they’re looking at big no renewable and sustainable energy projects on campus. They have a bike share program. They installed these picnic tables or on campus to have solar panels and outlets. You can sit outside but charge your stuff. And all this happened with very minimal effort from the university administrator. So it’s something that we were really proud of and that’s really how we started this working relationship together.
Eric Hornung: 00:18:41
So help me understand a little bit about why sustainability is like your thing. Why did that click with you? Why do you get excited about that? You could have, hypothetically, I guess you’re a chemical engineer. You could have went out and made a lot of money working in a non sustainable field. What was the, what was the drive? What just like was like why sustainability?
Tony Bova: 00:19:02
I think just for clarification of a chemist, not a chemical engineer, so sorry, I didn’t want to do all the math that the chemical engineers did, so chemistry was the better route for me, but one of the things that really drove me in that direction was I think like every other high school, college bound senior, I looked at all of these us news and world report and they were like, oh, chemical engineering has the highest base starting salary. And then I started looking into it and most of those people were like petroleum engineers and I started seeing the type of work that they did and it was interesting to me but like I didn’t get jazzed up about it and I had a lot of long conversations with friends who are already graduating or are in Grad school about is this something that you actually want to do for like 30 plus years of your life? And it. It didn’t seem like that I wanted. So the sustainability side came in because in the back of my mind I had always thought about growing up, you know, I, I lived in two households, my mom and my dad were separated and I got to see my dad’s side of the family who was well off and then my mom’s side of the family, oh, it’s not like we had issues or anything like that, but there was, it was more obvious to see different lifestyles to me, but different income levels. And so I always tell this story that my first day of kindergarten I got sent to school with my little Alph lunchbox and fifty cents for ice cream at lunch. And I knew that we didn’t throw food away at home. So I bought ice cream, but I didn’t eat it because I was too busy talking to all the new friends that I made because I’m a kindergarten, right. So I put the ice cream back in my lunchbox and took that home and that made a huge mess. But that kind of mentality as a little kid always followed me that like anything that we have shouldn’t necessarily be something that’s wasteful and anything that we make shouldn’t be something that is has negative consequences later in throughout chemistry and everything. In an Undergrad. I think my second year of organic chemistry I learned about bio polymers and biodegradable plastics and things like that and I saw this was the beginning of a lot of these stories about plastics in the ocean and landfill pollution and things like that. So all of those things together were like, I want to take the science that I’m learning, I want to apply it to the area of sustainability because I like the planet to be around for a long time for me and future generations. And then that whole process with Jeff and the businessman competition, I started to see that doing this could be a way that people could actually make money from that wasn’t. Didn’t come with this kind of environmental guilt, if you will.
Eric Hornung: 00:21:36
Is it safe to say that you’re not a fan of plastic straws?
Tony Bova: 00:21:40
I’m not a fan of plastic straws. I think that they have their place, I think there are some people who, you know, it helps them if they have other sort of disabilities or things like that, but um, I don’t know that it needs to be like everywhere you go, here’s a free plastic Straw. I think there’s a bit more responsibility that needs to go into designing the things we make so that at the end of their life there is a path that we’ve actually thought about for what happens to them, whether it’s recycling, turning them into something new biodegradation and the ground or compost or whatever.
Jay Clouse: 00:22:11
So help me close the gap here in terms of timeline. That makes a ton of sense for me. Conceptually. What year was this pitch competition? And then when did you and jeff start working towards what a began as grow bioplastics and is now mobius?
Tony Bova: 00:22:25
I think that pitch competition was my senior year. It was 2012 in the ball and then in the spring of 2013 I graduated. Jeff graduated the year after I had gone off to Grad school. I had looked around for programs that had a broad kind of interdisciplinary timeline. Then I’ve found that the University of Tennessee has a program called the really long name, the Bredesen Center for Interdisciplinary Graduate Research and education. Thats a whole mouthful, but essentially it’s a program that took students from a wide variety of scientific backgrounds and gave them the opportunity to work on their science all related in energy and then on the same line we were required to take classes in either public policy or entrepreneurship and technology commercialization. The goal being that you can pop out as a scientist that knows more than just how to talk to other scientists but can talk to the business world or policymakers about these important issues. So I went down there. I got super hooked on all the entrepreneurship classes and the idea of starting a business from your research convinced jeff that he should come down to the University of Tennessee too and learn about all this stuff with me. And that first year is when I think the idea sparked based on the research that I was doing for these essentially waste based plastics. And that trickled on a. I took a class where we put together a, let’s call the business model canvas, just to kind of a simple one page outline of what a business could look like. And then when he joined the program the next year we took that to the next level and we wrote out like a much more detailed canvas and we entered a pitch competition again at the university. This was 2014 now and this time we won. We took first place all of the thousand dollar prize, which there were four of us on the team, so it wasn’t a ton of money, but it was more validation that maybe we were on to something the following year in the fall of 2015, I took an mba course called new venture planning at the University of Tennessee. And in that took this idea that we had for making these biodegradable and compostable plastics and really flushed out an entire business plan. And at the end of it, our instructor, who’s the executive director of the school’s entrepreneurship center, said, no, you really have something here. I really want you to consider moving forward with this as a business if you’re serious about it. Don’t think that he thought so literally that like two weeks later on Christmas break that I would start a company at like 11 at night online and file for an LLC and dropped that $300, but there it was. So I got back. I called Jeff and said, hey, do you want to join me in this venture? Like we’ll, we’ll take what at the time was called girl bioplastics. That was the original name of the company. He’s like, yeah, I think that sounds like a good idea, and so I was like, great, because I already started the business or now committed. So that’s kind of how it all came to be.
Jay Clouse: 00:25:20
Tony, something that’s really impressive to me from the story you’ve told so far and also some of the funding sources, I know you’ve gotten sense is this resourcefulness that you’re showing in finding alternative modes of funding and also even just this course like new venture planning course. Where did you find these resources that you have someone who is helping you, or is that just kind of always been part of your DNA that you look for these things?
Tony Bova: 00:25:46
I think that I’ve always been a person who just tries to go the extra mile and do a lot of due diligence on opportunities that exist. I’m the person who will go, I guess beyond the first page of Google results to dig in to see what else is there. Um, but I think a big inspiration in this part is there’s a conference that I go to every year that’s about Green Chemistry and sustainable engineering and they had a pitch competition the first year that I was a graduate student and I watched the company that won. They won like $10,000 go through all of this. And then I ask them like, how did you come up with this? And they’re like, oh, we’re graduate students. And they had gone through a similar program and I was like, how many other programs like this are out there? And there’s like, there’s hundreds, there’s pitch competitions and every state and every university. So at that point, jeff and I started going through all kind of the process of just every publication we could find every list. We started building this huge a list of these opportunities and applying to as many as possibly could. It started with one for like a thousand bucks at the university and then ended up with $63,000 that we won at Baylor in 2006 or 2016 I think. Two thousand 16. Yeah, in total we want about $134,000 across the country and some internationally from all these different things. A lot of it was newsletter mining and then a lot of googling and following people on twitter and just every time we’d see something we’d add it to the list and see if we could apply
Eric Hornung: 00:27:10
and maybe now’s a good time to kind of state what grow bioplastics was and what mobius is.
