Team:Brasil-USP/Entrepreneurship
Entrepreneurship
Science and creativity transforming tire waste into high valued products.
Why Startup?
Table of contents
Playgrounds, carpets and boots, although creative, together they do not represent not even 1% of scrap tire destination. 1 Every year, over 1 billion tires are manufactured all over the world. After approximately 3 years, they are discarded and new tires are produced, generating a huge amount of scrap tire accumulation. If stored above ground they may create fire hazards, harborage for pests, and aesthetic and property value impacts. However, when waste tires are buried, they consume valuable landfill space.2 To properly address this residue, many countries, such as United States and Brazil, passed a law designated to tire manufactures to collect and manage the solid residue. 3 Unfortunately, major destination is incineration to generate tire-derived fuel (TFD) broadly used in cement industry for energy. 4 This process generates chemicals proven to be extremely detrimental to human health and environment. Polycyclic aromatic hydrocarbons dioxins, carbon monoxide and sulfur oxides are some examples of carcinogens and toxic released compounds. 5 Specially in Brazil, seventy percent of collected tire is directed to incineration and the other thirty percent are reintroduced in limited markets. In this scenario, our project aim to make up the residue demand through a synthetic biology technology capable of transforming a waste into a high valued product to feed others chemical segments and as a final main product, a clean and sustainable jet-fuel. Identifying the potentiality to entrepreneur in solving this problem, we decided to propose a startup.
Using a wild microorganism isolated from soil, the first step is to remove the sulfur bonds that covers the tire with no pollutant gases emission, generating a more flexible and easy to recycle material. In the second step, we designed an optimized bacterial DNA based system specific for polyisoprene degradation, the main tire component. It is capable of breaking long chains into smaller units that can be used as raw material for other processes. In our third reactor will be performed a single catalytic reaction to produce the jet-fuel. We also intend to use natural rubber from Hevea brasiliensis as renewable source for our fuel production. The remaining products with economic value of the whole process are: high quality raw material to input other industrial segment, jet fuel derived from tire waste, jet fuel derived from natural rubber and devulcanized rubber from tires.
Figure 1 - Scheme of our technology in the tire cycle. Click on the figure!
Executive Summary
The main goal of Rubber Biotechnologies is to degradate tire rubber and produce raw material for fuel. It is conveniently located at São Carlos, State of São Paulo, Brazil. The city is known for being the national capital of technology, where many startups and technology companies were founded. We have a campus of University of São Paulo in the core of the city, focused on science, engineering, technology and innovation. In a radius of 190 miles from here there are a plenty of technology and biotechnology companies such as Amyris, Braskem, Embrapa, Shell, Raízen and others. There are also many technology parks where we could establish ourselves in future.
The company is under registration process and it is composed of an interdisciplinary group of scientists that holds skills for project execution, as advanced knowledge of synthetic biology, biophysics, crystallography, biotechnology, nanotechnology, biophotonics and physics. The group was consolidated in March 2015, in the University of São Paulo. The idea of starting an enterprise emerged from our International Genetically Engineered Machines Competition (iGEM) project. With entrepreneurial spirit, we identified the potential of our technology and are dedicated to consolidate it in our startup, maintaining our friendly creative work environment that is always working with innovation and hard work.
The technology will be scaled up in a ten years projection. The Pneumatic Industry Association of Brazil (ANIP) will be the main suppliers, bringing the raw material to our plant by a reverse logistic. First, tire needs to be grinded to get steel separated from rubber. Then, in bioreactors, it will be performed devulcanization, degradation and fuel generation. Four products will be commercialized: Devulcanized rubber, ODTD, raw material for jet-fuel derived from natural rubber and from tire waste. In 2019 will be the first sale. The only product will be devulcanized rubber, generating a $ 345 000 profit/year. It is expected an increase profitability until final market consolidation in 2023, when the four products will be commercialized and the annual revenue of up to $ 2 187 000 by capturing less than 20% of ANIP residue. Main customers are pneumatic, plastic and petrochemical industry. Our product will perfectly fit their needs in price and sustainable alternatives.
