Venture Into: Cronology
Below a brief summary of our first investment:
Cronology.mx
Founded: 2014
Country: Mexico
Industry: Cleantech — paper & packaging
Stage: Seed
Dux Capital Investment: Seed Round — undisclosed
More on Cronology: Website / Facebook / Twitter / GitHub
We are proud to introduce Dux Capital’s inaugural investment.
When first looking into Cronology, the first question we asked ourselves was: why even mention paper in full digital age! A product over 5,000 years old in human history and virtually no innovation in a century… We were then surprised by this team of Mexican entrepreneurs visioning to solve two latent issues for the environment: 1) Excess plastic waste and 2) Environmental deterioration from tree felling.
Yearly global demand for paper is 370 million tons of paper, or 48 kg per capita. Cellulose pulp, the raw material that yields paper products comes directly from wood, of which only 16% is sourced from cultivated trees… meaning 84% of the source of this material is shaved off our forests.
The potential improvement for this industry’s productive process withholds a vital and very valuable environmental impact. However, the typical barriers of entry are the high cost of technology or of required capital. Cronology surprised us once again when addressing this hurdle through the base components of their product: two of the most abundant materials on the planet — calcium bicarbonate and plastic bottles.
The physical alloy developed by Cronology delivers a high- impact product we just couldn’t ignore as a proposal for substitute paper: PAPET
We will now divide the potential impact of this project in two: 1) environmental impact and 2) economic impact.
1) Environmental Impact
Water Saving — The paper products industry in Mexico uses approximately 20k to 40k liters of water per produced ton of paper. If we multiply this number by the estimated consumption of paper in Mexico of 6.8 million tons per year, we are looking at 272 billion liters of water. To illustrate, if PAPET reached a 25% market share for substituting conventional paper, we would be saving 68 billion liters of water per year, enough to cover the yearly water consumption for half a million people in Mexico.
PET waste reduction: as we all know, PET plastic is the plague of wastes and we are well aware of its abundance. What a good problem to have PET as your required material for PAPET! The impact of substituting a 25% of the paper production in Mexico with PAPET would require around 250k PET tons per year, or about half of the total PET waste produced per year. In other words, a 25% adoption rate of PAPET in Mexico would remove half of the overall PET waste produced by the country from our landfills.
Trees Saved from Felling: In average, about 17 adult trees are saved for each ton of produced PAPET compared to producing conventional paper. Under the same 25% assumed PAPET adoption in Mexico, we would save 29 million trees per year. Taking the average trees found per hectare, we would be saving 83k hectares from deforestation per year. This represents close to 90% of the total forest areas lost due to the overall Mexican industry activity.
2) Economic Impact
The economic impact of PAPET is significantly more complex to value, mainly because of the variations of its final product (ie. printing paper, writing paper, cardboard, packaging paper, etc.), since each product has a relevantly different production cost. However, what we could do is a qualitative comparison of PAPET vs. conventional paper.
Starting with raw material costs, the economic advantage of PAPET over paper is not so evident since in both cases the required material is an already processed one, each with its underlying industry behind. In PAPET’s case, the PET used must have been processed by recycling machines while paper uses cellulose which is is produced through its own supply chain.
However, while keeping an economic focus, we see an important dissimilarity between the rising price of cellulose paper (rising long-term trend, above global inflation) and that of recycled PET (downward trend, thanks to the consistent fall in virgin PET prices ). If we add to this the evident difference in supply chain costs of cellulose pulp vs. PET, we believe to have a compelling case for Cronology’s economic viability.
On the other hand, we know that in some of its applications, PAPET can be up to 40% less costly to produce than conventional paper. Furthermore, PAPET can be up to 62% cheaper to make when compared to direct competitors in paper substitutes, namely Stone Paper and Polypap.
Having a clear view of the environmental and economic potential that this proposal can deliver, our role as investors is focused on pushing Cronology in becomine the Cleantech company that is leading the transformational phase from the paper and packaging industry we know today, towards a more efficient and cleaner substitute, on a global scale
Our strategy as Cronology’s partner during the investment’s lifecycle can be classified amongst four core aspects:
1) Safeguard this innovative technology within a legal framework and under a global perspective
2) Develop strategic relationships and alliances with relevant participants within industries that potentially include PAPET’s supply chain — from institutions and companies that bring us closer to abundant quality sources of recycled PET to securing relevant contracts with clients adopting PAPET as their preferred sustainable solution for substituting paper and packages.
3) Economic efficiency — mainly in economies of scale — for the transition of a “lab-scale” Cronology, towards their first pilot plant, and until reaching industrial production levels.
4) Installing a corporate governance within the company to mold it professionally and allow it to compete with global market.