Tony Bova: 00:27:19
Sure. So when we started the company, the idea was that we would take this waste material from the paper industry. It’s called Lignan. It’s a essentially, it’s a naturally occurring material that’s found in all trees. And grasses and it’s the glue essentially that holds these plants together and let them grow tall. It accounts for about 30 percent of the weight of every tree that you see outside and it’s what these paper or biofuel companies have to strip away to get to the cellulose inside, which is what lets people make fibers to make paper and things like that. And what those companies do with this is they normally just would burn it and they would capture some of the energy or heat from it and my graduate research was focused on working with these materials to find out how to make plastics out of them so it essentially, it’s a, it’s a polymer, a Lignin, and we found that we can use it to make new materials that were useful, that behaved a lot like petroleum based plastics but weren’t made from petroleum so they had a better carbon footprint in the process. The idea for grow bioplastics and the beginning was that we would make these materials biodegradable and that we would use them in applications like agriculture where they could be a replacement for plastics normally result in a lot of waste. So one of the early areas there was in farming, any sort of specialty crop which is like fruits and vegetables, tomatoes, strawberries are good examples. They used this material called plastic mulch film. It’s essentially the thickness of a trash bag. It’s a black plastic film that stretched out over these long mounds in the dirt and farmers stretch this out and they go behind and they poke holes in it and they plant their crops and what it does is it blocks weeds primarily, which is why it’s called the Mulch, but it also retains water and then it allows them to extend their growing season so they get a better yield at the end of the season, which is great for them, but it costs that I’m at the end of the season three to $500 in labor and landfill fees to remove the plastic and send it off to the dump. So we said if we could take this plastic but we’re working on and then we can actually make it something that they can just plow into the ground when they’re done, they’ll eliminate all those costs for disposal. There’ll be less plastic going into the landfill, which kind of helps us meet the mission that we had to, you know, be a sustainability or an business. And then at the same time the Lignan itself, it’s the same material that’s like in compost that makes it really rich and he adds a lot of nutrients to the soil. So that’s where we started where we’re at today with mobius as we learned that if we’re going to be in the business of designing new materials that are from waste. One plastic is a, a huge, huge market. There’s lots of different applications. So we didn’t want to limit ourselves just to agriculture, but that’s where we’re starting. And then in the future, both of us have had this passion for finding ways to take waste streams and convert them into useful chemicals or energy or materials. And we wanted to build a business that would allow us to do that over and over again. Uh, so for example, Jeff, his masters research was taking wastewater and running it through a system that’s called a microbial fuel cell. And from that he was able to generate hydrogen or methane or electricity directly. And so both of us had this passion for is taking essentially anything that’s waste and turning it into something that’s valuable. And so we decided we would rename the company. That was something that didn’t only restrict us to plastics to mobius. And then we created the new tagline that we have now is that there’s wonder and waste.
Eric Hornung: 00:31:02
What does mobius mean?
Tony Bova: 00:31:05
from all of the branding and design classes I took, one of the first lessons I always learned is that if you can take a word or a name or something that doesn’t have a ton of meeting in the public eye, it’s kind of an empty vessel to pour things into. So while mobius is not a made up word, it’s actually the last name of a mathematician who I believe is German. He had this mathematical concept of many of the works that he did for something called a mobius Strip, which is essentially if you took a rubber band, you have two sides to it and there’s an inside and an outside, but it’s a closed loop. If you cut that rubber band twisted one side and then reconnected it, you’d then have a single sided object, so if you trace around on the middle will eventually end up in the outside and then back on the inside. And to us that was a play on infinity and the idea of an infinite loop for materials as chemists and biologists and engineers, uh, was really one that resonated with us. So it’s a little nerdy too because we’re nerdy, but a lot of people really know what it meant. So it was a good idea for us to brand in that direction.
Eric Hornung: 00:32:07
A little nerdy your Skype name is a play on Bobba Fett from star wars,
Tony Bova: 00:32:15
Boba Fett. If anybody else wants to find me on skype.
Jay Clouse: 00:32:19
Tony, I want to make sure I heard you correctly. You said for the farmers at the of the growing season to remove the plastic and send it to the dump that was $300, $500 in labor costs?
Tony Bova: 00:32:30
It’s a combination of labor costs and then landfill tipping fees so they’ll have to rent a dumpster or take a giant truck full of plastic. And the problem ends up being that other plastic may not weigh a lot when it goes out. It’s still about 160 pounds or so per acre to cover these fields and they pull it back up. It can weigh two to three, even four times as much because it’s full of dirt and sticks. It may be contaminated with pesticides and all these landfills charge you by the pound. So if you’re bringing in stuff that weighs a lot more, that’s expensive for them to dump it in a landfill. And then if it has pesticides on it, there’s sometimes other fees on top of that for hazardous waste. Um, and these are all things that we saw is kind of pain points that these farmers had while they really loved the benefits they get from the films. They really hated the costs that came with throwing them away every year.
Jay Clouse: 00:33:22
What’s the cost of actually acquiring them in the first place?
Tony Bova: 00:33:26
It’s about $300 per acre. If they come into a giant role that looks like a roller trash bags essentially that’s between like three and six feet wide and about 2 – 4,000 foot long. So ways maybe like an average one might weigh about 80 pounds. And then they, they put them on the back of a tractor with this special instrument that kind of makes the mounds in their soil and tucks the plastic into it and pile some dirt on the side to hold it tight.
Jay Clouse: 00:33:53
I got to know how you came to the conclusion that this was an opportunity in the first place. I can’t imagine you are in the lab and making this plastic and you said, you know where this could go in the fields for specialty crops.
Tony Bova: 00:34:07
No, it definitely wasn’t the first thing. So that very first pitch competition that jeff and I won for a thousand bucks, we had dove into these different markets and we were just looking at plastics as a whole and thought that the places that we needed to focus was one where people would resonate with the story of this as a sustainable solution that’s made from renewable materials and that people had some price flexibility in what they wanted to pay. And those areas we looked at were like baby toys, pet products, outdoor gear and three d printing. And so we went after Three d printing in that pitch competition because that was going to be a smaller market that was easy to like get ahold in and it’s if you’re in like the craft beer scene, how you’ll try every craft beer that comes out at least once. Most Three d printing hobbyists who like that. We realized that eventually that was too small of an area to start and getting there wouldn’t be the big really visible impact that we thought that we needed to make. And so it was actually driving around. I’m in Tennessee and seeing these huge fields covered in plastic that made me start to think like, what are these north of us in granger county. There’s a lot of tomatoes that are grown in a well known area in the state for these. But having seen those plastics everywhere, I started to think that this might be something and I started digging more into it and finding out that they had this waste problem. So we really started to take that opportunity to go out and talk to farmers. We leveraged, you know, partnerships at the university to go and talk to the extension offices, who are the people who are the ones who communicate new technology from the university to the farm and really just, you know, got out of the lab to answer your question and talk to the actual farmers to see if this is worthwhile. And a lot of them said it was a big problem and they would love to see solutions for it.
