Introduction

Modern Meadow is a New Jersey based start-up that is seeking to remove animals from the leather making process. They have raised 40 million to become the only animal free leather maker in the world with applications in fashion accessories such as hand bags, shoes, belts, and higher volume markets such as clothing and furniture. Modern Meadow has launched the world’s first bioleather brand — Zoa.

Modern Meadow’s approach is to utilize cells to produce and assemble collagen to produce a leather that is biologically identical to what is produced from animals. From that animal free collagen source they can design their products to have specific physical traits that designers cannot get from traditional sources.

The company has received significant press from multiple outlets:

TechCrunch, Mashable, The Atlantic, The Economist, and The Wall Street Journal to name a few.

I am not an investor in Modern Meadow, but I am attempting to write more deal memos about start-ups that intersect chemistry, materials science, and the future. Aaron Batalion suggested people who are interested in careers as Venture Capitalists to write like a venture capitalist — or Deal Memos. I’m just following his advice. I’m also trying to utilize the model put that Roelof Botha used to persuade his partners at Sequoia Capital to invest in YouTube.

Deal

The company has raised 40 million in their Series B according to Angel List and has investors from Horizon Ventures, Iconiq Capital, Artis Ventures, and Collaborative Fund. Their seed round included investment from the aforementioned firms and Sequoia Capital, Ulu Ventures, Milestone Venture Partners, and Breakout Labs from the Thiel Foundation.

Sequoia Capital, Ulu Ventures, Milestone Venture Partners and Breakout labs did not participate past the initial seed round according to Angel List.

Competition

There is only one other company making leather from fermented collagen: Provenance Biofabrics. C&EN covered the company briefly and mentioned that Modern Meadow is the largest competitor in the space for Provenance Biofabrics. Modern Meadow should keep an eye on Provenance Biofabrics but as of right now Modern Meadow seems to be leading the way.

The substitutes for leather can fall under cellulose based materials (Bacterial Cellulose, Recycled Paper), mushroom based materials, Cork, Rubber, or synthetic variants. These materials are viable alternatives to traditional leather, but some consumers may not adopt them widely. It’s kind of like the animal free chicken nuggets in a frozen grocery aisle.

A good example of a collagen alternative leather was covered in a Fast Company article about Mycoworks.

Key Risks

The company is based on producing collagen from cells and if the cells cannot produce enough raw material to generate a healthy supply chain then the company is in trouble. There are numerous technologies based on utilizing cells for commodity or semi-commodity products and the risks here will be the same. The process of producing their raw material needs to be consistent, high volume, and cheaper than their competitive raw material, which would be animal skins.

The company also needs to develop processes for turning their raw material into a finished product that their customers can easily use. Proof of concept materials or prototype finished products such as a handbag should be produced before the raising of the next round if another round is needed.

Other companies have succeeded in commercializing products from fermentation processes outside of the beverage industry. The list is quite extensive and can be found here.

Recommendation

Despite the risks I would invest in Modern Meadow given the chance. They are unique in their space despite what I am sure are extensive challenges. They have little to no actual competition with regards to making collagen based products. Even if they are unable to make an animal free leather from their process I see at least one or two excellent pivots for them with respect to tissue scaffolding and medical devices. A collagen based material could open up new avenues with respect to implantable biomaterials and having the fermentation experience and materials fabrication technology is going to be more similar than they are different.

A material for medical devices or tissue scaffolding would be a significant pivot and would bring with it a higher regulatory burden, but could command high prices that may not be accessible in the current leather market.

Investment Summary

Business

Modern Meadow seeks to be a fabricator of leather based goods from non-animal based sources. They need a product that is of sufficient volume and performance that will likely be for only high end products in the near future. Similar businesses have already proven that sales of these materials are possible. The North Face recently unveiled the Moon Parka which is made from spider silk and the Adidas Futurecraft Biofabric.

Modern Meadow also recently unveiled a prototype t-shirt at the Museum of Modern Art and is set to have a pop-up shop on Crosby street in SoHo. There should be enough buzz in the fashion world to pay for super high end products and having a product made out of a material that combines cutting edge science and good design should sell very well.

Market

1) The leather market is about 100 Billion dollars globally and is set to grow.

2) Production of animal based goods does not seem to be slowing as of now, but things could change as people become more cognizant of climate change. Industrialized animal production accounts for a significant part of global greenhouse gases and taxing this industry in the near future makes sense

3) Modern Meadow could also in theory license their technology to companies to help generate a larger market for bio-fabricated textiles — similar to Tesla and their patents for electric vehicles.

Financials

1) Modern Meadow is probably burning through quite a bit of cash in order to produce their products.

2) It appears as if they are about ready to start generating revenue with their pop-up shop, but there is no word on pricing or availability. If they can sell their clothing at Tom Ford prices then they might do just fine.

Competition

1) Modern meadow has no competition when it comes to a biofabricated leather

2) Their main competition will come in the form of alternative leather materials like Nike’s Flyleather

Team

The leadership team at Modern Meadow seems well seasoned. Andras Forgacs is the CEO and he has led a similar company to a successful IPO NASDAQ:ONVO (2.22 USD/Share Market Cap 234.49 M) that had a peak stock price of $12.50/share in Q4 of 2013. Dave Williamson is the CTO and has spent extensive time at Kraton and DuPont and is a seasoned veteran in the R&D of new polymers and their successful commercialization. Suzanne Lee is the Chief Creative Officer and she has been a leader for sustainable fashion materials for the majority of her career. The rest of the C-Suite has an impressive collective resume and looks very capable of taking Modern Meadow public or to a successful exit.

Problem

Leather as of right now comes from animals and long term may not be sustainable. Industrialized animal production is a large contributor to greenhouse gases such as CO2 and methane. While there is no specialized tax on animal products in 2017 the regulatory and tax environment could change in the near future.

Solution by the Company

The company seeks to produce leather products from a fermentation process that will eliminate the need of animals in the future. The company has demonstrated success in making prototype products from their process, but can it scale? An in-depth look at their technology can be found here.

They have a patent application as of 2013 that can be read here.

Market Size

The leather industry is about 100 billion dollars globally. If Modern Meadow could capture 0.1% of that market they would be wildly successful.

Product Development

Modern Meadow appears to have products from their process ready to be sold and has unveiled their work at the Museum of Modern Art. The question is do they have enough time and resources to scale up their process to meet what is currently unknown demand. My feeling is that if they can demonstrate success with their pop-up store and can generate enough revenue to just break even on their costs this would be a monster of a company. Modern Meadow also launched the world’s first bioleather brand — Zoa

Sales and Distribution

It appears as if Modern Meadow will primarily be a business to business enterprise. They would likely start off selling to high end fashion companies like LVMH (owned by the Arnaults) and companies like Yves Saint Laurent, Gucci, and Brioni (owned by the Pinaults). Modern Meadow should be booking tickets to Paris soon.

If you liked this please give Deal Memo a follow and follow me → Anthony Maiorana, leave a comment, or give us a clap. Thank you for reading!