Behind the Scenes

At Fundamental, we’re deeply committed to create solutions with our ventures that solve Latam’s biggest challenges: inequality, unemployment, food security and effects of climate change. So, what exactly does that entail? This month the International Recycling Day took place, giving us good reason to reflect on how waste is linked to those challenges and impacts millions of individuals in Latin America as well as its environment.

Waste in Latin America is increasing. So are its effects on people and the planet.

Before we state numbers, it’s important to remark that reliable waste and recycling statistics for the region do not exist (yet). The 2024 Circularity Gap report estimates that over 60% of total waste generated in Latin America go unaccounted for. The gap in information presents a large challenge for understanding the scope of the problem. Following statements for waste generation should be seen as estimations.

• Waste generation: What’s the baseline? In Latin America and the Caribbean, the average waste generation per inhabitant stands at 1 kg/day. It lies 0.26 kilos higher than the global average although the levels fluctuate drastically based on a country’s income levels and consumption patterns. In 2021, the region was responsible for 12% of total global waste generation.
• Projected increase in waste: Waste volumes in Latin America are expected to surge by at least 25% by 2050, depicting an urgent need to manage its consequences.
• No second life: Only 4.5% of waste is recycled in Latin America and the secondary material consumption stands below 1%. What does it mean? The region’s production relies heavily on virgin materials and only a very small volume of materials are given a “second life”, putting a large strain on the planet’s limited resources.
• How not managing waste puts people and the planet at risk: More than one quarter of LATAM’s waste is disposed of in open dumpsites each day. With 40 million people lacking access to waste collection services, this leads to significant health and environmental risks. The issue disproportionately affects marginalized and rural communities, highlighting the social inequity of waste management. As waste generation increases, this problem will be amplified.
• Collecting waste for a living: Despite its negative effects.. waste has value! No one knows this better than the 4 million people in Latam who depend on recycling for their livelihood, with a substantial portion working in the informal sector. However, while “waste pickers” play a critical role in supplying waste for recycling to companies, they often face unsafe and undignified working conditions.

When waste gets wasted: A fragmented value chain.

We all know the saying: “one man’s trash is another man’s treasure”. But as the situation is today, Latin America’s waste and recycling industry is unprepared to handle the surge in waste due to its high levels of informality and lack of infrastructure. This depicts lost opportunities of all kinds: social, environmental, financial, and underscores a critical need for a functioning value chain​. What’s not working?

Taking Colombia as an example, roughly stated, the recycling network consists of waste generators, waste pickers, informal recycling and collection centres, buyers and intermediaries. The challenge is that most find themselves and their business needs isolated from each other, limiting the economic benefits related to the purchase and sale of recyclable materials:

• Waste pickers struggle with market access, information asymmetry and limited means for transportation. Waste pickers are often linked to informal recycling centers. However, despite their importance in supplying the fragmented value chain, they struggle: Firstly, they are poorly connected to waste producers, making their daily finds uncertain. Second, waste pickers have limited access to information about market conditions that would inform them about the best and most profitable materials for collection. Third, most waste pickers use manual carts for material collection, which limits the amount they can collect and the income they can earn.
• Volume and quality requirements of final buyers leads to inefficient intermediary networks. As a final point in the value chain, many recycling companies (waste buyers) have minimum quantity requirements for the purchase of material that the waste collectors or collection points cannot meet. As a result, complex networks of intermediaries have developed that buy and sell recyclables to meet final sales requirements. This not only lowers the price received by waste collectors and informal recycling centers, but also leads to low traceability and therefore transparency of the collected waste. It becomes difficult to meet the quality standards required by the recycling companies to process recyclable material into new products.
• Demand for recycled materials grows rapidly: While the value chain is flawed, there is an increasing demand for recycled materials driven by changing regulatory requirements and industry standards. For instance, Colombia launched the Ley 2232 to regulate plastic management and reduction and is joined by over 70 countries. Or Coca Cola, one of the largest CPG, introduced the program Reciclave in 88 cities in Colombia to increase collection and recycling rates, raise awareness for the issue and improve working conditions for waste pickers.