Eric Hornung: 00:35:56
And how many farmers have you talked to at this point?
Tony Bova: 00:36:00
Over $100. So we went through a program through the National Science Foundation called ICORE. It’s an innovation corps, uh, and it’s built on the teachings of Steve Blank from Stanford, which is the whole like lean launchpad, get out of the lab, get out of the office and go and talk to your customers before you build your product. And so we took that to heart. We talked to over 100 farmers and the first icore program that we did from big to small. So a little organic farmer in Knoxville, Tennessee to like somebody who manages all the farming operations for someone like driscoll’s berries out on the west coast that grows, like, you know, more than half of the berries and the United States. And that’s really where we learned a lot about this process.
Eric Hornung: 00:36:43
So you mentioned earlier that price flexibility was one area you were looking at and now you’re in farmers. I’m curious what you identified as the farmer’s problem was and how they fit into that pre molded idea of a customer is having price flexibility.
Tony Bova: 00:37:02
So it’s interesting. I definitely think that the direction that we had in mind then is still one that is really useful for startups. If you can find a niche area where there’s a lot of kind of elasticity in what a customer might be willing to pay for your product because the value that it brings them as high that they can see whatever that Delta is. Farmers in the beginning we thought would be one of those groups. Uh, we thought that if we said if it costs you $300 to buy plastic mulch film and it costs you $300 to throw it away, maybe we can split the difference and sell it for 4:50 an acre. If that was the goal back when we first started the company and then you save $150, we make $150 over the competition. Everybody’s happy. We very, very quickly found out that that is not how farmers think. Farmers think all about their upfront costs and in their mind, as much as they hope to have a good harvest and you know, have profits from their crops. It’s never a guarantee. So they want to manage that upfront cost. So going after them was definitely a shift in direction for us. We had to kind of swallow our original thought that we could find in high margin area and then going after the farming or the greenhouse operators who were had like plastic containers, you know, pots of flowers and trees. They didn’t have the desire, the ability to pay more. But for them the outsized impact was still really important enough to. They would be coming to us and say, I want to try it at least.
Jay Clouse: 00:38:32
What did you learn as far as how your model will work if they’re focused on the upfront process? I know you guys are pre revenue right now, but what’s the plan for how you would sell this to this group of people?
Tony Bova: 00:38:44
So the way that it works now is that we’ve done a lot of work on the development of the materials. We’ve gotten a bunch of grant funding from the National Science Foundation and then also from the state of Tennessee to be working on this. So that’s been really helpful on our end because it’s non dilutive. We haven’t had to go through the process of getting a ton of investors into the business and then giving up equity for that, knowing that we still have development to do and to figure out what exactly the market is in a path forward. So from some of the accelerators that we went through, what we had learned was if we can find out what these customers’ actual pain points are to the point where there’s a financial incentive for them to want to solve it, those are the same customers that would be willing to put some money on the line to do pilot type programs and in the business of new materials, finding a customer, be it a farmer, be a somebody who has a greenhouse with a bunch of plastic pots anywhere that there’s an opportunity for them to save money in their business is something that they’re willing to pay for in the long run. They’re generally willing to put some money up front to help you develop that. And if not, uh, at least lets you test it in the real world in their facility. So that had been our path going forward. And that’s what we’re doing now. We’re looking at, instead of lots of little fish, tiny farmers, we’re looking at big companies who are either the suppliers of our materials that they have a vested interest in seeing, you know, a raw material like Lignan be successful in the market or they’re an end consumer. Somebody who operates a farm or a retailer that might sell millions of plants every year and has all these plastic pots that are on their shelf that they want their customers to see a more sustainable option. They’re willing to put some money into the process and help us with the development and then they ended up being our first target customers.
Eric Hornung: 00:40:37
Is Lignin expensive?
Tony Bova: 00:40:40
No, Lignin. Generally if you were to purchase it from one of these paper companies can vary a bit in price, but on average, the value that those paper companies or biofuel companies get by burning it, if they’re capturing that heat for reuse in their facility is about five cents per pound. But we can do is the companies that are able to put it on the market. There’s some other capital equipment that they have to install to kind of clean the lignin up so we can use it, but generally between 20 and thirty cents a pound for my raw material standpoint, which is pretty cheap.
Eric Hornung: 00:41:15
What does the process look like? Is it super energy intensive to turn Lignin into. I’m guessing you turn it into some sort of like pelletized version?
Tony Bova: 00:41:25
Yeah, so one of the benefits of our technology is that in the past when people have tried to make plastics out of Lignin before they’ve needed to go through these big chemical reactors that have all sorts of solvents and other things going on that are really chemically intensive and then really energy intensive to separate out what they made from the different reaction solvents. What we’ve done is our technology actually uses standard plastic processing equipment, so there’s equipment called plastic extruders. If you’ve ever played with Plato as a kid and you had the spaghetti gun that makes the colors together and came out with essentially what a plastic extruder looks like, so really big plato, spaghetti gun takes Lignin and then some other biodegradable materials together and get some really hot melts them together and then at the end comes a pelletized plastic and those little plastic pellets, they look kind of like chocolate sprinkles with jeff likes to call them. Is that the raw material? And that’s the actual product that we ended up selling to different customers, be it, you know, a manufacturer of some plastic good. If it’s a drinking straw, a plastic mulch film, a flower pot, a fork and knife, whatever.
Jay Clouse: 00:42:37
Maybe I’m missing something. But for you to create that, you have to be bringing in the waist. So can you talk about the relationship of how you get the materials that you process?
Tony Bova: 00:42:47
Sure. So the paper companies are some of the biggest producers of laying in and they’re the ones that we’re talking to now. They are the suppliers for us. They generally produce this Lignin and in their normal course of operations, if they’re not trying to sell it, they’re burning it. A lot of them are seeing that there is a financial upside to sell it and especially for an industry like paper where the digital age is kind of pushing paper to the wayside. There are some companies who have been kind of, you know, forward looking enough and had the forethought to say how can we take what is normally a low value product for us that we burn and create more value from it and other materials fuels, whatever that aren’t necessarily just paper to bolster our business. And in doing so, they then take this lignin material that’s their waste product and they separate it from their process. They cleaned it up and then we get it from them so we can purchase it from them is a brown powder that looks like cinnamon essentially and then take that and then that is what goes into our process. We don’t need to do any modification to the material or any sort of other processing, which is another advantage that is there’s a time, money and energy saving standpoint to not have to change it at all.
Jay Clouse: 00:44:01
Okay. So to the paper companies, if they’re burning it, that’s worth about five cents per pound in value. They recognize you’re offering them probably more than five cents per pound. Putting it through the process and then selling it to your end customers for more than whatever it costs you to purchase and then also prepare.
