Episode 143: Ron Gonen, Co-Founder & CEO of Closed Loop Partners
Today's guest is Ron Gonen, Co-Founder & CEO of Closed Loop Partners.
Closed Loop Partners is an investment firm and innovation center building the circular economy. It focuses on a profitable, sustainable future through its four asset classes: venture capital, project finance, growth equity, and private equity.
Ron has always been passionate about sustainability and efficiency. He began his career in the late-90s, working in tech and management consulting. During his first year of graduate school, Ron co-founded Recycle Bank, a points program that rewards consumers for recycling. After leaving Recycle Bank, Ron wanted his next step to be as impactful and fulfilling. He transitioned into city government, taking a position as the Deputy Commissioner of Sanitation, Recycling, and Sustainability for New York City under Mayor Bloomberg. When the Bloomberg administration ended, Ron co-founded Closed Loop Partners, where he marries his passion for innovation with his interest in helping young entrepreneurs succeed.
In this episode, Ron walks me through what inspired him to pursue sustainability and how past experiences led him to start an investment firm and innovation center. We dive into Closed Loop Partners, how it operates, where it invests, and how it measures impact. Ron also explains the importance of a thriving circular economy and the vital role it plays in achieving a successful future. Ron is a great guest for listeners who want to learn more about the circular economy, innovation investing, and sustainable solutions.
Enjoy the show!
You can find me on Twitter @jjacobs22 or @mcjpod and email at info@myclimatejourney.co, where I encourage you to share your feedback on episodes and suggestions for future topics or guests.
Episode recorded February 1st, 2021.
In Today's episode we cover:
Ron's career trajectory and how he got hooked in sustainability
Closed Loop Partners mission, how it operates, and Ron's role at the company
Ron's experience working at Recycle Bank and key learnings from the recycling world
Ron's position in the Sanitation, Recycling, and Sustainability for NYC
Key takeaways from working in city government, how to incentivizing consumers, and how society handles waste
Where recycling fits in the circular economy
Closed Loop customer base and how they invest in companies at various stages successfully
How Closed Loop measure impact across its asset classes
What types of LPs are investing in Closed Loop, and what motivates them
How Closed Loop prioritizes profit versus impact
The future of the circular economy and how we get there
What guideposts Closed Loop follows when bringing about impactful change
How public policy affects Closed Loop
Key areas and criteria Closed Loop uses when evaluating investments
Where credits, offsets, and incentives exist within the circular economy
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Jason Jacobs: Hey, everyone. Jason here. I am the My Climate Journey show host. Before we get going, I wanted to take a minute and tell you about the My Climate Journey, or MCJ as we call it, membership option. Membership came to be because there were a bunch of people that were listening to the show that weren't just looking for education, but they were longing for a peer group as well. So we set up a Slack community for those people. That's now mushroomed into more than 1,300 members. There is an application to become a member. It's not an exclusive thing. There's four criteria we screen for, determination to tackle the problem of climate change, ambition to work on the most impactful solution areas, optimism that we can make a dent and we're not wasting your time for trying, and a collaborative spirit. Beyond that, the more diversity, the better.
There's a bunch of great things that have come out of that community. A number of founding teams that have met in there, a number of nonprofits that have been established, a bunch of hiring that's been done, a bunch of companies that have raised capital in there, a bunch of funds that have gotten limited partners or investors for their funds in there, as well as a bunch of events and programming by members and for members, and some open source projects that are getting actively worked on that hatched in there as well. At any rate, if you wanna learn more, you can go to myclimatejourney.co, the website, and click the Become a Member tab at the top. Enjoy the show.
Hello, everyone. This is Jason Jacobs and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change and try to figure out how people like you and I can help. Today's guest is Ron Gonen, the co-founder and CEO of Closed Loop Partners. Closed Loop Partners is a New York-based investment firm comprised of venture capital, growth equity, private equity, project finance, and an innovation center focused on building the circular economy. Prior to Closed Loop Partners, Ron was the deputy commissioner of sanitation, recycling, and sustainability in New York City in the Bloomberg administration. And prior to that, he was the co-founder and CEO of RecycleBank from 2003 to 2010, which rewards people for taking everyday green actions with discounts and deals from local and national businesses.
We have a great discussion in this episode about the circular economy, why it's important, what first turned Ron on to the circular economy many years ago, the several chapters of his career so far that have been working on addressing this problem in different capacities, what he's up to now with Closed Loop Partners, how the model works, how each business unit operates independently but also feeds each other, as well as some of the overarching ideals and values and criteria that Closed Loop Partners embraces so that they can do their part to both generate return for their investors and make an impact along the way. Ron, welcome to the show.
Ron Gonen: Thank you. Glad to be here.
Jason Jacobs: Psyched to have you. I have to say when I was doing some prep in preparation for this discussion, there are some market parallels in terms of the entrepreneur, the behavior change stuff. And then what you're doing now with Closed Loop Partners, there's actually seems to be some real parallels to the things that we're thinking about and excited about with MCJ. So in addition to just being an awesome educational discussion, selfishly, I have a lot of relevant things to learn from you for my MCJ pursuits as well. So thanks for coming on.
Ron Gonen: Absolutely. Looking forward to the conversation.
Jason Jacobs: The one difference, though, is that I have no chapter in the middle where I worked for state government [laughing]. What was it? City government, state government?
Ron Gonen: City government.
Jason Jacobs: City government.
Ron Gonen: In the Bloomberg administration.