While the increasing demand represents a great opportunity for the entire value chain of recycling as well as the environment, the various players are unable to fully exploit it due to their fragmentation: the current supply of recycled materials is only growing by 1% and is therefore being outstripped by demand.

On a mission to make waste valuable for all: Reciclamos Juntos in Cartagena

As we’ve seen: The increase in waste and the growing demand for recycled materials can’t be met by most recycling systems in LATAM. Could this gap be leveraged to create an inclusive, mutually beneficial value chain? Our circular economy venture Reciclamos Juntos in Cartagena, Colombia has been developing a solution in the past years:

The popular tourist town’s recycling value chain used to be highly fragmented and worked at the expense of informal waste pickers: Although managing the city’s waste, they’d typically make the bare minimum of $5.50 USD a day. Also, most of them worked individually, having little bargaining power or security. Reciclamos Juntos, under the leadership of Jaime Fernandez and supported by the Wealth Inequality Initiative, set out to challenge the status quo by building a recycling system that connects the critical actors and provides value to all. How?

• Building a network of waste associations: Reciclamos Juntos supported the creation of waste associations, the development of best practices and offered training on separation, collection, quality control and business management. By empowering individual workers to build and lead their own recycling business, they were able to reduce information asymmetry, improve their equipment and increase efficiency. This allowed them to grow a team of waste pickers, offer safe working conditions and increase income.
• Installing an end-to-end waste collection service: Reciclamos Juntos optimized and integrated a whole recycling value chain and today, works B2B by connecting the waste collector associations with bulk waste generators and bulk recycling buyers, hence strengthening the weakest links in the chain. Through the waste pickers, they were able to increase the collection of valuable recycling materials by 44%, which positively impacts the waste situation in Cartagena.

Today, Reciclamos Juntos operates a network with 348 bulk waste generators (malls, schools, hotels..), 26 recycling centers and 623 waste collectors. By working for the waste associations, they were able to increase their income by 40% — a big impact!

While this model has proven successful, the startup is further evolving as it is launching a recycling warehouse and the commercialization of the plastic collected by the recycling centers. As indicated, the demand for recycled PET is increasing! Securing both quality and scale of the pet collected and linking them to new recycling plant buyers, Reciclamos Juntos taps into an opportunity that will positively impact the whole supply chain and the environment. Like that, the venture is able to close the circle on plastic.

Since the end of last year, social entrepreneur Jesús Cruz joined Reciclamos Juntos as a CEO and Co-Founder. He brings over a decade of experience in Colombia ‘s waste management sector and an extensive track record in leading successful startups. After spending 13 years building and operating Organicos del Caribe, an organic materials waste management and composting company, he has joined Reciclamos Juntos as its CEO to drive its impact and commercialization model to new heights.

‍

We get this question often. While many want to compare it to a VC fund, incubator or accelerator (which are all great) it’s important to clarify that venture studios are their very own thing. Although somewhat unknown, they are at the forefront of innovation. Why? The model allows startups to build more quickly and successfully due to its unique advantages.

As of 2023, there were just 877 venture studios in the world. But these venture studios are creating and launching some very successful startups: Moderna, Yelp, Giphy, Hims, Elenas … and even Medium — the site we are currently using — is the product of the venture studio model! In this article we aim to cover what those advantages are and why we chose this model to solve Latin America’s fundamental problems.

General definition

Venture Studios solve two major problems faced by early stage startups:

• Ideation, prototyping, and validation of a product or service being done haphazardly and without the strategic hiring for a dynamic team.
• Funding and mentoring being a scarce resources in the ecosystem.

A venture studio connects proven ideas with experienced entrepreneurs and offers them a venture building methodology, access to shared services (Product Development, Tech, HR, Accounting, Financial Analysis etc.) and funding. Utilizing this approach, venture studios are able to concurrently develop several startups with agility.

So, like an accelerator or an incubator?