Tony Bova: 00:44:22
That’s right. Yeah, so the, the total materials that go into our process, our Lignan, there are some other biodegradable plastics that exist on the market that are combined in the technology using this equipment. A few other additives here and there that are kind of the secret sauce, if you will. At the end of the day when these come out, the total cost us is somewhere between 70 and eighty cents per pound and then we can sell that to people who were buying these plastic pellets for, you know, the target in the long run would be to be able to sell them for a dollar a pound, but our margins would have to increase over time with scale. So in the beginning we’re planning on selling them for around a dollar 25 a pound, which is nice because if you’re looking at other biodegradable plastics on the market right now, they can be as much as two or $3 a pound while our materials are cheaper than that. Uh, but we’re still a little more expensive than petroleum based plastic. Like a polyethylene that you might see like a trash bag or a milk jug made out of it can be a dollar a pound or so.
Jay Clouse: 00:45:26
So with these pr proposed customers of the, I think you said some of these bigger companies who buy this in bulk or the farm operators, are they confirming your assumptions as far as these price points? And the volumes that you think they would buy, are they just waiting for you guys to kind of get the process going or what’s. Where do you guys stand right now? I should say
Tony Bova: 00:45:51
the current status of the technologies that we’ve been able to demonstrate that we can make it in the lab and then we are using equipment that’s standard in the plastics industry for doing this compounding is what they call it essentially to make different formulas or recipes and then the next step is to take that with one of our manufacturing partners and scale that up. So instead of making you know a little bit in a lab at a time, we’ll go to them and they’ll use their big equipment and then we’ll make a few hundred to a few thousand pounds an hour on those lines and then have that. And then that material is what will then bring to the manufacturing partners who we’re working with for these pilots to then go and make mulch films for farmers or plastic flowerpots and stuff or greenhouses. We’re hoping that by the end of this year we’ve got that process started where we have materials demonstrated made and then off in the hands of the manufacturing partners so that the beginning of next year we can hit the ground running with these pilots and really start showing that the applications we have in mind are as valuable to those end consumers as we believe that they are and that they believe that they are as well. On the pricing standpoint. You hit the nail on the head. Everything is really driven on the conversations we’ve had with them. So it’s not really a business that we could just wagging her finger out and say this is the price and hope that they buy it. A lot of these manufacturing operations are pretty tightly operated chips and they have some wiggle room depending on what the product is, but knowing that if there is a value add to the end user that that really helps them have a material that may be a little more expensive. So if we’re talking about, you know, the plastic straw is a good example. If somebody wants to in their store of a big company like a a Chipotle or someone that Mcdonald’s starbucks or in the news and they want to have a biodegradable alternative, they’re likely willing to pay a little bit more for that maybe 10 percent to get to that point in areas where there aren’t those kind of extra margin dollars. We need to be able to fit into what they’re currently working. A price categories are.
Eric Hornung: 00:47:59
So you called the people who are going to do all the processing manufacturing partners. I’m familiar with the industry terminology of toll lane companies. How is there a difference between what you’re calling a manufacturing partner and what a toll lane company is and is there any sort of like. Actually yeah, if you could just kind of answer that in the context of mobius.
Tony Bova: 00:48:21
Sure. So I would definitely say that what we’re considering a manufacturing partner could be viewed as a pole manufacturing relationship. So a toll lane company is where we would have a very particular thing we wanted made and their business is to take somebody who’s recipe for some chemical or plastic or whatever and then make that for you based on those specifications, but that’s the end of the relationship there. They make it for you. You pay them their fee and then it’s up to you to take that material and then go and sell it. For us, we’re. We’re talking about manufacturing partners and a broader sense because to us, the companies that we’re working with, they’re already in the business like a toll manufacturer of making plastics, but they have their own customer bases for products that they sell that are interested in some of these new materials. One of the companies that we’re talking with that will be helping us with some of this work here in Tennessee has customers that actually make plastic mulch films, so there’s a, a deeper relationship that we can strike up and that can let us actually have in the longer term, we feel a better pricing structure for these manufacturing relationships through future opportunities, through either revenue share on the actual end product if there’s no business that they can bring and that helps us just to have more clout on our side rather than somebody that we had to pick up out of the industrial manufacturing phone book. If there was such a thing.
Jay Clouse: 00:49:47
We did some research or try to do some research on the market size here. Can you talk to this as to what you see as the market opportunity? Assuming everything goes according to your plan and you guys are out there?
Tony Bova: 00:50:00
Sure, so I think from a super high, like 10,000 foot view, the plastics industry at whole is enormous. It’s over 500 billion dollars but again, through all of the classes that we’ve taken, we’ve learned pretty quickly that we can’t just point to that and say that that’s the market. Our plastics are pretty much always going to be black in color. That’s standard from the lignum material. So there’s some limitations there. And then the applications where people are interested in something that renewable, possibly biodegradable or compostable as well, narrows that down. So we’ve built from like a bottom up view point of starting in agriculture in agriculture. The three areas that were the most interested in are the plastic mulch films that I mentioned, which globally there are about a two and a half billion dollar market. There’s a material called silent wrap. So for anybody who lives in rural America and who has seen cows out in the field, all the hay that they eat as often put, it used to be put in actual silos where it would sit and that it would ferment like beer over time to a mock the sugars for the cows to eat, but now they wrap it in these big plastic bails. Uh, you may have seen a lot of that out there. That’s another area where there’s a lot of plastic that’s used once and then the last year that’s about two and a half billion dollars. And then the last area is the containers. So every greenhouse nursery you go to that you see a flower, a plant, a tree in a plastic pot. Most of those plastic pots are used once maybe their rinsed out and use the second time. But in a professional environment there’s a big risk of contamination from a given disease. There’s about $5, billion dollars of plastics in that area that are used right now. And for that one, and I haven’t talked explicitly about those, but the idea there is that we could create a plastic pot that’s made out of our material that at the end of the day, if it’s a farmer doing transplants, they have these little ones. They could just plant the entire pot together, not need to pull it out. There’s less risk of damage to the plant and it makes for easier automation, which is really interesting for people. Or if you’re a retail consumer and say you go and you buy a a nice pretty flower plant, like a hydrangea that costs like 25 bucks from Lowe’s or home depot and you may or may not have the most green thumb and there’s a chance that you might kill the plant trying to transplant it and then it just doesn’t grow, dies. If you had a container that was designed to degrade but could keep the plant alive that you transplant the whole pot of food kind of incorporated into the plastic. That would be another solution that we would have these degradable plastics for that would allow some retailer like a in you home improvement space to be able to charge maybe a little bit more for this easy planting pot. Again, that in total across all of those spaces is about 10 billion dollars in in agriculture. After that, and we’re considering that the first phase of our company to address these agricultural use cases. We’re very interested in expanding out from there, from the plastic standpoint to be able to sell things into food service, which requires some testing from the FDA to get food contact approval. So that’s why we’re not targeting that first. Um, although we are very interested in going there as quickly as possible for things like straws, forks and knives, coatings on cups, there’s, there’s a lot of interest in that space. And then after that, the biggest fish in the plastic spaces, all things packaging. So whether it’s flexible packaging, rigid packaging foams, you know, finding a replacement for styrofoam that isn’t really damaging. All of those are areas that we’re really, really focusing on.
Eric Hornung: 00:53:41
Who else in the industry is trying to do or compete with you guys or are you competing with in the agricultural use cases You described the first three and then in the first phase?