Jason Jacobs: Got it. Yeah, I don't have that detour, that middle part there. But the first part and the third part are super relevant. And the second part, I want to know a lot more about because it matters a lot. Because policy and government matter more for this than anything I've ever worked on before.
Ron Gonen: Well, m- maybe that'll be part of your future.
Jason Jacobs: I don't know. I wouldn't rule anything out. But I mean, you want to talk about a fish out of water and [laughs] I would not know how to function in any type of government role. But this is not about me, it's about you. So I have tons of questions. But as a starting point, where we typically kick off is just tell me about Closed Loop Partners. What do you do?
Ron Gonen: Closed Loop Partners is an investment firm and innovation center focused on building the circular economy. Within our investment firm, we have four asset classes. We have a venture fund, a credit fund, a growth equity fund, and a private equity fund, and those asset classes allow us to invest anywhere along the growth trajectory of a solution. So we identify bottlenecks, we identify solutions, we apply the right form of capital to that solution. And then we also have an innovation center called the Center for the Circular Economy that works on some of the most challenging bottlenecks and helps incubate and scale solutions to those bottlenecks and get them ready to be investment grade for our investment firm or other investors.
And the investors in our funds are four groups. We manage money for some of the world's largest retailers and consumer goods companies all focused on building out the circular economy. So that includes Amazon, Starbucks, P&G, Unilever, Nestle, PepsiCo, so on and so forth. Large financial institutions, family offices, and foundations.
Jason Jacobs: Nice. Well, that was a good kind of elevator pitch for what you're doing and we can certainly double click on a number of those things. But before we get too far down the path, maybe let's take a step back into the wayback machine. So how did you first find yourself working on, thinking about, passionate about the circular economy? Where did that come from?
Ron Gonen: It's an interesting story that does take me way back. I grew up with a single mom in Philadelphia. In seventh grade, got the chance to go to a great private school in the Philadelphia area called Germantown Academy, on a sports scholarship. I grew up as a swimmer and they had a great swim program. But I still needed to pay some part of the tuition. And so starting in seventh grade, I started looking for different jobs that I could get. And I was fortunate to start working for a family where the father was one of the first green architects in America, his name is Paul Macht.
And that's was my first introduction back in the late '80s, early '90s, to the sustainability movement before it was an actual term. Just getting exposed to the way he was thinking and the things that he was designing. And it just became something that, uh, I became passionate about at very early age, and I've been fortunate to be able to make it the center of my career and ambitions.
Jason Jacobs: What was it about it that drew you to it?
Ron Gonen: That it made total sense. When he would explain to me what he was designing, the first thing that would occur to me wasn't, "Oh, that's cool." It was, "Why doesn't everyone do it that way? Why are things so inefficient today?" And so that design sensibility had just made complete sense to me. And so I think from an early age, I always looked at sustainability as the most efficient way to actually optimize design and systems as opposed to, I think, the way a lot of other people, unfortunately, get introduced to it, which is, "Hey, maybe it's not so good for business, you don't make money at it. But it's the right thing to do." I was fortunate to come at it from a totally different perspective that ended up creating a really important foundation for me to use sustainable business practices as a cornerstone for a business career.
Jason Jacobs: This was a high school job or a college job?
Ron Gonen: High school job.
Jason Jacobs: Got it. And then did that start manifesting and spreading its wings in college or what was kind of the first entry point when you went from that discovery to action?
Ron Gonen: So in high school, I got very involved in the space and also just also very involved in community service in the Philadelphia area, and just very interested in social policy and the environment, stayed very engaged in college. When I came out of college, I graduated 1997, this was what I call the roaring '90s of the technology.
Jason Jacobs: I got out of '98.
Ron Gonen: You remember all that.
Jason Jacobs: I completely relate to what you're saying [laughs].
Ron Gonen: Yeah. And I was a liberal arts major, I studied history and economics, but had the opportunity to go to Anderson Consulting, which is today Accenture, and be taught technology. And the type of training program they had, I feel like I got a computer science degree in the first three months that I was there because I spent 9:00 AM to 9:00 PM just learning software and coding. And from there, went on to Deloitte Consulting, and was really just doing your standard technology and management consulting in my early and mid 20s. Which I enjoyed traveling around the world and learning new things, but realized in my late 20s that my real passion and interest was in social policy in the environment.
And fortunately, and this is something I tell all young people in high school and college who have aspirations to do something in social policy environment, fortunately, I spent that time at Accenture and Deloitte, getting that foundation in business practices, management and technology. Because in my late 20s, when I realized my passion is social policy in the environment, I want to go pursue that, I had that foundation to build upon. And went back to business school in my late 20s at Columbia, not for the specific focus on getting an MBA per se, but to just have two years to try to figure out how to merge this experience that I've had in business and technology with passion that I have for the environment and social policy.
And during my first few weeks in business school, a friend of mine from high school invited me over for dinner, and said, "Hey, I have this idea of using a points program to reward people for recycling. Do you think you could build out that business model and technology?" And I said, "That sounds like a great idea. I think I could build out the business model and technology." And that became the foundation for my first company, uh, a company he and I co-founded called RecycleBank.
