Profiles in Success

Origin Materials: Disrupting the Plastic Bottle Mold

“I’m going to only say one word…plastics. There’s a great future in plastics.”—The Graduate, 1969

In February 2021, UC Davis alumni John Bissell and Ryan Smith announced that their eco-friendly bioplastics firm will go public in a nearly $1 billion deal with SPAC Artius Acquisition Inc. Bissell and Smith began their entrepreneurial journey in the Big Bang! Business Competition and the Green Technology Entrepreneurship Academy. Today, Origin Materials is the world’s leading carbon negative materials maker.

The following Startup Success Profile is excerpted from a case study on Origin Materials that is included in curricula for the institute’s various programs to spare engaged class discussion around innovation and entrepreneurship. 

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As 2019 came to a close, UC Davis chemical engineering alumni John Bissell ’08 and Ryan Smith ’08 reflected on how far their chemical company had come. Origin Materials was founded in September 2008 to recycle the carbon trapped in waste material and use it in place of petroleum-based PET (polyethylene terephthalate), commonly used in plastic bottles. With this technology, Origin Materials would be carbon negative in the production of PET and fulfill its mission of “creating an adaptive ecosystem that protects both our environment and the prosperity of future generations.”

The business idea had emerged in spring 2008 out of a UC Davis environmental engineering project that finished as a top-six prize winner in the U.S. Environmental Protection Agency’s People, Prosperity and the Planet competition.

Since then Bissell and Smith had navigated the company from initial conceptualization to its current third proof-of-concept testing stage—building a small commercial plant in Ontario, Canada, that would demonstrate Origin Materials’ ability to produce bio-based PET at scale and provide the company with its first viable revenue stream.

Origin Materials' PET could gradually reduce—and may ultimately replace—the amount of petroleum-based PET used in plastic bottles, reducing the carbon footprint for making plastics, and doing so at a more stable cost not tied to oil price fluctuations. The bio-sourced intermediates that make the bio-based PET could also potentially lower the carbon footprint of flame retardants, tire carcass blacks and form fillers.

Origin Materials’ fourth and final proof-of-concept testing stage would be building a full-scale bio-based PET plant that could produce 500,000 tons a year and make the company profitable. This would require the company’s largest-ever round of financing and convincing more potential supply chain customers that this new disruptive technology is the right thing to do, long-term, for the environment.

If Origin Materials could successfully navigate the next 24 months, it would see a strong impact and a tremendous financial payoff in the 50-million-metric-ton annual PET market. “A rail car, for example, is 100 metric tons, so 50 million metric tons means 500,000 rail cars of PET are made every year,” said Bissell.

Plastic Bottles: From Cool to Nuisance in 30 Years

Bottled beverages arrived on grocers’ shelves in the early years of the 20th century—in glass bottles, steel cans and aluminum cans. While early plastic bottles later initially offered a potential alternative, they also leaked chemicals and were impractical for carbonated drinks.

In the 1970s, the development of the “miracle plastic” PET set the stage for the bottled water craze launched the in the 1980s and that exploded in the 1990s. By 2017, globally, a million plastic beverage bottles were purchased every minute. In the U.S., plastic bottles and jars represented about 75% of all plastic containers, by weight.

The downside: The raw materials for traditional PET are derived from crude oil and natural gas; it typically takes a plastic bottle 450 years to fully degrade.

P3: People, Prosperity and the Planet

The kernel for Origin Materials started in 2008 with an EPA P3 project in UC Davis’ Civil and Environment Engineering Department that was led by Professor Frank Loge and focused on how a biology-based technique might convert material from a waste plant into biodegradable, bio-based plastic that wasn’t PET. Of several hundred entries, 60 finalists were invited to present their project on the National Mall in Washington, D.C.