Tony Bova: 00:53:52
so we generally kind of point out three categories of competition in this space. The first one is obviously the petroleum based plastics. They’re the incumbents there, the titans of industry, if you will. It’s like the Dow dupont of the world, Sabic, which is a big company that’s based in the Middle East that has a really strong history. They. They bought ge polymer a while back. There’s. There’s plenty of other companies that are making these plastics from petroleum or natural gas.
Eric Hornung: 00:54:21
Just A couple of small upstarts.
Tony Bova: 00:54:22
Yeah, nobody you’ve ever heard that before. So it’s interesting because a lot of them don’t have a strong focus on developing degradable materials. They are increasingly in to their credit, trying to improve the sustainability of their operations, but at the end of the day they’re still using fossil based resources, which you know, whichever Dre, that direction that you have opinions on that. It’s very important for us to understand that carbon is an important thing that we should track in the world and as businesses that’s a good responsible area that we should focus on. So there’s those companies, the next set of competition that we point to our companies who are still using petroleum based materials but that are actively trying to make biodegradable products. So vasf is a really big one. Again, if anybody knows who would vasf is they are also not a tiny little startup, but a very big company that makes lots of things in the world. They have some materials there. Some of them work well, some of them don’t actually degrade in the soil, but only in industrial compost, which is really high temperature conditions of like 140 degrees that you wouldn’t find on a farm. Those I think are interesting because they have long term visions for creating these materials out of sustainable resources, but petroleum Is there a game right now and then the third category are the other people who are doing biodegradable or compostable plastics that are made from plants or other products. So in this, this is where lots of the little startups are. There’s a few big names out there right now. There’s nature of works, which is one. They’re a joint venture between cargill and who’s a big corn company and then another company, I can’t remember who it was at the top of my head. They make a plastic called PLA. They’ve had a lot of success there in the food service space. One of the issues with their plastic as it can only be degraded in a compost facility, it can’t be degraded in the soil. And then there are other in the agricultural space that are making materials out of starch, like corn or potato starch, a, there’s a company in just call them all out. I guess there’s a company in Italy called Novamont. We’ll make some material out of starch from potatoes and corn and they’ve had a lot of success in the agricultural space, uh, to us. And from the conversations we’ve had with farmers, one of the drawbacks of those materials is one, there are still two to three times the price of the petroleum based plastics and these end users in the agricultural space, they aren’t able to control the rate at which the plastics break down very well. So sometimes they don’t always work for every application. And so that’s where we’re trying to differentiate ourselves. And one we’re going with the material that’s based on waste resources, not necessarily on something that is taking away from food. So we’re not using a food based arable land we have in our technology the ability to kind of tune how long these plastics take to break down, whether it’s in the soil or in compost, and then at the end of it we’re really hoping that one of our biggest strengths is that we’re going to be one of the lowest cost on the market and hope that we can just get more penetration with renewable materials for everybody.
Jay Clouse: 00:57:39
How secret is the secret sauce in that for you to compete on price like that? Do you have a specific process that you guys have protected with Ip or patent?
Tony Bova: 00:57:51
Yeah, and so we’re actively working on that right now. Everything is proprietary at the moment and there are patents that were getting ready to file. One of our key research partners is Oak Ridge national lab, which is one of the Department of Energy laboratories. I didn’t mention this in the beginning, but all of the research that I’m doing for my phd is at Oak Ridge National Lab as part of our graduate program. So we’ve got kind of their strength behind us as well in that area.
Jay Clouse: 00:58:19
Does that mean that Oak Ridge has some ownership stake in the technology to how does that work?
Tony Bova: 00:58:25
Yeah, so Oak Ridge has some ownership stake because some of the core part of the technology came out of the work that I was doing for my dissertation. They have some rights in that and the path forward that we see with them is that we’re working on right now, uh, outlining the last bit of the essentially, the development. So there’s the process usually is there’s an invention which is an idea and then you can disclose that invention. Then that becomes something that the Department of energy or your university, if you’re at a university will have internal to them and then they work with the inventors to go through and reduce the invention to actual practice. And it’s once you’ve been able to reduce it to practice, so to say, we’ve now gone from paper to actually performing it, that patents start to get filed and we’re in that phase right now, we’re working with them directly on reducing this to practice through our grant funding and then from work from them you get to the point work together will file patents, they will have some rights in there, but the end goal is for us to have exclusivity on the materials so that we can not be kind of handcuffed in any way and be able to take these to market for not just agriculture to start, but any other sort of field of use in the future.
Eric Hornung: 00:59:42
So you started by winning pitch competitions, then you went to grants and maybe those happened a little bit with a little bit of overlap. You’ve raised a little bit of venture funding. What is the future of funding this enterprise and the growth that’s needed to get from pre revenue to revenue look like.
Tony Bova: 01:00:01
So the plan right now is we’ve got some other opportunities for grant hunting to also come through. So the first grant that we were funded with from the National Science Foundation as part of a program called the small business innovation research program, or SBI are super great program for anybody who has any sort of technology related thing. I don’t want to say it’s free money. It’s definitely a lot of work to put these applications together. But if you’re able to get one, they don’t take any ownership in your company. There’s a phase two for all of those programs. And in the case of the National Science Foundation, the first one we got was for $225,000. The phase two program is $750,000 and so we’re going to be applying for that in February. So that’s really promising. The other angle is that their adventure funding that we’re going to have to raise. We’ve done a little bit last year and then we have one investor that we brought on this year and then more that we’re looking to. To the extent that I’m allowed to state that publicly, I won’t go into the details of the race, but we feel that beyond that, that should be enough with these potential paid pilot partnerships to get us to the point where we’re ready to commercialize. And then post revenue. I think that it would likely end up being two more rounds of funding to get us to this scale where we feel that cashflow from the business can be bringing in enough to fund the operations and production of these plastics with manufacturing partners. But a key feature of our is that in the plastics industry, there are enough of these kinds of manufacturing partners where we won’t need to be the ones who build big plants and put steel in the ground. Uh, we can be working with these people who do the day and night already. And then that gives us the flexibility that as this business matures, that we can really do what the longterm vision is, is find that next kind of waste to value innovation and then do it all over again. So, but one step at a time.
Jay Clouse: 01:01:57
So tell me one last question for me and I’ll see if eric has anything left. You obviously started this at the University of Tennessee because you were there. What does being based in Tennessee do for mobius now? Is that the best place for you? Are there other places that just by happenstance we love to get your take on starting the company here sort of in the heartland.