Jason Jacobs: It is remarkable how similar our stories are because I grew up in functional roles in small high growth, venture-backed companies, but I wanted to be an entrepreneur. And I didn't really know how to build that bridge and so I got my MBA for a similar reason. The difference, though, is I didn't stumble upon the right idea three weeks into graduate school. It took me a few years after I got out before I f- I finally anchored and built something. But I can definitely relate to that piece as well. In terms of RecycleBank, so we don't have the time ... We could probably spend a whole episode just on that, and there's a lot of other things I want to make sure we cover. But just for the benefit of hindsight, what are some key learnings there in terms of the recycling world and also the behavior change and incentives to get people to do things in general as well?
Ron Gonen: A few things. First, is incentives absolutely work. I think the cornerstone of that is explaining to people why you're asking them to do what you're asking them to do, and the value that they're creating for their community and for themselves by that behavior and making sure that they see some of that value. That is a very credible and powerful incentive to get people to change their behavior. And one thing I'm very proud about is we were able to prove that out at RecycleBank because the communities that we serviced during the time that I was CEO, we saw recycling rates shoot up. So that's one important lesson learned from that time.
The other thing that I learned that was really important is the concept of mission aligned capital. I think I was successful at raising a lot of capital for a very unique company very early on in my career. I was in my late 20s and early 30s, and was raising tens of millions of dollars from top tier venture capital. But I also learned that if you are not values and mission aligned with your investors, you can run into some significant challenges. Even if you're very successful, you can run into some significant challenges. And so that was also a, a really important lesson for me to learn that also ended up becoming the next foundation in my career, both as an entrepreneur, as a professor at Columbia and then now as an investor.
Jason Jacobs: One question I didn't ask you was ... I mean, you talked about the green architecture, and you talked about your friend with the idea. But with the benefit of hindsight, when you look at the circular economy and you look at, I guess, just more broadly living in a sustainable way with the planet and resources that we rely on to sustain humans and other life forms, where does recycling fit in? Is it an important piece of the equation?
Ron Gonen: It's a critical piece of the equation. The circular economy is a lot more than just recycling. The circular economy starts with material science, then product design, then efficient manufacturing and supply chain management, and then collection recycling to ensure that that material is now being continually reused. So recycling is a critical, critical part of the circular economy. But the circular economy, for it to be successful, needs to see other parts of the economy and be successful as well.
Jason Jacobs: Well, I wanna come back and talk more about that. But I first wanna get through the rest of you're, kind of setting the stage with the key chapters of your story here. So when you left RecycleBank, tell me about the New York sanitation role. How did that come about? Why did that come about? And what were you brought in to do?
Ron Gonen: When I exited RecycleBank in 2010, I had a modest exit that gave me the opportunity to think about what I wanted to do next with my life and my career. And I was fortunate to have a fellowship with the Aspen Institute for two years that gave me opportunity to reflect and meet a lot of really interesting people. And I did some advisory work for a couple of other companies and entrepreneurs. But was really trying to figure out how do I find that next thing that provides me the same passion that I had at RecycleBank, that same drive to make a difference. And I was struggling emotionally to find that next thing that would give me that same energy and juice. And I was actually concerned that, I don't know, maybe I'm in my mid 30s and I'm never gonna find that, maybe I'm never gonna find that again.
Jason Jacobs: That's how I felt when I left Runkeeper.
Ron Gonen: It's not an uncommon feeling for entrepreneurs, especially first time entrepreneurs after their first entrepreneurial venture. It's actually not dissimilar. I think if you read what a lot of professional athletes or Olympic athletes go through after the Olympics are over, or after their professional career is over, or people that have been part of a very successful theatrical show, how they feel afterwards. They were on that high where they had just tremendous mission, tremendous purpose, and then it's over. And they may have a lot of acclaim and some fame and some money, but they don't have that same mission and that same purpose. And without that mission and that same purpose. They can really struggle psychologically and emotionally.
And I was going through this period of just, "How do I recapture that? And where can I find that experience that'll give me the same mission and purpose?" And then a friend of mine who was working in the Bloomberg administration called me and said, "The mayor is very frustrated with the current state of the Sanitation Department. It's geared towards just picking up the garbage and taking it to landfill. We're spending about $400 million a year exploiting waste to landfill. We have major recycling companies in the city, he wants the Sanitation Department re-imagined and rebuilt. Would you be interested in coming in and taking on that role?"
And that was it. That was something that I could feel was mission aligned and I could put the same passion into. And so I joined the Bloomberg administration, and co-managed the Sanitation Department for those two-and-a-half, three years with the existing commissioner where he remained responsible for waste collection and snow removal and some other really critical parts of the agency. And, and I managed the building out of the recycling program, organics textiles, e-waste, household hazardous waste.
Jason Jacobs: And maybe I'll touch on one of the questions I was sandbagging from when recycling first came up, before we get into some of what you're doing with Closed Loop. And that's just given your purview up close in one of the biggest cities in the world around this waste problem that we have, what were some key takeaways, not just about recycling, but even broader about, like, how we handle waste as a society? And is it working? And if it's not working, what's broken about it? And what type of future is better?
Ron Gonen: Communication. That's the most important thing. And I'll give you two quick examples. I had brought everybody into a room for a meeting and I put the number 180 up on the board. And I went around the room, and that number I'd put up before everyone came into the room, so everyone came into the room and we started the discussion. I said, "Why are we gonna start a organics diversion program in New York City where we get the businesses and the schools and buildings and single family homes to divert their food waste?" And we went around the room and the answer is varied from, "Mayor Bloomberg wants us to do it," to, "It's good for the environment," to, "It's the right thing to do," to, "You want it to be your signature program."