We were one of the top six entries of this P3 program. We got $75,000. What do you do with that? It seemed somewhat obvious that what you should try to do is start a company.—John Bissell

Their interest in entrepreneurship sparked, Bissell, Smith and a third co-founder—microbiologist Casey McGrath ’08—attended the Green Technology Entrepreneurship Academy that summer. Smith recalled:

Being engineers, it was clear we didn’t know what we didn’t know about business. We discovered that the approach that we took for the initial [EPA] design competition required an absurdly high level of capital investment for that kind of redesign of a waste treatment plant. [After going through the academy], we completely changed the technological focus and the business commercial structure.

A few months later the startup was formally incorporated as Micromidas—a reference to their initial idea of creating bio-PET through a biological process with microbes. The $75,000 grant was mostly used by UC Davis to purchase lab equipment, which the company initially used to continue the project work during its early collaboration with the university.

The Talk.

Although the seven young engineers on the initial UC Davis team were working weekends on the project, not all felt the same commitment. In early 2009 they had a serious talk on how to move forward. Bissell says:

We said, “Look, we can either stretch this out for the maximum amount of time—which is going to be many years, if we're just doing nights and weekends and not paying ourselves anything—and minimize our odds of success, because we won't do any of the things that are the important things to do. Or we can focus on this, quit our jobs, take the risk and probably maximize our odds of success.”

Bissell and Smith quit their jobs, despite the start of the Great Recession and Smith and his wife recently having a daughter. Bissell became the CEO and responsible for fundraising; Smith was the chief technology officer in charge of engineering; McGrath was in charge of the lab.

Bissell raised the initial seed funding, and with that first investment, the co-founders paid themselves a small stipend and, in May 2009, rented a West Sacramento warehouse for much-needed lab and office space.

Stage One Proof-of-Concept: In the Lab

While Smith and McGrath stayed in West Sacramento to identify a microbe that would create a biodegradable, bio-based plastic that wasn’t PET from waste material, Bissell headed to Silicon Valley and went into full fundraising mode. Despite Bissell’s estimated 500 meetings in just six months, the bulk of Origin Materials’ $3.5 million Series A funding came from a single source: a San Francisco–based family office with experience in plastics and packaging that discovered Origin Materials online and reached out. Bissell recalled:

One of the family members was very industrially focused; the other was a venture capital guy. Together they had an unusual combination of not only being interested in early-stage technology companies, but they had industry experience that was relevant to what we were doing.

Pivot: Choosing a Chemical Process over the Biological Process

In 2011 Origin Materials decided to forego their now-patented biological process and to proceed with a unique one-step catalytical chemical process to recycle the carbon found in cardboard, sawdust, wood chips and other sustainable biomass material into the chemical intermediates needed to create bio-based PET.

This innovation built upon the work of UC Davis Chemistry Professor Mark Mascal. While the biological approach may take hours or days to run and secure a reaction, the chemistry approach only takes seconds or minutes.

Origin Materials filed patents worldwide—32 by the end of 2019 in the U.S. alone. Smith said:

Filing a patent is a tricky decision because it is expensive. By design and because of the legal obligation, it discloses the technology, but at the same time investors really want to see that you've got a patent. And in the end, you also want to protect your core technology, so there's all these different trade-offs that have to be wrestled with around cost of disclosure, expectation from the investment community, and then also protecting the technologies.

Stage Two Proof of Concept: On-Site Pilot Plant Manufacturing

The next proof-of-concept was to manufacture bio-based PET through an on-site machine in the West Sacramento facility. This showed that Origin Materials could produce this material from biomass outside of the lab, but it would be expensive. To fund this stage, an additional $25 million was raised from private investors in 2012 as part of an extended Series A.

Raising these funds then “was not easy,” said Bissell. “Cleantech had fully retrenched as an investment class, and industrial technology hadn't begun as an investment class yet.”

Testing results from this proof-of-concept stage would help determine whether additional funds for the subsequent proof-of-concept stages could be raised.