Tony Bova: 01:02:19
So I think in the very beginning there was definitely a draw to entrepreneurship in general, but I think that we have some advantage by being in Tennessee is that we weren’t already indoctrinated into what like the Silicon Valley West Coast type of startup environment looks like where it’s super high burn rates and a ton of money and you have to go super, super fast. It’s really advantageous to be here in Tennessee is because one cost of living is super low so like our lab literally is in a garage on a farm house that was built in the 18 hundreds. I don’t know that you could find that anywhere else, but it’s super cool. It’s allowed us to build the capacity that we need to do this on a shoestring budget that we’ve been able to fund with pitch competitions. That’s really valuable where we are here between the University and Oak Ridge. There’s a really high concentration of really smart people that if they’re not working for us, they’re more than willing to advise us and going through this process of getting really good advisors to help us build the company off the ground I think is something that in other areas of the country, you just may not have the time that these people are willing to put in. And that’s a huge deal. And then in the long run from like a geographical location, we didn’t necessarily plan on this because we were here for school and then started with the business tier. But Tennessee is so centrally located to the rest of the United States for within an eight hour drive of something like 75 percent of the country, which is a day in a car. We’ve done that plenty of times already. Um, and then if we end up doing everything as planned and there’s opportunity for manufacturing, the manufacturing may not need to happen here. It could be, you know, wherever it makes the most sense logistically to move these things to manufacturing partners through truckling lines or rail lines. But as a headquarters area, I think that this is an area where we will always maintain a presence due to the connection with the university and the national lab and the goal of continuing to funnel, you know, new talent and intellectual property and technologies out.
Eric Hornung: 01:04:22
And you’re in Knoxville, right? Just confirming that.
Tony Bova: 01:04:25
Yep. Yeah. We’re in Knoxville.
Eric Hornung: 01:04:26
Why do they call it a scruffy little town you have at the bottom of your website? I’ve never seen that before.
Tony Bova: 01:04:32
You know, Jeff would have a better answer. Knoxville itself has the name of like the nickname of like the scruffy city. And I think that a long time ago there were some reporter, I’m maybe misquoting this entire story, but there was some reporter who had came and visited and wrote about Knoxville and that it was like this scrappy, scruffy little town that just wasn’t, will or wasn’t afraid to stick their neck out and kind of grow and Knoxville, it’s continued to grow. But the people here have wanted to kind of maintain that scruffy culture of like, we’re scrappy. We’re not, you know, the same as what you might consider as like the rural deep south. But we’re also not like a New York or Chicago where we’re doing our own thing. I think that we as students who came here and started a business have absorbed that, uh, which has been nice. You know, the city has, I have to give credit where it’s due. There is an entrepreneur center that started the year that I came for Grad school have been instrumental in getting our business off the ground, connecting us with programming. The state of Tennessee has taken a really keen interest. There’s an organization called launch Tennessee that’s based in Nashville and they work with the state and they’re the ones who have helped us get through some of these accelerator programs. We’ve one pitch competitions from them and then they have recently the state of Tennessee started this grant matching program, so if you get any federal grant dollars, they’ll match that up to 50 percent for some of this stuff as well. So all of that together has been super beneficial for us.
Jay Clouse: 01:06:03
Great. Well this has been fantastic. Thanks for your time. Tony, can you, for the listeners, if they’re interested in learning more about mobius or connecting with you, what’s the best route for them to move forward?
Tony Bova: 01:06:12
Sure. Um, so they can visit our website, which is www.mobius.ce Uh, you can find us on facebook, twitter, and linkedin. The name is @mobiusPBC, which is a public benefit corporation, which is what we’re going through the process of right now and yeah, anybody can find us on there and shoot me a message or an email as well and happy to chat.
Jay Clouse: 01:06:39
Awesome. Well, thanks for joining us, Tony.
Tony Bova: 01:06:41
Thank you guys. I really appreciate it. And uh, go tribe.
Jay Clouse: 01:06:48
Alright, Eric, we just talked to Tony of mobius. What are we about to do here in this third segment of our show?
Eric Hornung: 01:06:54
Well, this third segment of our show is our verbal hypothetical deal memo. This is where Jay and I crystallize our thinking regarding the opportunity we just listened to the founder we just spoke with and some of the research that we did independently. This deal memo serves as a basis for us to look back in six to 18 months and get an understanding of what we thought about this deal opportunity. It also mimics what we would do if we had a vc fund or an Angel Fund and we had lps because we would send them notes on what’s the upside, what’s the downside of any potential investment opportunity.
Jay Clouse: 01:07:34
That’s right, and we are trying to answer four questions when it comes to the deal memo. The first being how committed is this founder, second being, what are the founders chances of success in this business and in life? Third question, how does winning look in terms of revenue and my return? and fourth is why has this founder chosen this business? so pretty founder centric questions at this stage of these companies. So we usually start this deal memo by talking about the founder, Eric, you wanna lead us off and give us your first take on Tony.
Eric Hornung: 01:08:06
Tony, you could just tell he’s smart, you can tell he knows this stuff because he was so articulate about some that I think if we talk to other chemists would have been a little too in the weeds and we would have needed to pull him back out and ask for definitions, but he just did such a great job of explaining it in a very. I believe his word was reductionist in a reductionist manner. So I really, I really appreciated that about Tony. I think that his interest in the space is incredibly authentic and demonstrated over time. What do you think?
Jay Clouse: 01:08:44
Yeah, I thought he made some complex at the idea is pretty accessible, which I appreciate it as a non scientist and a non chemist. I really love this idea and as I’ve said before, I’m a sucker for a good story. The length of time that he and his co founder Jeff had been working together on ideas either surrounding this space or directly related to the space I think is really positive from a standpoint of how committed as this founder because they’ve been working on this in some form or something related to this for years while going through university and now getting their phd. What also just really impressed me about Tony and this is part of our thesis of Midwest founders in general, incredibly resourceful, incredibly capital efficient in what seems to meet could be a very capital intensive business. The routes that they’ve gone, whether it’s pitch competitions or grants from the National Science Foundation. I love hearing that as an investor because my money gets more money. Me Putting money in allows them to the runway to continue to explore alternative sources of funding that are non dilutive for everyone involved and helps get this product to market. So from that standpoint, really, really liked jeff and Tony as founders.
Eric Hornung: 01:10:08
Yeah, I completely agree and that’s a great point that you just made with regard to venture capital and Angel Investment into this company. They’ve effectively got $900,000 of funding to date. I believe I did the math right in my head and over half of that has come from or about half of that has come from grants, so as a investor, every dollar I put in gets matched effectively a dollar with federally subsidized one that’s just getting subsidized to invest in people. That’s. That’s pretty cool. From an investor’s perspective,
Jay Clouse: 01:10:44
And none of that was directly spoon fed to him, you know, it was curiosity and following a string. ICORE SBI, our national science foundation, all these things that are things that I’ve heard before. Just kind of operating in the startup space for awhile, but for somebody just coming into it, you have no idea what an Spi our grant is or how to get it or how to apply. For one, you have no idea that I core is this resource at your disposal as a a learning mechanism. You’ve gone through several accelerators. Again, something coming from science background may be foreign to you and then once he kind of identified, oh, their pitch competitions and accelerators that can get money for to build this business, you started, it sounds like sort of obsessivly going and finding these and putting them into a spreadsheet. So I really liked that because that just bodes well for the future as part of his fabric that he’s going to keep looking for those things.
Eric Hornung: 01:11:36
Okay, so let’s talk about some shadows. Actually, Jay, do you want to tell the listeners what a shadow is?