And I said, "Okay, I, thank you for all of that. Now, who can tell me what this 180 is up on the board?" And people came up with a variety of different answers, but no one came up with the right answer. The right answer was 180 was $180 million. That's how much the city was spending every year to export food waste to landfill. And I made it clear to everybody that that's taxpayer money. We're the stewards of taxpayer money, and we have an opportunity through an organics diversion program to eliminate that $180 million, or 1.8 billion over 10 years in costs that taxpayers are currently responsible for. That piece of communication aligned everybody on how important this initiative is. So that's one example of using communication.
The other example of using communication is when we went to talk about the food waste program to local community boards, I had to think about how am I gonna get unanimous or near unanimous support for this. I could go in and talk about climate change, I could talk about being stewards of the environment, I could talk about the $180 million we're gonna save. But what I decided to go in and talk about was how we had identified that putting food waste into containerized bins with hermetically sealed lids, and those bins being on wheels that are two inches off the ground, would significantly reduce the rat population in neighborhoods.
Because rats smell downward, they don't smell upward. And plus, the food is in these hermetically sealed containers. And New York City actually has a ratologist on staff that was actually able to give us the numbers of, "If you put your food waste in these bins as opposed to in bags on the curb, this is how much the rat population would decrease." And I knew that if I communicated that at a community board meeting nobody in New York, as contentious as New York Community Board meetings can be, would dare stand up and say, "I like the rats. I'm not doing this program, right? [laughs] I'm all for the proliferation of rats in New York City." So I used that as a communication tool in those meetings. And no matter what people thought of climate change, Al Gore, diverting food waste, everybody aligned on, "Oh, this is a way to reduce rats population in New York City."
Jason Jacobs: I mean, it reminds me of like framing solar as like a coal, as like a family and livelihood killer, or framing it as a huge job creation vehicle for the future. You're not talking about carbon or green or anything like that, you're talking about livelihoods, families, food on the table, opportunities for upward mobility, et cetera.
Ron Gonen: That's a great point. I think, we, in the progressive movement, we in the sustainability movement can do a much better job when it comes to communication. So for instance, if we take renewable energy, why not brand renewable energy as a local energy source? So if you live in Massachusetts, solar should be called Massachusetts Energy. If you live in Indiana, wind should be called Indiana Energy. It's your energy developed in your state by local jobs. If you're using gas or oil or coal, who knows where that's coming from. But if you're using solar and you're using wind, it's your energy being developed in your state, by local people in your neighborhood working to develop that energy. That's a message that really needs to get out to people.
Jason Jacobs: Talk to me a little bit about the transition. So why, and at what point did you end up leaving government? And then how did Closed Loop Partners come about? I like these transition moments.
Ron Gonen: [laughs].
Jason Jacobs: Like I keep zoning in on those. I guess that's how life works. Those are like the things that you remember looking back are like the highlighted points in the Kindle book versus every page.
Ron Gonen: What's been interesting in my career that's been both an anxiety point and a blessing has been when I was at RecycleBank, I remember thinking, "I can never have more impact than I'm having right now." I would drive around in these different communities that we were servicing, some big cities like Philly and Phoenix, small communities. And I'd drive around and I'd see our recycling containers down, I'd say, "I'm never gonna have more impact than I'm having now. This was my dream in high school, I'm achieving that dream." And then when I was done at RecycleBank, I would walk around thinking, "I'm never gonna have as much impact as I had of RecycleBank. What am I gonna do for the rest of my life? How am I gonna find this?"
And then I get this role in the Bloomberg administration, and I remember going around New York City thinking, "This is even bigger impact than I was having at RecyclingBank. This is an amazing opportunity. I'm never gonna have more impact than I'm having right now." [laughs] And I remember as the administration was coming to an end, I was thinking, "Well, what am I gonna do next? How am I gonna have the same impact that I had at the city? I got to find that next thing." And now fortunately, what I've been able to build at Closed Loop Partners is giving me the feeling that I'm not having more impact than I did at those first two places. But those first two places were the bedrock for me being able to get here and have that experience.
But the way Closed Loop Partners got started is when you're working for an elected official, you know what your last day of the job is going to be. It's when they're no longer in office. So the first day I started, I knew when my last day would be. And so about six months to a year before the end of the administration, I started thinking about what I want to do next. And I was really fascinated with building an investment firm because I had been an entrepreneur, and felt like developing an investment firm merged that interest in entrepreneurship I have because I would have to build an investment firm. But also would enable me to take all these things that I had learned as an entrepreneur and try to steal them through an investment lens and also help other entrepreneurs.
Jason Jacobs: So as a firm, you're doing a number of different things that from the cheap seats seem to feed each other in a nice, virtuous cycle. I mean, was that pre-architected? Did you envision all these different components on this flywheel that you've created? Or was it more organic in how to play out? And also like, did you build them out once or did you do things in phases?
Ron Gonen: I would say it was 80% planned, 20% organic. But the 80% that was planned, it's not like day one, I came out with each piece of the firm and all of our different asset classes. I knew that ... And this was something I learned over time as an entrepreneur, I knew that if I came out with this platform that had four different asset classes in- innovation center, people would say, "This is too much all at once. Just focus on one thing." And so in my outward communication, when we launched I said, "We're launching a infrastructure fund with corporate LPs who's gonna focus on building circular economy infrastructure."