Our funding progress will be based a linear development of our technology. In the first stage we intend to go for government granting with a University collaborations, to prove the technology. In sequence, having a pilot plant we aim to seek for incubator or accelerator investments for our venture. Finally, expanding to bigger bioreactors we hope to go for angels investments. All this stages will be accompanied by private investments, once pneumatic companies shows an enlarged interest in technologies like ours.
IP Protection & Legal Issues
Patent
Why are we applying a patent?
Protecting our technology is extremely important to enrich our startup value and attract stakeholders. A patent will ensure that our innovative technology remains competitive in the market comparing to current uses of waste tires. The innovation developed by our team is fully-patentable, once these types of enzymes have never been used in this combination.
What can be patented in biotechnology area?
As we established to turn our idea into a startup, numerous questions about how to protect our invention emerged. In this sense, we researched about patentable materials and the main differences between countries6
The United States has a complete patent system, in which you can protect almost anything. Unfortunately, in our country - Brazil - the situation is quite different, as can be seen in Table 1. Analyzing theses differences, and having in mind that our startup will be placed in Brazil, we planned the approach in our project’s protection.
What are we protecting?
As was shown on the previous section, Brazil grants only a few types of patents. In this scope, our team decided to develop different patents for each step of the project, which are showed in detail below. For example, in our country it is not allowed to protect a wild type microorganism, then, in the devulcanization process we will be protecting the optimization parameters in industrial scale.
How are we protecting?
Our strategy about the intellectual property protection was decided with the assistance of USP Innovationn Agency, a part of the university designated to assist its faculty and students mainly in patent deposits. They informed us that the brazilian government allows a grace period after the first publication of the research. In this sense, a simple publication of the description of the project on the wiki would be sufficient for us to partially protect our intellectual property temporarily. Additionally, they informed us that part of each of the patents proposed will be owned by USP. This happens because, as students of the University, we are human resources of the institution, and therefore, all the research developed by us also belongs to them - and we are considered inventors, not patent direct holders. Another aspect that confirms their ownership on the patents is that we developed all the project in USP laboratories. With that in mind, our startup will license this patent and hopefully develop new technologies in the future as a partner of USP.
As stated before, our technology is innovative and fully-patentable. In order to understand the importance of our project we searched for similar patents along with Braskem. Table 2 shows the patents deposited all around the world related to our project, and here we state the differences between their idea and ours. Using the keywords Rubber Oxigenase and triisoprene no results were obtained. For polyisoprene degradation and rubber degradation we have got the following results.
USP Innovation Agency
The Agência USP de Inovação (Innovation Agency of the University of São Paulo) is responsible for managing innovation policy in order to promote the use of scientific, technological and cultural knowledge produced at the university for sustainable socio-economic development of the state of São Paulo and of the country. Engaged in the protection of industrial and intellectual property generated at the University, performing all necessary procedures for the registration of patents, trademarks, copyright books, software, music, among other creations. Provides support to professors, students and USP employees to better manage the relationships with the business sectors, as well as communicate to society the impact and benefits of innovation guided by science developed by researchers from USP. Through business incubators, technology parks and specific training, it promotes entrepreneurship by providing technical support, management and additional training to the entrepreneur. It also works on technology transfer, concerned to place them at the disposal of society.
When the first initiatives of founding a startup came up in our project, a meeting was scheduled to discuss about patents. Our technology lies in the state of the art of enzymatic rubber degradation and there were concerns about intellectual property to guarantee the success of our entrepreneurship initiatives. Knowing this, we recognized a deficiency of how we were intended to proceed. If we should patent as a partner with the university, what is the cost, how to write, what can be patented, how many types of patents exist. Eduardo Brito from AgênciaUSP de Inovação explained many of our questions and stated all possible scenarios. We have learned a lot about required documents and policies that govern the development of a technology inside the university.
First, we have analyzed the parts of our project and what needed protection, in order to implementate the project and benefit all the people involved.
Once defined the ideas to patent in each part of the project, it was discussed about the rights and licensing. The team’s opinion was very divided about patent strategies. In this senses, we considered three options:
1) Patent without the partnership of USP, look for funding and develop the technology in partnership with other startups.