Jay Clouse: 01:11:42
When we say shadow, we’re talking about a concern we have. That may be a major concern may turn out to be not an issue whatsoever,
Eric Hornung: 01:11:50
so we’re thinking with our investor hat on here, there is definitely a more gradual approach about this idea versus some of the other ideas that we have had on the podcast, which is interesting because as a venture capital fund you effectively have, depending on how you structure your fund 10 maybe 12 years to exit in some capacity. Tony’s current situation and potential Ph d and things like that. Give me a little bit of pause for how aggressively they are attacking this idea given the size of the idea
Jay Clouse: 01:12:31
and I think some of that is out of necessity. It almost reminded me of when I’ve talked to people who are in the pharmaceutical space or trying to get something approved by the FDA, which sounds like something he’s gonna have to do at some point too. There are a lot of steps that you can’t just throw money and resources at to get through. You know, the saying that I like a lot is you can’t get nine women together and have a one month pregnancy for things that are a step wise process that can be true and whether or not that is necessary in this space of creating a biodegradable plastic. I feel like that’s an approach that a lot of scientists who are rooted in the scientific method tend to go down anyway. And the good side of that, you know the, the positive side of that shadow is You hear all of this data and information from Tony that came directly from customers or potential customers is price points. His information was totally derived from what I would call user interviews in. That’s a really, really positive sign that the time they are taking is not misdirected. It’s yielding the information they need to go to market in a smart way and be picked up at the time is right. But I agree with you, it does seem like they’ve been approaching market for a while and I guess the concern there is one, you’d have a real concern of whether or not they’re burning through resources and I think they’ve kind of proven they’re not necessarily doing that to you would be concerned if somebody else beats them to market because of the speed and is able to capture the market instead of them. So is that a concern you have in this case?
Eric Hornung: 01:14:08
So the competitive nature and not really, to be honest. Yeah. I think that people have been trying to create biodegradable plastics, biodegradable, anything for decades now. Um, I know that it’s a long process in my, my question about the length of the process has more to do with the venture capital structure than it does this specific opportunity. Because I understand the underlying need to develop some of these technologies and to refine that process and then to find product market fit based on academic research. It takes a lot of time. I, I completely understand that. I was speaking maybe more in context of the venture capital structure and whether or not this is a vc type deal at this point or is this something where once they launched their first product then it’s like, okay, let’s pile on the series a, series b and grow this thing like crazy so that you can invest more in r and D and get more grants, develop more products or we just a little too early. Maybe
Jay Clouse: 01:15:14
I see what you’re saying. My question was maybe a little bit of a leading question because I do have a little bit of a shadow around competition and other people entering the market and the question is, you know, how secret is their secret sauce? Sounds like they’re filing for some ip now, which is awesome. I think that becomes a very good sign, a good moat for their business and adds to the investability of the business. From the VC side, you have the departments or the like the petroleum companies who make petroleum based plastics who in my mind or just wielding limitless resources, so if the secret sauce isn’t so secret or they could find a way around it and they have the just rest of the equation down so they could win on price. That becomes kind of scary, but you know, as we talked about before, that could also be an opportunity where it comes to, okay, we are the dependents. We realized that we need to invest in more sustainable materials. Is it more expensive for me to develop this internally or to buy one of the leading players? Doing it really well and that world though, you’d have to assume that you’d have to wonder if Tony would even want to go down that path. Somebody who’s so passionate about sustainability may not want to sell to one of these major players who has been creating unsustainable products for so long and their. Their vision for mobius is outside of just this bioplastic and this use case, you know, they, they are passionate about creating sustainable products out of waste at large.
Eric Hornung: 01:16:58
And you know, it’s one thing we didn’t ask about Jay? We talked about price comparisons, we talked about material comparisons. We didn’t ask about quality comparisons. There is no kind of back and forth in that interview or in the research we did that says, okay, here’s the benefits of a, a petrol based plastic and here’s the benefits of a Lignan based plastic. And how do those compare? What do farmers say about them? That’s true that I. That I think that was a miss by us.
Jay Clouse: 01:17:32
That’s true. Yeah. I guess I’d kind of just assumed that functionally it’s comparable or better, but um, that was something that probably is worth asking.
Eric Hornung: 01:17:39
So I took a class in Undergrad focused around sustainability, business sustainability, where we ended up going to Costa Rica. And one of the feedbacks from, one of the farmers we met in Costa Rica is he was completely committed to biodegradable farming techniques. He didn’t use any petrol based anything. Everything on his farm was completely green, but he noted to us a couple of times that everything would be a lot easier if he was allowed to use certain fertilizers or certain pesticides. There are certain plastics and that he. It was more work and it was harder to do some of the things he was doing because he was making this conscious decision to be better for the earth and he was hoping that innovation would yield a quality product, I believe it was. He was talking about like flower pesticides or something at the point. The point is there’s a potential for these products to have less of a quality which might yield a competition based on price.
Jay Clouse: 01:18:42
Yeah. It becomes a trade off for the farmer. If this is not yielding the same functional results and I’m paying a little bit more, is the sustainability worth it? To me? I see where that could raise some flags, but the good news about that is let’s say let’s say we were investors will go down the path and we say, you have this checks all our boxes. We want to put money into this. Let’s take a minute and call some farmers. You’d probably get an answer pretty quickly.
Eric Hornung: 01:19:04
That’s definitely true. Um, okay. So let’s talk about the market size. Let’s talk about the opportunity here. What was the number that Tony said was the mulch films number?
Jay Clouse: 01:19:13
2.5 billion dollars
Eric Hornung: 01:19:14
2.5 billion dollars. What do you think about that market size in terms of mulch films?
Jay Clouse: 01:19:25
I mean it strikes me as a significant. It’s an, it’s not an insignificant market. I would be looking more at their top line agricultural market opportunity of 10 billion dollars which was 2.5 for plastic mulch films, 2.5 for silos wrap and 5 billion dollars for containers and that doesn’t include food, service or packaging. So if I’m looking at the opportunity I have to. I think I have to believe that the opportunity is all of those things and look at that market size. If I’m saying I’m investing in this solely from the standpoint of it can capture the plastic mulch films market and that alone will be enough for me. I’d probably have to do some more math and figuring what do you think?
Eric Hornung: 01:20:05
So I think about it a little differently. I think that you can only really think about it from the mulch films perspective because this, as we alluded to earlier, every product you launch is going to take what they’ve been working on this for four years and they still aren’t technically to market. Every product that you make. It’s essentially a hit making business where okay, if the mulch films does really well, that’ll throw off cash to invest in a bunch of different projects. Whether that’s turning water into methane or electricity or whatever or it’s, you know, turning some other waste into some other usable product. And if those, if that fails, then whatever. But the first product gives you the optionality for future products. He really, I think you could only focus on the first product in this case because the agricultural space is so big that if you have a good product that’s throwing off cash flow that you can throw into r and d, You’re going to find another hit somewhere along the road. But it’s really this first product space is the, is the optionality to to the future by biodegradable market.
Jay Clouse: 01:21:15
That’s interesting. So do you think that 2.5 billion is a large enough market?