Behind the scenes, I was putting the pieces together of what you see today as Closed Loop Partners with these four asset classes and an innovation center. And each year, I would add on that next piece. Part of adding on that next piece meant finding the right person to lead that piece. So sometimes it took a little bit longer than I may have wanted it to at that particular moment in time. But over the long term, it was the right thing to do, because I found the right person to lead that group.
Jason Jacobs: And how does it work? Does each piece operate independently and responsible for feeding itself or is there more collaboration and help and resource sharing and things like that?
Ron Gonen: Each asset class, so the venture credit, growth equity, and PE funds, all have their own separate management teams that are compensated on the success both on impact and financial return of that particular asset class. And the innovation center has its own team. At the same time, one thing's that I work very hard at doing is making sure that the firm stays integrated and everybody shares in the total success of the firm. Because one of the competitive advantages that we have is that we have these different asset classes investing at different stages of the business growth cycle and the innovation center. And each asset class can get really valuable information from the other asset classes in terms of what's going on in early stage or what's going on in late stage or what's going on the innovation, uh, area. So I work very hard to keep everybody connected and integrated.
Jason Jacobs: And I think what some people would say, if a firm was going to try to build these multiple pieces, would be to not stray from the core customer that you serve and just serve them in more holistic ways. But it sounds like you're actually serving different types of customers at different stages, with different vehicles, correct?
Ron Gonen: When you say different customers, you mean different LP groups?
Jason Jacobs: No. More like ... So if you were focused on let's say, early stage scaling companies, then you might serve them with capital, but you also might serve them with other services that they might need as they navigate through their growth. But i- it sounds like you have some vehicles that are focused on companies that are quite esta- maybe publicly traded or things like that, and then others that are maybe three people and a dog.
Ron Gonen: [laughs].
Jason Jacobs: And then the asset classes are not ... And again, correct me if I'm wrong, but there're asset classes that maybe don't end up on the same cap tables too frequently because the stages are so far apart. So how do you do multiple things like that well?
Ron Gonen: That's a great question. We have about 50 portfolio companies today. Ranging from a couple $100,000 dollars into a company to companies that have been profitable for 20 plus years that we bought for tens of millions of dollars. That's the spectrum of companies in the portfolio. Our teams are broken up into individual professionals who have experience sourcing, diligencing, investing, and managing companies at that stage. So we have a venture team that their professional careers are built on looking at early stage companies. With a PE team, that their professional careers have been built on looking to acquire companies.
What I do in my role, to create a differentiated product on the market and to help those teams be successful is I make sure that the PE team is aware of what the venture team is working on so that they have a window into the innovation that's going on in the space. And I make sure that the venture team has a window into what the PE team is doing so they have a window into, "Well, are larger companies already working on this so what they're seeing isn't actually as innovative? Or what are larger companies and industries eager to find solutions for so they know what to be looking for at the venture level?" There's a lot of fluidity to it. But if you can do it right, it creates a lot of differentiated and long term value.
Jason Jacobs: So I get that each asset class has its own financial risk and return profile and time horizons and things like that. From an impact standpoint, is there a uniform definition of impact across the firm or is it specific to the asset class and to the product?
Ron Gonen: The impact metrics that we look at are tons diverted from landfill or into the ocean. How many tons have we taken and diverted from either the landfill or going into the ocean and back into the supply chain? So that's one thing that we measure. We measured GHG reduction and we measure jobs created. And those are the three measurements that we have across all of our funds, and then that flows up to our corporate impact.
Jason Jacobs: I should ask, are the LP bases consistent across funds or is it specific to each asset class?
Ron Gonen: We have both. So we have some LPs that say, "I just do venture." We have some LPs who say, "I just do growth equity." We have some LPs who do say, "I just do credit." And that's fine. And that's their investment focus. We have other LPs who say, "I really like the circular economy, I like to be diversified. Here's my LP commitment to Closed Loop Partners, you distribute it across your funds so I get exposure to venture credit growth and PE. I understand that the returns are different in the different asset classes, and also the risk is different and the different asset classes, but I like that diversification and I like being able to be in all of those asset classes."
Jason Jacobs: How do you think about prioritizing profit versus impact? How do those two interrelate?
Ron Gonen: I don't. It goes back to the good fortune I had in high school to start working for a business person who main focus was sustainable business practices. I didn't grow up in the business world with people telling me that doing good comes at an expensive profit. My first introduction to the business world was, "This is the way you maximize profit and returns because you're eliminating waste." And so I've never looked at doing good as doing anything but maximizing profitability. And I would never ... Don't think I would ever find myself in a investment situation where those two are in conflict. I have found myself in situations where other board members from other investment firms have created a conflict around it, and has had to be resolved, but I've never found a conflict there.
Jason Jacobs: The big corporations that are investing, are they viewing this as a strictly financial investment? And are they holding it up against other places where they could put strictly financial dollars? Or are there other things that are motivating them to be part of Closed Loop Partners?
Ron Gonen: All of the above. So they expect to make market rate returns. Our venture fund currently is in top tier for all venture funds that are out there. So our corporate LPs expect to make a market rate return based on that asset class. But at the same time, they're very much motivated by the problem that our funds are solving for them, which is to get this circular economy supply chain infrastructure built out for them. And one of the things that they like about us is that we've been able to syndicate a lot of capital from top tier investors into companies that we've invested in.
So from their perspective, they'll say, "For every dollar we invest in a Closed Loop Partners fund, all of these other funds end up co-investing." So if I need this facility built, and it's $100 million facility, what I found is that I actually only need Closed Loop Partners to invest $10 million in that facility and the other 90 million gets syndicated, this is a really good use of my investment capital to get infrastructure built out.
