Ron Gonen was tapped to build the biggest recycling operation in the U.S. Now his Closed Loop Partners wants to invest in tech that recycles, reuses and refuses
Amitai Ziv finalklApr. 2, 2021
Ron Gonen’s road in life seems to have directed him to what he’s doing today – an entrepreneur specializing in circular economics – an approach that seeks to eliminate waste by taking maximum advantage of raw materials or energy.
Gonen was born in Israel and when he was 5 years old, his parents divorced and he moved to the U.S. with his mother. When he came to Israel for summer visits, he lived with his grandmother in Tel Aviv: “I never saw her throw anything away. They were a generation that thought that anything could be fixed instead of tossed,” he says in an interview. The power of recycling – the profit and usefulness that he saw in his grandmother’s house – were seared into his consciousness.
Gonen now heads Closed Loop Partners, an unusual investment fund that puts all its money into circular economics. Closed Loop was founded in 2014 and today manages about a quarter of a billion dollars in investments and credit for entrepreneurs, from mature companies to startups.
“If you look at how products have been manufactured in the world since World War II, it’s a linear model, in which people extract elements from the ground, create a product and then throw that resource back into the ground as refuse. That’s true for consumer items but also true for oil and gas,” Gonen says.
“This model is not good for people. It’s a system that was built for the interests of a few companies, and is usually called ‘crony capitalism.’ The idea of circular economics is that you plan products for minimal use of resources, considering the output of pollutants in the process, and then reuse the refuse.”
Circular economics is not new. The theory for it can be found in academic circles from the 1970s, but it has become more relevant as time goes by in light of climate change and the challenges the world is facing. Use of materials as close as possible to manufacturing and consumption, shortening and streamlining the supply chain and recycling are all ideas born from the concept of circular economics.
Among the giants that have invested in Closed Loop over the past seven years are Microsoft, Unilever, Amazon, Walmart, Proctor and Gamble, M3, Starbucks, Pepsico, Coca Cola and Johnson and Johnson.
“We don’t take investments from every corporation,” Gonen says. “Exxon Mobil, the energy giant, wanted to be an investor of ours and we turned them down. On the other hand, Unilever, ever since the time of the previous CEO, Paul Polman, is one of the companies that invests most in sustainability. Our investors have to have a clear policy of sustainability. Besides corporations, pension funds also invest in our fund, as well as Family Offices” – investment and management companies for wealthy families.
Alongside talk of sustainability and the environment, Closed Loop is first and foremost a firm with clear financial goals: “My belief, and I think that this has been proven now, is that if you want to maximize a return on your stockholders’ investment, you have to concentrate on sustainable solutions. I think that traditional investors still have cognitive dissonance when it comes to this. They say something like ‘we appreciate what you do, thank you, but we don’t deal in impact (investments intended to change society and the environment for the better in a measurable way), but rather maximizing profits.’ That’s the conversation I’m constantly having with institutional investors. They already lost a lot of money when they didn’t gamble on renewable energy corporations.
“Every few years these investors have to absorb the losses of past affairs, like the Enron bankruptcy (an accounting scandal that led to the collapse of that energy giant in 2001) or Tyco (a huge embezzlement affair in a company specializing in security products in 2002) or “dieselgate” (the falsification of Volkswagen’s emissions data in 2015) or the Bernie Madoff fraud. Look back 20 years – every few years there’s some affair like that.”
It almost goes without saying that the affairs Gonen mentions led to stockholders losing billions. “On the other hand, look at the performances of companies like Unilever, Ben and Jerry’s or Patagonia, and see how they outperformed the market. The most sustainable companies are also the most transparent ones and growing the most in their field. In contrast, mining companies that peel away the earth or companies whose products come from unfair trade in the East – always have something to hide.”
Closed Loop Israel is one of a small group of funds specializing in impact in this country. Gonen himself is ambivalent about the term “impact.” On the one hand, the fund publishes a detailed impact report and shows how its companies support sustainable development goals of the United Nations according to 17 indexes on investment. On the other hand, he knows that impact is a word that turns investors off. In an interview in February for the podcast “My Climate Journey,” he said he is always asked whether there is a conflict between profit and impact. He responded that he takes the word impact “out of the equation” for a moment and says his goal is to reduce to the bare minimum the materials and amount of energy required to produce a product. That’s just good business sense, he said in the podcast.
A garbage can with a chip
Gonen, 46, grew up in Philadelphia, and – except for his grandparents’ house – it was in the U.S. that he first became aware of the green discourse. “When I was in junior high and high school I had to pay part of my tuition. So I worked mowing one family’s lawn or as a babysitter – whatever they needed. The dad in that family was a ‘green architect’. That was in the 1980s, and he was pretty much a pioneer in this field. We talked a lot and everything he told me made sense as the right way to do things. On the other hand, I knew his ideas got turned down a lot.” This doubt is still with Gonen today in his work in Closed Loop.
After he finished his bachelor’s degree in New York, Gonen began working for Accenture, a large consultant company specializing in computer solutions for organizations, where he learned to code. He traveled the world, making good money consulting, but something was missing.
“In my late 20s, I realized that my heart was in the overlap between policy, business and society.” Gonen went to Columbia University for his master’s degree in business management, with the intent of merging these areas. “When I was in school, I started a project called RecycleBank, which worked with local government and gave people credit for purchases in exchange for recycling. The idea was based on a special garbage can with a chip that knew when the garbage was picked up. I was the only graduate who went through garbage cans after graduation, and proudly,” he says.