Eric Hornung: 01:21:19
So if you capture 100 percent of two point five, well this is where the. This is where another question that I have kind of comes up and that is unit economics. He mentioned 70 to eighty cents for all of their costs, which he said was the Lignan. Some other biodegradable plastics additives didn’t mention if processing power was in there or not, which was done, but through their manufacturing partners. Didn’t mention if overhead was included in that or not. So I’m a little unclear on the 70 to eighty cents per pound, let’s assume that’s all in. Let’s assume that’s everything for now. Well, they’re selling it at
Jay Clouse: 01:22:00
dollar per pound. Probably beginning at $1.25.
Eric Hornung: 01:22:04
Okay. So you’re working on 20 percent margins. We’ll just, we’ll call it, we’ll call it 20 to 30 percent margins. If you capture the entirety of the market at, let’s make the math simple. 2 billion dollars, you’re going to have $400,000,000 in profit every single year. Now that’s best case scenario. You come in and you take over all of the big players who are making all of these products. That’s probably not gonna happen. Um, if you’re at 10 percent market share, which is maybe a more reasonable figure, um, in the next five years or so, then you’re looking at
Jay Clouse: 01:22:46
40 it would be 10 percent of $400.
Eric Hornung: 01:22:48
Hey, look at you doing some good math. The math, uh, you’re doing. Yeah, 40 million. So is that enough to invest in a new product? Or he mentioned that they wanted to do something that was high margin. Now they’re doing something that’s low margin. I have a feeling that those unit economics aren’t all in. So the numbers are just a little bit fuzzy to me and I think I need some more, some more clarity there to understand is 2.5 billion big enough that if we do have a hit maker and we get to 50 percent market share, we’re going to have enough cash to throw off to launch our other things. Are we going to need to fundraise in the future as well for our new products?
Jay Clouse: 01:23:29
Yeah. Yeah. I’m with you on that. I, I, I was thinking from a processing standpoint is numbers is probably encompassing, but I don’t know if it encompasses things like his own overhead and operational costs. I don’t know. Interesting. Good. Good math, my dear Watson. Yeah. I mean, let’s even say that it was a $40,000,000 per year business. Nothing to bat an eye at. It’s uh, you know, we’re looking at this from an institutional investor standpoint and that’s where these questions are stemming from or trying to look at it from that standpoint.
Eric Hornung: 01:23:59
Well, yeah, we’re looking at from that standpoint and that’s why it’s important because all of the free cash flow that comes into the firm, if your future is developing new products is going to be reinvested in new products so that cash flow you’re not going to see as an institutional investor because it’s going to come out before your net profits, which is what you’re paid from usually are. Well, it depends, but I also had one other gray area on the numbers. I was wondering if you had the same gray area. He mentioned that it costs about $300 an acre for the current competitive product and then an acre has about 160 pounds, which puts it at a roughly $2 per pound. So is he saying that they’re looking to come to market at half the price because he mentioned later that there would be the competitor sell it about a dollar per pound, so I just was confused on what the actual market for this kind of mulch film is and what their strategy is to go to market. Are they, are they coming under? Are they competing on price? Are they going over the competing on quality? I was a little confused there.
Jay Clouse: 01:25:10
I believe what he said at one point was it’s about a dollar per pound from the current market in that they want to also get to about a dollar per pound. They’re probably going to come initially closer to a dollar 25 and he highlighted that by saying some of the competitors who have products in market in a different standpoint with their own flaws are also coming in and closer to $2 per pound. And that’s a major point of feedback from the market itself is saying that it’s significantly more expensive. So I think the current market is right around a dollar per pound. All right, so eric, let’s talk six to 18 months from now. mobius, what are you looking for from mobius six to 18 months from now that we’ll highlight this as a growing opportunity, uh, from a, a venture capitalist perspective.
Eric Hornung: 01:26:01
So I want to have a better feel on the financials. I want to have a better feel on the unit economics. I would like to see where, what the pricing decision is. Where are we going to price it at? I know he’s saying 1:25 right now, but where is that? Where does that compare to petroleum based products. Where is that compared to starch based products? Where is that compared to maybe other biodegradables that are out there? I’d also like to understand in addition to the unit economics and the financials, I’d like to understand a little better the quality issues and farmer kind of reviews from whatever Beta tests that they run. What about you?
Jay Clouse: 01:26:42
Im with you. One, I’ll be curious to see if they get that stage two of the NGOs, the NSF grant that was worth $750,000. That would be great. I would like to see what their timelines are looking like as far as getting a product to market and what that means for their cashflows. Sounds like they’re in fundraising mode right now, so interested to see where that lands and where that gets them in terms of runway, but yeah, I, I what you said at the beginning of this interview is really starting to weigh on me and what I’m thinking about and just the pure timeline one. Does this start capturing real market share and start throwing off cash to develop some of these other products? What’s that timeline look like? And I think they’re going to have a lot, a lot stronger feeling on that six to 18 months from now.
Eric Hornung: 01:27:29
We have those four questions. I just realized we didn’t answer one of them, so let me just kind of stayed at pretty bluntly. I think Tony is going to be an extremely successful person, whether it’s with mobius or without it. I think that he has a lot of the characteristics that you look for when you’re looking at success. I really do think that the. We didn’t get a chance to meet Jeff, but it seems like they’re a founding team that can carry this idea or another one across the finish line.
Jay Clouse: 01:27:56
Yep 100 percent had zero question whatsoever as to whether or not this was very personal and something that we’re committed to, why they’ve chosen this. It’s, it all seems very aligned with what we know about Tony and uh, yeah, I think that was, that was pretty clear to me as well. Alright Eric. Well that concludes this episode guys. If you have thoughts on this, please tweet at us @upsidefm or comment on breaker and let us know what you’re thinking, what we missed, what we got right, what we got wrong. If you have ideas for guests on the show, you can email us hello@upside.FM, and if you love the show, please leave us a review on itunes. We’d really appreciate it. It really helps us to improve our discovery of the podcast and grow the show. Talk to you guys next week.
Jay Clouse: 01:28:41
That’s all for this week. Thanks for listening. We’d love to hear your thoughts on today’s guest, so shoot us an email at hello@upside.FM, or find us on twitter @upsideFM. Will be back here next week at the same time talking to another founder and our quest to find upside outside of Silicon Valley. If you or someone you know would make a good guest for our show, please email us or find us on twitter and let us know and if you love our show, please leave us a review on itunes. That goes a long way in helping us spread the word and continue to help bring high quality guests to the show. Eric and I decided there were a couple things we wanted to share with you at the end of the podcast, and so here we go, Eric Hornung and Jay Clouse are the founding parties of the upside podcast. At the time of this recording, we do not own equity or other financial interests in the companies which appear on this show. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinions of Duff and Phelps Llc and its affiliates on your collective llc and its affiliates or any entity which employ us. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. We have not considered your specific financial situation nor provided any investment advice on the show. Thanks for listening and we’ll talk to you next week.
mobius (formerly Grow Bioplastics) is focused on converting organic waste to biodegradable plastics for use in agriculture, horticulture, food service, and beyond. mobius is based in Knoxville, TN.
learn more about mobius: https://www.mobius.co