Jason Jacobs: I want to go back to one point that you just mentioned how you find that impact and profit ... You can't decouple at least the way that you've been taught business, that they're interwoven and coexist at every step of the way. I understand from an intent standpoint that that is true. But going back to where you started your career, or I guess, started your entrepreneurial career focused on incentives and how important incentives are, there are situations where incentives are not aligned with that impact story. And I can give you an example, an example, and I mean, it's a little outside of the scope of your world or tangential maybe, but these big companies making net zero commitments, if they can spend $1 on a negative emissions project, let's say, or they can spend $1 on a crappy offset.
And the crappy offset, that dollar is gonna go further towards getting into net zero so they can spend less to be able to claim net zero and get the brand Halo. But if they want to actually have impact and work on the highest quality stuff, it's gonna take more dollars to get to the same place. So the incentives aren't aligned with doing good or at least not exactly aligned in that scenario. And I think there's a lot of scenarios that come up like that in business. Would you agree or disagree?
Ron Gonen: We're getting into investment time horizon. So if you're a short term investor, and there's nothing necessarily wrong with being a short term investor, people have the right to come in and out of investments whenever they want. But if you are a short term investor, there are scenarios probably where forsaking something that the company should be doing from a employee stakeholder, community stakeholder or environmental stakeholder standpoint, that forsaking that in the short term may drive additional profit. If you are just talking about the short term. But if you're looking at the long term, I think you'd be ... And again, we're talking about what do we mean by long term horizons.
But if you're looking at the long term, I think you're always gonna find that operating as a business with good intent is gonna maximize your profit. And I can give you a lot of data points for that. One of the things, I think, unfortunately, and this happened in the '60s and '70s, and probably for a longer conversation, but I think most people who got business education were taught that the only thing that matters is just the bottom line, every quarter, do not worry about anything else. And in reality, what that resulted in is lots of people going to jail, lots of companies have collapsed, lots of shareholders that have lost money. There's a funny story I'll tell you about. Michael Douglas, who played Gordon Gekko in Wall Street, and has that famous speech where he says [crosstalk 00:35:51]
Jason Jacobs: We're '90s kids. I know all your movie stories. I'll be with you for it.
Ron Gonen: And he's being interviewed by Alec Baldwin, and Alec Baldwin asked him, "What's the one character that people always come up to you and try to mimic?" And he says, "Well, I live in New York City. So a lot of hedge fund guys, a lot of investment guy so I'll be at a cocktail party and some guy come up to me and go, 'Michael Douglas, Gordon Gekko, I love that role. Greed is good. I give that speech to all the incoming analysts at my firm. Love it.'" And Michael Douglas says, "I always turn the guy and go, 'You know the movie ends with the guy going to jail.'" And the guy goes in this deer in the headlights look.
But I could go through a long list of lots of companies that had CEOs that were celebrated for being titans of capitalism, that a few years later, people realized were running a scam, went to jail, lots of shareholders lost their money. At the same time, I can give you the examples of like ... I'd just list off a couple of companies: Seventh Generation, Ben and Jerry's, Burt's Bees, Method Cleaning Product, Patagonia, any of these companies, when they were founded, the founders were heavily criticized for their ethos of just trying to focus on that merger between impact and profit. Would any of your listeners not want to have been part of the seed capital that went into any of those companies? You would have made millions and millions and millions of dollars off of being a seed investor in any of those companies, and felt really good about yourself.
A recent example in the corporate world is you take someone like Paul Polman at Unilever. Paul Polman is probably the best example of a CEO who really became focused on sustainable business practices across a global corporation and really steered Unilever towards being a leader in that space. He faced a hostile takeover from Kraft Heinz. It failed. Kraft Heinz really represented at that time the complete opposite of what Polman was trying to do from a sustainability standpoint. Paul Polman's returns during the 10 years that he was CEO, 269%.
During that same time, Kraft Heinz lost 50% of its value to shareholders. We have a problem today in economics that the institution of economics hasn't taken a step back and said, "Who's doing more of what Paul Polman is doing and less of what Kraft Heinz is doing?" We still think that there's this conflict between profit and purpose, even though we keep getting this data that that's where you maximize value and not doing it. Like Exxon Mobil is now learning today and any shareholders that stuck in it, it's, "If you don't do it, you're gonna lose a lot of value."
Jason Jacobs: So I have a related question and that is around ... So you guys are focused on circular economy. And within circular economy, just like if you're talking about carbon or you're talking about the right policy measures or things like that, there's different worldviews on how to bring about the change that you desire. So within circular economy, for example, and you're way closer to it than I am, but it seems like there's some people have religion around a centralized model, some people have religion around a decentralized model, some people have religion around recycling, some people have religion around composting, some people have religion around that it should be like a government service, other people have religion around the fact that it should be up to each of us, within our own homes, et cetera. So as a firm across your portfolio of activities, do you have a singular worldview that guides you on that? Or do you just try to take multiple shots on goal when you find great teams that have interesting angles?
Ron Gonen: It's mostly the latter. Because we believe that if you're backing the leading entrepreneurs, ultimately, that's gonna become a movement unto itself. And that'll give you the answer to the first part of your question of, "Is it this? Is it that? Is it ... Should we be doing this or should we be doing that?" I think if you focus on backing the leading entrepreneurs and partnering with the top companies and helping policymakers understand who you're backing and why you're backing them. The answer to that question will be answered organically by those entrepreneurs and innovators and policymakers that you educate creating the optimal system.