This option is not possible because we were already using USP resources, such as equipment and human resources. Additionally, USP has an excellent infrastructure and it would not be a smart choice to not use it. In future scenarios, we intend to fully developed in the company, showing the viability of this option.
2) Patent and develop everything inside the university and pay for licensing later.
This is a fair option. Licensing procedures are explained below.
3) Patent with the university and the company in co-ownership.
This is also a fair option. Although, to make it possible, our company would have to exist and participate in project development and funding since the beginning, which is not the case. Our future plan after iGEM is to make a covenant between company and university for future development and patents.
Here is some important information about rights and licensing we have learned:
- Professors and students involved in the project are the inventors of the patent but the University of São Paulo is the titular.
- The University of São Paulo licenses the technology to companies and three different forms: (1) Royalties are applied based on negotiations and market literature; (2) The company pays an annual fixed value; (3) The company pays a single time for the license. Furthermore, the license can be exclusive or not, which means that the company can be the only one to use the technology or not. These decisions are based on market literature and negotiations with the USP, company and inventors.
- In all the licensing methods, the University of São Paulo holds 70% of the money received and this percentage is not negotiable. Inventors share the other 30%.
- If the technology is being licensed to a startup founded in the university with its students that also are the inventors, some facilities can be discussed, as a two year grace in licensing fees.
When the University of São Paulo develops a project in partnership with a company, they can share the ownership of the patent. We considered this case as a good option for us in the future because we would not have to pay license fees. The first step to make it possible is to open a company and formalize an agreement between USP and startup. In this document we would describe the work plan and establish patent shares based on it. Our team went to the financial division of Instituto de Física de São Carlos - USP and discussed about this option. We have the document to the agreement, unfortunately is confidential. Agência USP de Inovação also esteem that it is a good future plan and we are working on that. In this case, our startup would be responsible for founding, studying the market and projecting the scale up, while USP would give us infrastructure to keep the study in laboratory scale. This is not possible right now due time. All the technology described in our wiki page must be patented before the grace period and this time is not long enough to set legalize the company and set the agreement.
The grace period was explained to us by Eduardo Brito and Freid Artur. We were worried about wiki divulgation before the patent deposit. In Brazil, there is a “one year grace period” after idea disclosure that gives the inventors the right to patent. Our wiki also will be previous registration to another countries and it makes impossible to another person to copy our idea and try to patent. By law, it would not be accepted because we already own it. The ideal is to hold the technology to yourself and make it a secret. However, as we can’t do it on iGEM, we recommend future teams to understand how it works in their countries and make use of the “grace time”.
A patent in Brazil lasts 20 years and taxes costs approximately $5000 during this whole time. But there are some costs not included, such as a specialized person to review our text and claims. The University holding the ownership, it pays all the fees during the 20 years. As a result of this, USP only pays international patents when there is a non-Brazilian company interested on exploring it. We have been in contact to multinational companies in Brazil to make a partnership in future and make our technology expand reach more than only the brazilian market.
In our last meeting, we presented them our project and showed the entrepreneur spirit of iGEM. They got very excited to support us as sponsors to take more members of the team to the event and have the opportunity to present our project in the best form and speak with potential investors.
We are grateful for AgênciaUSP de Inovação help, they teached us a lot!
Lawyer and Accountant
We got in contact with an accountant to better understand the procedures to start a company and make a budget. The first concern was what type of activity would better characterize our startup business. We established the following option:
Research and Experimental Development in Physical and Natural Sciences.
Objectives: Study, research, development, testing, teaching, assessment and innovation achieved within the life sciences, such as medicine, biology, biochemistry, pharmacy, agriculture related and their interrelations with the physical sciences.
The type of activity is directly related to its corporation taxes. The chosen one belongs to a class called “National Simple” and presents the lowest tax applied, it is only to provide services and does not allow commercialization and industrialization of products. Perfectly fits for our first 3 years as enterprise since we will not sell any product until 2019. After that we will have to make a change.