Not exactly. Although all three models provide support to early stage entrepreneurs as they launch a startup, the venture studio is the only model that is part of the ideation of a company. As a result, the venture studio is a co-founder of the startups it creates and holds ownership (equity and/or a board role) next to the entrepreneur and other possible investors later on. We often get asked if we at Fundamental generate ideas and solutions by ourselves or if we look for entrepreneurs to bring us ideas. Up until now, we’ve been responsible for the initial ideation and design of the startups we’ve launched.

As such, the venture studio takes on greater risk than accelerators or incubators, as it provides intensive support of resources and funding during the initial venture stages at no cost. However, the pay-off for the risk is often worth it! Venture studios have proven to represent a more attractive asset class than accelerators with higher exit rates (34% vs. 21%) and higher stakes (30–50% equity vs. 7%) ( Global Startup Studio Network, Sparkling Partners, Crunchbase, GAN).

Okay then, what makes the venture studio more successful?

The shared services and access to resources result in following benefits for the startups:

• Collective entrepreneurship: Startups that are co-created in a studio naturally collaborate and learn from each other, as they take part of a bigger community of passionate entrepreneurs.
• Startups created by a venture studio are 3–4x cheaper: The internal studio team supporting multiple startups at once leads to significant savings.
• Culture of ideation, iteration, and continuous rebuilding: Venture studios are focused on solving a problem, and are not attached to one solution.
• Ability to test multiple ventures at once: A portfolio of multiple ventures reduces risk and increases likelihood of success.
• Entrepreneurs can focus on achieving Product Market Fit (PMF): The venture studio initially supports other aspects of the startup (operations, fundraising, technology development etc) so that the entrepreneur can focus on achieving PMF.
• Strong network: Venture studios can help connect startups to the right users, clients, advisors, and investors.

Really? Show me proof.

Recent research shows that startups created in a venture studio:

• Reach seed rounds twice as fast as regular startups, 41% less time for Series A, 44% less time Series B, and 47% less time series C.
• Exit faster: Averaging 5 years, compared to 7.5 years of regular startups.
• Achieve a higher Internal Rate of Return (IRR): x2 for startups created in studios vs. regular startups.

So, how do you leverage this model for good?

Solving social and environmental problems through market-based solutions is complex and poses different challenges than developing purely commercial solutions due to the added impact dimension. Impact focused solutions are often developed in underserved markets and its clients tend to be less researched and invested in, which makes new solutions inherently more risky — something that is harder to accept when the target group is vulnerable.

This is where the venture studio model comes in: it serves as a powerful tool for mitigating risks and amplifying the potential for success in a context where the need for scalable, self-sustaining solutions is high! It’s the reason why we at Fundamental decided to apply this model innovatively to build impact startups that target the challenges of unemployment, inequality and climate change in Latin America.

How do we support the balance between impact and profit as we build impact ventures?

• A dedicated fundraising team looking to apply catalytic capital and blended finance from value-aligned funding partners to support the critical incubation phase of the impact venture building process with eg. grants, setting ventures up for traditional financing later.
• A studio team with extensive experience in both impact and venture building, leveraging their shared knowledge for good.
• Impact serves as a fourth dimension in our Product-Market-Fit assessment to ensure it’s integrated and fostered by the venture’s business model (next to desirability, viability and feasibility).
• Validation and accountability mechanisms through our proprietary playbook that incorporates a stage gate model, enabling ventures to progress through stages contingent upon periodic evaluation gates. These gates are incorporate our impact and business mindset as well as the lessons learned from the successes and obstacles encountered during the development of previous ventures.
• An integrated impact measurement and monitoring system, recently strengthened by a third party, to ensure our ventures stay on track with our commitment to make a real and measurable difference in the lives of our clients and their communities.

That’s..

Hopefully interesting and relevant. Our conviction that the venture studio model has the potential to be transformative is largely thanks to the results, learnings and growth that we have experienced over these past two years. And while we know it’s daring, we do see grand opportunities to create deep and lasting change.

Our ideal is to not just do this through our own ventures but we hope to inspire and get inspired by others, to continue learning and sharing. Please reach out to us if this topic is of interest and you’d like to talk further.

‍