Following that project, in 2012 Gonen was hired by then-New York Mayor Michael Bloomberg for a senior position: head of sanitation and recycling for the city. His main goal was to reduce the cost of processing garbage. “Bloomberg recognized there was an economic opportunity in which was called R3,” Gonen explains, referring to the “three Rs” of the environmental-ecological world: Reduce, Reuse, Recycle.
Bloomberg wasn’t active in this area out of philanthropic motives. The costs of moving garbage in New York to distant landfills had gone sky-high – as much as $180 million a year. He wanted to save and Gonen was put in charge of establishing the largest recycling plant in the United States, on a plan to recycle electronic refuse and a plan to prevent food waste by collecting leftovers and turning them into energy.
There’s an expiration date for the kind of public service work Gonen was doing. Indeed, Bloomberg finished his term in 2013 and became the United Nations ambassador for climate change, and Gonen struck out on a new path. He already had enough knowledge and experience to found Closed Loop.
“Closed Loop is a center of innovation in circular economics and it has four investment assets: credit, private investments, a growth fund and a venture capital fund,” Gonen explains. For example, the credit arm, he says, extends credit to fund recycling facilities for municipalities in the U.S. The growth fund extends financing to veteran companies, even 25-year-old companies, as long as they commit to sustainable growth. The venture capital fund, which is also active in Israel, isn’t large (about $35 million) but it is a boutique fund for impact investments.
“We have about 20 venture capital companies. We’re looking at companies that are starting out and have a valuation of less than $10 million in one of four categories: consumer products and packaging; foot tech and ag tech; clothing and fashion; technology in the supply chain,” he says.
“I’ll give you an example. We have a company in our portfolio by the name of Mori, which represents MIT. It developed a protection for food based on a silk protein. They spray the material on the food and it keeps the food edible. It lacks taste or smell, but creates a natural separation between the food and the environment. It can be sprayed on fruits and vegetables as well as on meat. It’s a solution that increases shelf life, but also saves plastic and wrappings, and even makes it possible to reduce chemical preservatives in food.”
How do companies find you?
Gonen: “First of all, we were the first to concentrate on circular economics, so companies in this field simply found us. Another source are our investors in the fund – we have an investment in a company from Chile named Algramo that provides solutions for refilling bottles of cleaning materials instead of wasting more containers. Proctor and Gamble introduced them to us. We wouldn’t have heard of them otherwise.” The company’s website indicates that it works a great deal with supermarkets, but it also has a mobile solution that reaches locations far from shopping centers.
Out of the approximately 20 companies in the fund’s portfolio, three are Israeli. “In 2015 I was invited to speak at a conference at Tel Aviv University,” Gonen recalls. “I spoke there about something that I thought needed to be developed: a small apparatus to solve the problem of sanitation and contamination in the home. After the lecture, when I was about to get into a taxi, a guy came up to me and said: “My friend developed something like this exactly. You’ve got to come see it.”
This is how Closed Loop’s first investment in Israel came about: HomeBiogas is developing an apparatus that takes food refuse and garbage and turns it into cooking gas. From the perspective of Closed Loop this is a big success. It went public on the Tel Aviv Stock Exchange according to a valuation of 300 million shekels ($89.9 million). According to the company’s prospectus, Closed Loop is the exclusive distributor for HomeBiogas in North America. “This is a company with huge potential because on the one hand they have home systems that can suit everyone, and on the other, they’re developing similar systems that can suit buildings and the institutional market,” Gonen says.
Boaz Schweiger, an old friend of Gonen’s from Israel, helped him examine the investment. Like Gonen, Schweiger is not your usual ecological type. Before this he spent a few years at a hedge fund, and he has a master’s degree in business administration from Tel Aviv University.
Besides HomeBiogas, two other Closed Loop investments in Israel are entrepreneur Renana Krebs, founder and CEO of Alga Life, which works to develop sustainable new textiles from algae, and Yuval Weisglass, cofounder and CEO of Griin, a company that developed a device to deliver single-serve, freshly roasted coffee who already made an exit with the cybersecurity firm TowerSec, together with the brothers Matan and Jonathan Scharf. “The fashion industry is one of the most polluting industries in terms of chemicals and greenhouse gasses,” says Ronen. “Alga Life makes textiles that feel like high-quality cotton but its source is algae grown in the Negev. Cotton is often grown in unsafe areas, dyed with unsafe materials and then marketed all over the world.”
Griin’s small coffee roaster connects to the office coffee maker and it’s a good example of circular economics in shortening the supply chain and as a result, profits are greater. It saves a huge (and polluting) segment of the coffee-manufacturing process: from the harvesting country to the roasting company, usually in the West. Griin takes advantage of the fact that a kilo of green coffee, when it is harvested, costs $2 and a kilo of roasted coffee costs $10. Griin buys the green coffee and intends to make its living from the difference.
By the way, do you apply the principles of circular economics in your private life?
“My wife comes from the world of investment and has heard of many companies that talk about sustainability but conduct themselves completely differently. One day she bought me a coat. I told her, ‘thank you, but I already have a coat,’ and she said that I practice what I preach. I walk or cycle to work, I compost the remains of food and recycle the rest, but there’s still a lot that can be done,” Gonen says.