We also got in contact with SBAC Lawyer Office. Their business model is focused on startups and small businesses, already opened or that will open later. We scheduled two meetings, the first one on Skype and, in the second one, we went to their building in São Paulo. We were concerned about our social contract and how to make the company works with so many people involved - 20 team members. Also we discussed about company structure Anonymous Society (SA) and Limited Company (LTDA), the possibilities to better apply our project, patent issues and how to communicate with potential investors. They accepted being our sponsors and helping to consolidate our company with no charges until we have raised enough money for the service.
We are still working on company structure, shares and rights. Company shares will be centralized in key players to develop the technology into a feasible business. This is a process under development that we finalize early 2016.
Business Model
The current “linear” approach to satisfying customers demand has been working for the last 250 years, when the resources are abundant and inexpensive. Companies hold high technologies to extract raw materials, manufacture, sell and ship, lying on the principles of “take, make, waste”. Although it has been very lucrative, it is no longer viable. According to US National Climate Assessment the projection for current growth model in the next two decades is a trillion-dollar loss for companies dependent on virgin non-renewable natural resources due volatility and increasing prices. There are a plenty of studies highlighting the increasing resource scarcity and mounting waste7, it is expected the total demand for limited resources to reach 400 percent overuse of Earth’s total capacity by 20508. Some recent initiatives were covered in the media this year, such as the international group of the seven major advanced economies in the World (G7) agreement to cut greenhouse gases by phasing out the use of fossil fuels by the end of the century9. The unsustainable scenario is very clear, the economic development and scarcity scenario are on a collision course. If nothing changes to address the situation, the economic and environmental impact will be devastating.
A business model must be implemented to drive future growth by radical improvement of resources use and productivity. The model is called circular economy and it has been being exploited by few visionary companies for decades. Its core is to create new value chains to decouple growth from the use of scarce and linear resource. It can be accomplished by extending product’s life, providing renewable energy, using recyclable inputs, recovering useful resources/energy out of disposed products, offering the product as a service and creating sharing platforms for possible product shared access or use.
A good example of circular economy on tire industry is Michelin, one of the world’s leading tire manufacturers, created a tire as a service platform in which customers can rent instead of buying tires. They pay per miles driven and do not have to worry about maintenance, which is performed by Michelin. By adopting this model, tire lifetime is increased and company gets motivated to keep giving a proper destination for the product.
Rubber Biotechnologies also adopted the circular economy as its business model. By recovering useful resources and energy out from tire waste, providing renewable energy from natural latex and extending tire life with a devulcanized product, the startup prioritizes long-term sustainability. In the following scheme it is shown how the developed technology has the potential to improve the tire cycle.
Target Market
Customer Discovery
The main purpose of the company is to generate fuel from tire, then the target customer in the future would be the petrochemical industry. Nevertheless, devulcanizated rubber and ODTD are minimal viable products to insert our business in the market during its development. Therefore, it was defined short, mid and long term target customers.
A short term customer for one of our products are tire and rubber manufacturers, rubber recycling and remanufacturing industry. Different from current technologies of devulcanization, ours devulcanized rubber promises a higher quality material due selective breakage of sulfur bonds. Studies already has shown that approximately 15% of devulcanizated rubber performed by microorganisms can be reinserted in new tire’s production with no change in its properties10. It makes the first product of our productive chain largely applicable. In our field research we received a positive feedback from pneumatic and recycling industry.
A middle term customer of our second product, the ODTD are the other industry segments. The molecule has a great potential to be conversed into other products, such as polymers. In our field research in Braskem SA, they suggested reactions - performed by them - to produce sustainable plastic. It also can be used as intermediate input to other chemical process.
A long term customer and our primary market is the petrochemical industry for jet-fuel production. We can figure a market projection comparing to biodiesel business. Brazil and United States are investing in biofuels to reduce dependence on imported oil and the ethanol market is well consolidated in Brazil. Although the biodiesel demand is currently significantly smaller than ethanol and petroleum derived, it is expected it to be greater than ethanol through 202211. Petrobrás is the largest petrochemical of Latin America and already conduct a project with tire waste in asphalt and with biodiesel for airplanes. Since it already is in the interests of the company both areas we are working on, they are a potential customer of our product and our main target market.
