Making fashion sustainable with a specialized fund, interview w. Michael Kleindl (Collateral Good) 👕
Impact Supporters Issue #41. Thanks for being here. If you have comments or feedback drop me a message.
Disclaimer from August Solliv: The views expressed are solely my own i.e. it’s my Sunday fun work 😉
Key insights:
Interview with Michael Kleindl, Founder and Managing Partner at Collateral Good
Collateral Good has innovated the impact VC model: 1. they offer their funds as corporate innovation platforms for corporates, and 2. they build specialized funds on specific themes in parallel
Textiles have a large environmental impact. Textiles are 8-9% of CO2 emissions and up to 75% of textiles end up in landfills at the of their lifetime
Textiles and fashion is global, so Michael believes that fashiontech funds must have a global mandate
Collateral Good splits fashiontech solutions in 1. Materials 2. Manufacturing, 3. Waste and overproduction, 4. Tracing and tracking, 5. Circularity (recycling, repair, recommerce, and reuse)
VC will not fix the whole textiles industry and high consumer demand for cheap unsustainable products, but can change how things are done in the industry
Greetings to 2k+ Impact Supporters! 🌍 It’s August Solliv 👋 Let’s dive into impact in fashiontech and textiles and Collateral Good’s unique model with parallel specialized funds (≈9 min reading time):
VC as a corporate innovation platform 💡
Building specialized impact funds in parallel 🔄
The future of Collateral Good 🚀
Why is fashiontech impact? 👗🌱
Investing in Textiles as a VC vertical 🧵
Cooperation with Hugo Boss 🤝
Need for global deeptech solutions 🌐
Mass-market vs premium vs luxury solutions 💎
Limits of the VC model in textiles 🫷
Tips for other investors 💬
Meet Michael Kleindl 👋
Michael Kleindl is a German VC investor. He spent his studies in-between Germany France, and the USA. Michael co-founded a company in digital marketing in which he was a junior partner. They IPOed the business in 2000 🎉 Since then he moved to the investor side where he has lived in-between Madrid, Mexico City, and Zürich. He was a VC investing in traditional tech until 2018 when he hit the midlife crisis and got grey hair (as he says it himself) and started a search for purpose. That was the birth of the Collateral Good 🌱
Meet Collateral Good 💼
Collateral Good is a climate-first VC platform 🌍 Their ambition is to transform polluting industries into more sustainable ones, and they do so by setting up and launching thematical funds. The funds are built to make top investment decisions within their industries while also operating as a corporate innovation platform 🏗️ as Collateral Good likes to cooperate deeply with one or more corporates per fund. To date, Collateral Good has built funds within 1. Sustainable Food, 2. Sustainable Packaging, and 3. Sustainable Textiles.
VC as a corporate innovation platform 💡
When Michael calls the Collateral Good funds for corporate innovation platforms, this means that they partner with corporates for the funds and do a lot of work for them, but they do not provide any special rights to the corporates 🏢
Some of the value that Collateral Good can bring to the corporates is: 1. details into a market, 2. an extended R&D and innovation arm for companies that don’t have the scale or willingness to build their own CVC, and 3. co-investment opportunities.
Collateral Good has chosen this model as they get value from the corporates in two ways: 1. The corporates become important LPs in the Collateral Good Funds and provide capital 💰, and 2. The corporates can provide value in deal making and due diligence as Collateral Good can e.g. call the Head of Sourcing at HUGO BOSS to ask about new sustainable materials.
Building specialized impact funds in parallel 🔄
Collateral Good is untraditional in the way it launches multiple funds in parallel 🔄 Typically VC investors build Fund I and deploy it before fundraising and deploying Fund II. Michael thought that model was too slow to solve the pressing climate issues in the world 🌎 so he invented the Collateral Good model - which he importantly notes has dedicated vehicles, dedicated teams, dedicated governance, and dedicated advisory boards - all while leveraging the scale of the platform. Each fund is, however, very classic to avoid offering a too “weird“ product to LPs. Each fund is set up with standard closed Luxembourg structures and is axed on one single theme with no overlap.
Michael truly believes that specializing each fund in a theme is the best way to achieve outperforming returns as it allows to build sector expertise and get sector experts (i.e. corporates) to support each fund. It has allowed Michael and his team to land partners such as HUGO BOSS and McDonald’s food, logistics, and packaging provider, Havi.
Michael says that the model brings both advantages and disadvantages to him. He adds complexity from managing multiple funds, but it allows him to find the best global solutions. For example, he dove deep into the food sustainable packaging market and found the perfect start-up in Waterloo, Canada that was perfect for their thesis. Even though Collateral Good was a VC-based far away from the start-up, they ended up picking them because of their deep sector expertise.