A Network of Chemical Industry Retirees

Once Origin Materials discovered that they could create bio-based PET in their lab, Bissell and Smith sought out experts in the chemical industry—including Dow, DuPont and BASF—for input on how to best proceed with biomass material production. Smith said:

It’s useful to be a little bit ignorant about the industry as you fantasize about disrupting it or plan on doing that [since that allows you to be more freethinking]. But then, before long, you have to sort of start being in the world of reality and you need to go understand that industry at an equal level. What do the capital projects look like for a large chemical company and what should they look like for us? How do they develop deep technical capabilities and how should we do that?

But finding working contacts that took their small startup seriously proved difficult. Eventually Bissell and Smith made a breakthrough and gained access to significant expertise by tapping into industry retirees.

Supply Chain Customers and Partners

In 2014 Origin Materials focused on finding actual customers interested in using its bio-based PET material as a substitute for petroleum-based PET in the production of plastic bottles. 

Danone and Nestlé, with annual 2018 revenue of $23.4 billion and $90 billion, respectively, became investors and strategic partners. This led to the forming of the NaturALL Bottle Alliance, with a goal of 95% bio-based PET water bottles by year-end 2022. A Series B round of financing, completed in October 2017, raised $40 million from these companies and individual investors. Bissell said:

With big companies like this, the process of building a relationship where there’s real trust in a company our size is relatively long. There has to be a lot of transparency.… We’ve been showing that we have the right process numbers. We’ve been hitting our milestones. We’ve been making product and validating the product in small scale.”

Almost a year later Pepsi joined the alliance and provided $25 million in a Series C round of financing.

Stage Three Proof-of-Concept: Building the Canadian Plant to Scale Up

In June 2017, with a $17 million grant provided by the Canadian government, Origin Materials announced plans to build a small commercial plant in Ontario to fulfill its third proof-of-concept stage.

This “stepping stone” plant would produce about 10,000 tons of bio-based PET annually, cost nearly $70 million to build, and provide the company with its first annual recurring revenue stream—with Danone, Nestlé Waters and Pepsi its first customers. Building began in early 2019.

It will allow us to demonstrate the technology, so that we can secure the funding to go build a much larger, and appropriately sized one.… Some of the commercial-scale equipment will reveal aspects of the technology, so we can more finely tune or optimize the process at that scale, which is important as well. It also moves product into the marketplace. But the downside is that it’s so small that it doesn't really make much money, barely breaks even, or probably loses a little bit.—Ryan Smith

Added Bissell:

We’re pre-revenue. One of the things about this industry is that chemical companies don't generate incremental revenue at small scale.… It’s one of the reasons why the hurdles for credibility are so high: There are no new products that aren’t a minimum of $150 million of new capital investment before you get to find out whether it does anything.

Organizational Culture

As Origin Materials grows, so will the organizational challenges of keeping staff focused on the same mission and core values. In October 2019, the company put together its first-ever written strategic plan: defining its mission, highlighting its priorities for the next two years, and designating key executives to lead various internal taskforces. Bissell said:

[Before] It was all informal. In 2018 we started ramping up more, [and the new people … brought] their own cultural experiences into the organization. And that caused a lot of issues.… I think we’re almost there [with] an explicit description of our culture, mission and values. We tried to do it in a way that didn’t feel sterile. And that’s been a process.

Looking Ahead to Stage Four Proof of Concept: Full-Scale Plant

As 2019 drew to a close, Smith said:

We're still in the process of raising money for that next [and final proof-of-concept] phase [for building a full-scale plant]. There’s the operating of the company and the growing of our team so that we can operate a commercial facility. That all takes money and it’s all kind of crazy.

While many small chemical companies are profitable, Bissell also needed to think about Origin Materials’ potential exit strategy. With many of the larger chemical companies cutting back on R & D, might they be willing to partner with a larger entity in a joint venture or revenue-sharing agreement? Or might they also be open to an outright acquisition?