Evaluation
As a market projection it was built an illustrative representation of the value generated by the sell of our products in a projection of two, four and six years with a 200 000 liters bioreactors. In the two first years the only product generated will be the devulcanized rubber and the other technologies will be under development in a pilot scale. We expect degradation and hydrogenation processes to be developed to large scale in four and six years, respectively. The annually amount of tire collected by ANIP is 460 000 tons/year. Considering that in our first two years they will address 1% to us, which is 4 600 tons/year we performed the following forecasts.
Assuming that the devulcanization process will take one week to yield 15%, 690 tons/year of devulcanized rubber will be produced. In a price of $0,50/kg, the profit will be $345 000 per year in the first two years.
In the degradation process, RoxA has an enzymatic activity of 61,36 µg ODTD per mg of RoxA, and proposing a bioreactor of 240 000 L, we will produce 288 tons of ODTD per year. Additionally, knowing that the quantity of polyisoprene in tires is 50%, and remembering our previous calculation of devulcanized rubber, we will need 234 tons of tires. Our yield comparing with the devulcanized substract will be around 45%. In this process, our estimated incoming capital is $ 576 000. Finally, having this amount of ODTD and projecting a yield of 80%, we hope to produce 230,4 tons of jet fuel. Selling for $4,00 per kilogram, the profit will be $ 921 600.
Funding & Implementation
The economics of waste tire differ from locations, depending whether the tires are stockpiled and how is the flow of tires generated annually. In the current market, transportation costs play a major role due tire volume and weight, which motivates uncorrect destinations such as illegal landfills. An enterprise with an economically viable alternative to generate competitive product from scrap tires would motivate correct addressment and create new local markets for tire compaction and densification to minimize transportation costs. In Brazil, where we are established, National Association Pneumatic Industry (ANIP) is responsible for tire’s collection and destination to recycling companies and collecting points, which generates a $26 million year costs. They represent a potential investor of our technology. Literature patent review showed that inffluent companies as Bridgestone hold the rights of biodegradation processes (JP2007000109A, JP2006152237A). It proves that they are already investing in our market for future, and we hope that they will be present in every step of the company progress.
In order to achieve a complete development of our technology, a gain of funds is required. To accomplish this we intend to do rounds of funding depending on the progress of the company. Our projection in 2016 is to go for government granting that supports startups, and this will provide us $ 100 000 to prove that our project works. In addition to that, we will refine the research with USP collaboration. After proving that our technology works, we aim to seek for incubator or accelerator support, such as Braskem labs. In two years, we hope to have a pilot plant functioning. Consequently, in 2019 there will be a 200 000L bioreactor plant, for the devulcanization process, in this stage we plan to target angel investments. Thus, in four years we will expand to the production of ODTD, and in the jet fuel. The timeline of implementation in 10 years is below.
References
1. Rubber Manufacturers Association, 2014.
2. Legislative Environmental Policy Office Study Conducted - Status of and Alternatives for the Management of Waste Tires in Montana, 1998.
3. Environmental Protection Agency- State Scrap Tire Programs, a quick reference guide, United States, 1993.
4. United States Environmental Protection Agency - Tire-Derived Fuel, 2005.
5. Saleh Tawfik A., Gupta VK, Processing Methods - Characteristics and Adsorption Behavior of Tires Derived Carbons: A Review, Advances in Colloid and Interface Science, 2014.
6. http://www.inpi.gov.br/
7. The United Nations Environment Programme’s International Resource Panel - http://www.unep.org/resourcepanel/
8. Ecological Footprint Atlas 2010 - http://www.footprintnetwork.org/images/uploads/Ecological_Footprint_Atlas_2010.pdf
9. http://www.theguardian.com/world/2015/jun/08/g7-leaders-agree-phase-out-fossil-fuel-use-end-of-century
10. Carlos Alberto F. Lagarinhos; Jorge Alberto S. Tenório. Technologies for reusing, recycling and energetic valorization of tires in Brazil ; Polímeros vol.18 no.2; São Carlos 2008.
11. http://www.oecd.org/