The future of Collateral Good 🚀
Building on the initial parallel specialized impact funds, Michael wants to expand in different ways to build an impact VC platform 🏗️ 1. He would like to raise a fund specialized in sustainable buildings as well. That is the last theme he wants to specialize in. 2. Then he would start building Fund 2 on food, packaging, textiles, and buildings when the first funds are fully deployed. 3. He also hopes to one day build an overarching Growth fund. But this is for the future, currently, there would not be enough dealflow to build a Growth fund.
Michael’s other ambition would be to raise more institutional capital 💼 He believes that will happen as the Collateral Good platform grows and matures.
Let’s jump into the vertical of the day. Why is fashiontech an impact topic? 👗🌱
Michael highlights a couple of stats about the fashion industry that show the negative environmental impact of the industry today. Textiles are 8-9% of CO2 emissions (IFC, 2023), up to 75% of textiles end up in landfills at the of their lifetime (eTrade For All, 2024), and there are even more issues with water, chemicals, and labor rights… Some of the negative impacts are summarized in the illustration below:
Source: Textile Today, 2017
These facts convinced Michael that fashion was an interesting sector - and simultaneously he understood that fashion was overlooked and underfunded from a VC perspective (PwC, 2022 shows that Industry incl. fashion is underfunded). Very few people invest in fashiontech and very few are even interested in the industry - H&M are some of the only global VC investors in fashion and textiles.
See below an overview of where in the textiles value chain, emissions are produced:
Source: McKinsey, 2020
Investing in Textiles as a VC vertical 🧵
Michael and his Textiles team split solutions along the following verticals:
Materials
Manufacturing (which represent 75% of the CO2 emissions)
Waste and overproduction (e.g., AI in manufacturing or AI for people to fit their clothes online) 🤖
Tracing and tracking (e.g. digital passport, extended consumer producer responsibility)
Circularity in the form of textile recycling, chemical recycling, repair, reuse, and recovers
Cooperation with Hugo Boss 🤝
You might be thinking - how do you build a strong enough platform for HUGO BOSS to invest in your impact VC? Michael says that cooperation is both formal and informal. He splits it up in three:
The team does a quarterly formal meeting with senior people at Hugo Boss 👩💼 (incl. Head of Strategy, Head of Operations, and Head of Sourcing, Sustainability people, and Materials people) where they share relevant market intelligence and discuss portfolio and performance.
The team regularly informally brings deals to Hugo Boss for co-investments or for commercial collaboration.
The team has defined the strategic burning interests of all their partners. So whenever something relevant comes up, Collateral Good presents those start-ups informally to Hugo Boss.
Need for global deeptech solutions 🌐
Many impact VCs take a regional focus, but Michael believes in a global mandate 🌍 for specialized funds as these need to find the best solutions around the world for their industry. This is certainly true in fashion as the whole industry is completely globalized.
Collateral Good doesn’t differentiate solutions on whether they are software and hardware - there is a need for both in fashion. But he does say that at Collateral Good, they like deeptech. The team likes science and strong IP 📜 - IP is of course partly irrelevant for software, but offers Freedom To Operate for hardware.
Source: Evreka, undated
Mass-market vs premium vs luxury solutions 💎
Michael says that an important component to consider when looking at fashiontech solutions is their positioning in the market (mass-market, premium, luxury, etc.) as the requirements are very different across. Collateral Good has chosen to position itself across all of the segments in the fashion industry and do deals as long as they target impact returns and financial returns at the same time. Having said that any solution needs to hit mass markets in order to drive real change and impact.
Limits of the VC model in textiles 🫷
Michael believes that the VC model cannot fix all issues in textiles and fashion. VCs will not be able to change the whole industry and how it’s built up around selling large quantities and meeting a large consumer demand. VCs can only change how it’s done, i.e. installing circular business models, and increasing tracking.
Moreover, Michael says that Collateral Good clearly focuses on the environmental side of textile sustainability 🌿, so the impact that the firm has on social issues is more indirect. For example, new dyeing technologies might make it safer for workers to use, but Collateral Good will primarily invest because it might also reduce the carbon or chemical footprint simultaneously.
Tips for other impact VCs 💬
When asked for advice, Michael answered, “Who am I to tell someone else what to do?” 😄 But pushing him a little, he said that if he has to say something, then it would be a call to action for asset managers to be brave. There is a need for brave people to make bets in industries like fashion and textiles if we want to create change - it will simply not happen otherwise.
Thanks for reading this week’s newsletter! Let me know what you think of this article and who else I should interview in this series - either in the comments section or in my DMs. Please subscribe to stay updated on articles about everything related to impact VC - and share with friends and colleagues. See you next week for another issue! 👋
Links to articles/data mentioned:
Thanks for this article. Of course, the fashion industry leads to large-scale emissions of greenhouse gases. But it's great to learn that VCs are responding to this issue.