‘Constrained’ Funding, Consolidation Ahead for Next-gen Materials
Next-gen materials are in a transition phase.
In 2022, $457 million was invested in next-gen material innovators, per a new report released Tuesday.
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The third annual Material Innovation Institute investment report spans a number of categories, including plant-based innovations, recycled materials and cultivated animal cells, among others. Broadly, the institute tracks investments in more than 102 companies dating back to 2013, and for this year’s report, it extrapolated data from 28 publicly disclosed deals in 2022.
This investment falters compared to the prior year. In 2021, $980 million was raised across 187 investors and 95 companies for next-gen materials, which is double the amount raised in 2020, at $426 million, by MII reports. Giving a “conservative” estimate, MII puts the global wholesale market for next-gen materials at approximately $2.2 billion by 2026.
“With a tough economy and rising interest rates across the world, we expect a consolidation of the next-gen materials industry with more companies closing their doors than any other year,” said Nicole Rawling, chief executive officer of MII.
With consolidation, companies are tasked with scaling up, commercializing and reaching price parity with incumbents.
Siddharth Hariharan, managing director at Rothschild & Co., described a stressful funding environment. “In a constrained funding environment, especially for earlier stage unproven models, next-gen materials companies will have to seek alternate sources of capital, be prepared for valuation haircuts or smaller rounds, and really focus on the differentiation of their technology and applications.”
Luke Haverhals, founder of Natural Fiber Welding, which counts investments from Ralph Lauren and is also tracked by MII, runs one of the companies that’s planning on differentiation, and told WWD earlier this month that the company was “one capital raise away” from taking its next steps into foam-like innovations for footwear.
Money aside, the report finds it’s also time for material innovators to prove product-level claims around their material’s impact. This means pursuing relevant life-cycle assessments, or LCAs, and the avoidance of comparative or generalized claims.
MII’s Rawling summarized that the firm expects 2023 to be a “transition year” as regulators crack down on fashion sustainability claims.
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