Jason Jacobs: Do you feel like you have a well-defined worldview on what the future of, what the circular economy of the future should look like?
Ron Gonen: I do, but I also recognize that is not what it will actually look like. I have my view based on my experiences and my own vision. But one of the things I'm very appreciative of in my role today is every day I meet innovators and policymakers that helped me modulate and adapt that view that I have based on what they're trying to do and what they're able to teach me. But I think there's certain tenets of that vision that I have that will stay constant as that vision begins to change and emerge into whatever that final model will look like.
And that's one in which you are effectively eliminating natural resource extraction. It's one in which materials are continually tracked so that you're ensuring that they're continually being reused. Those two things, I think, are gonna be a constant in whatever the circular economy ends up looking like. And that's true for electronics, fashion and apparel, consumer products and packaging, food and ag, so on so forth.
Jason Jacobs: When you think about that reuse, is there a certain minimum threshold in terms of like the amount of material used, the amount of energy produced or things like that, where if it's like, uh, Kleenex, for example, it probably makes sense to just use another Kleenex than try to reuse. But a car, that it might make a lot of sense. Is there some threshold? And how closely do you guys measure that? And how closely do you think it's important to look at that stuff?
Ron Gonen: I'll answer that by going back to your question of is there this conflict between profit and impact? If I don't use the word impact and I just say, "My goal is to minimize the amount of energy and material used in a supply chain. My goal is to minimize the amount of energy and material used in a supply chain." Any economist, any CEO would say, "That's good business, I like that." If you could do that, you're also maximizing impact, because you're eliminating the amount of resources, you're minimizing the amount of resources, you're using, the amount of energy you're using. And that's ultimately what we're trying to do in every industry vertical.
So if we use your example of the tissue paper, you may only use that tissue once. But the question is, what was that tissue made from first and what happens to it after you use it? And if it's made from recycled paper, great. If it's made from some other organically grown material that can regenerate after it's picked without harm to the earth, great. And then after you used it, it can go to an anaerobic digester, it can go to a compost facility, it can go to a recycling facility. Is it going there and then what is it becoming?
Jason Jacobs: How much do you think about policy and how active are you as a firm on the policy front? Is that one of the legs of the Closed Loop Partners school?
Ron Gonen: Currently, we've only been active in policy in so much that policymakers frequently reach out to us to get better educated on the industry and where there's opportunities to make sure that the policy they're drafting will actually create value as opposed to being something that's well-intentioned but may have unintended consequences. I would say going forward, we'll probably start getting more engaged on the policy side because I do think it's an area where we can have positive impact by educating policymakers as well as some NGOs on the economics of how certain industries work in the space.
Jason Jacobs: The other question I wanted to dig in on is when you talked about the ... You said a few times, supply chain infrastructure for the circular economy, it sounds like in your head, there's almost like layers of the stack that go into like the infrastructure that will be needed to facilitate this transition. I'd be interested just to hear from you around how you think ... Like what are the components of that infrastructure that you are envisioning and working towards creating?
Ron Gonen: So when I talk about circular economy supply chain infrastructure, first is you start off with what material are you gonna use to manufacture this product? And can you use that material locally? To manufacture a product that's sold locally? Because as soon as you start getting into transportation and logistics, you start adding in cost and generating greenhouse gas emissions. So that's the first part of it, is what material are we gonna use and how can we generate that material as closely to the manufacturing center as possible?
And then when we're manufacturing using that material, how do we make sure that we use 100% of that material, so that we're not generating more material than we need or paying for more material than we need. And if there is any waste in the manufacturing process, what are we doing with that material? Can we repurpose that material? Where's it gonna go? And then after that product is delivered to market, how long can someone use that product for? So if you think about the electronic space, there is this friction amongst the Apples and the Samsungs and the Microsofts of the world when it comes to repair and refurbish of their products.
If you can get to a place where people can refurbish products or learn how to mend products, you can extend the life of that products. That's the next step. And then it's when someone is done using that product, what then happens to it? How do you make sure that it gets collected, sorted properly, and converted back into a new product? That's what we mean by supply chain infrastructure. And the more that you can do that in a local region, as opposed to each piece being someplace else in the world, the more you're gonna reduce logistics costs, energy use, and loss of material throughout the system.
Jason Jacobs: So as it relates to new deal flow and evaluating new investments, are you thesis driven? Will you spell out key areas within the circular economy that you're very focused on? And if so, what are they and how often is that refreshed and if not, what criteria to use to evaluate a new investment? And maybe we should focus on the early stage, just because you do so many different things.
Ron Gonen: We try to invest all along that supply chain, we don't always find great investments to make all along the supply chain. But we think it's important to be active all along the supply chain because it's so interconnected, it's important for us to be informed as to what's going on in each sector of the supply chain. And then in terms of early stage where we see the most exciting investments, I would say it's on the material science and manufacturing side of things. I would say the biggest bottlenecks and the biggest challenges are on the collection and sortation side. But where the most exciting innovation is taking place is on the material science side.
Jason Jacobs: And if you had to just give a quick plug for any, since we have such a diverse audience, if you think of ... If you just do kind of do a quick checklist of your business units, if your X think about us as Y and we want to hear from you. If you're A, think about us as B and we want to hear from you, do you want to just kind of do a quick run through so people know if and when it makes sense to reach out?
Ron Gonen: On the venture side, if you have a company where your post money valuation is below 10 million, we'd be very interested in speaking to you. That's the core focus of our venture fund. On the credit fund side, if you're building any type of infrastructure ... So for instance, on the credit fund side, if you work in the city, 35% of our credit fund has been capital that we've lent to municipalities to build out recycling and circular economy infrastructure. If you work for a municipality or state, we'd be very interested in speaking with you from our credit fund. And then for our growth equity or PE fund, if you're in a position where you feel like your company has significant revenues and is challenged to think about finding a mission aligned partner that can help you scale your business, that's also a major area of interest of ours.
Jason Jacobs: Great. And my last question is just we've talked so much about Closed Loop Partners and your capabilities, but if you could change one thing that is outside of your control that would accelerate the circular economy mission and your work at Closed Loop Partners, what would that be?
Ron Gonen: To help people better understand that waste doesn't just disappear, it goes to a landfill paid for by your tax dollars. In aggregate, it's in the billions of dollars, of tax dollars in America every year. And that we could have a lot more money to spend on social services or for tax cuts if we just stopped spending taxpayer money, sending products that could be recycled to landfill. It is the right thing to do to recycle and keep things out of landfill but it's also the smart thing to do for your own personal economics and your community's economics.
Jason Jacobs: Just to push on that a little more. How much of that is within the purview of the individual, whether it be the renter or the homeowner or what have you versus the decisions that are being made at the city, at the municipality, at the state level?
Ron Gonen: They both share in it. They can't be successful without the other. And so for everyone on this podcast, it can sound cliche sometimes, but do what you need to do in your home to be sustainable and encourage your friends and your neighbors to do it in a polite and encouraging way. And make sure you stay engaged in local elections and politics and put the people in office who are aware of these issues. And if they're not, make them aware of these issues.
One thing I always wonder, and I hate the fact that I wonder this, but one thing that I wonder whenever I attend a sustainability conference, I'll look around the room, could be 300 people in the room, could be a thousand people in the room and I wonder, "Does everybody in here recycle at home? Does everybody here turn off the lights when they're not in a room at home?" Because the collective power of that thousand people doing just that is powerful. And it can sound cliche, but it's actually not at all, it's very real.
Jason Jacobs: That reminds me actually, back to incentives, is there a role for credits, offsets, any of that kind of stuff in this world? And how much have you thought about that? How bullish are you on it? And where might that manifest most effectively?
Ron Gonen: I'm very bullish on credits. I think individuals and companies that are reducing carbon emission should be rewarded for it. And I think the ones that are generating a lot of carbon emissions should have to pay in the system. It's actually how capitalism should work. If you're depositing carbon into the atmosphere, you're creating a cost, you're creating a liability. I'm a believer in people should have as much freedom as we could possibly give them. So if people want to admit carbon in the atmosphere based on their personal behavior or their business practices, let them do it.
You got to price it properly, there is a cost to it. It's no different than if they wanted to just go throw their garbage in your backyard, there's a cost to you to get rid of it, they should have to pay for that. And I think that if you price it properly, what you would end up seeing is, uh, significant behavior change. And that's a major next step that we need to accomplish.
Jason Jacobs: So from the credit side, what's an example of the type of project that might be viable from this circular economy world and how might that be verified?
Ron Gonen: On the anaerobic digester side is a good example. So anaerobic digesters convert food waste into clean, renewable energy. I think food waste processors like cafeterias, restaurants, stadiums, so on and so forth, could earn credits by the amount of energy they're generating off of the food waste in their facilities as a good example.
Jason Jacobs: Is anybody working on this?
Ron Gonen: People are starting to look at carbon credits around anaerobic digestion and the circular economy, but it's nascent. But I think we're starting to see, especially in places like California, that if we don't price behaviors properly, especially amongst businesses, but also amongst individuals, the commons ends up paying for it. That's so different than like GE 60 years ago caused a significant amount of pollution in the Hudson River. They got a big fine for it but it stayed polluted for decades and decades and decades. The public paid. That's not what capitalism is about. If you're gonna go pollute, if you're gonna take something from the public, you got to pay for it. And I think people would find that that cost is high enough that they wouldn't do it. But if we continue along this system where we allow people to pollute at no cost, they'll continue to do it. And it gets back to the original part of the conversation around incentives.
Jason Jacobs: This has been such an awesome wide ranging discussion. Is there anything I didn't ask you that I should have? Or any parting words for listeners?
Ron Gonen: Glad we were able to have this conversation, glad, uh, I was able to talk to folks about the circular economy. And if anybody wants to learn more, please visit our website and take a look at our portfolio companies. Some of you might find them to be very useful in your home or life.
Jason Jacobs: Awesome. Well, Ron, I can't thank you enough for coming on the show. And I'm excited to hit stop so that I can tell you all about what we're building because I am just kind of blown away by how many parallels there are. So I'm excited to get your brain around it.
Ron Gonen: Great. Thanks for having me.
Jason Jacobs: Best of luck to you and Closed Loop Partners.
Ron Gonen: All right. Thank you.
Jason Jacobs: Hey, everyone, Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you can visit us at myclimatejourney.co. Note, that is .co, not that .com. Someday we'll get to .com but right now, .co. You can also find me on Twitter, @jayjacobs22, where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. And before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The warriors made me say that. Thank you.
