This Palo Alto startup hopes to spur the market for recycled plastic materials. Here's how.

Despite widespread recycling programs, the vast majority of plastic products manufactured today are made from new materials.

There are numerous reasons for that, but one of them is that the market for recycled plastic material that could be turned into new goods remains underdeveloped. It's opaque, inefficient and largely based on paper transactions, said Ian Arthurs, CEO of Circular, a Palo Alto startup.

Arthurs thinks his company can help jump-start the market for recycled plastics and thereby shift production of plastic goods away from new materials. Last week, Circular — legally, Circular Exchange Inc. — launched an online marketplace for industrial-grade recycled plastic.

The site, a kind of procurement service, is designed to make it easy for recycling companies to buy pre-sorted bundles of waste plastic and for plastic product companies and manufacturers to purchase already-recycled plastic materials. The marketplace allows customers to negotiate complex contracts in a transparent environment, in which information about the precise quality, quantity and types of materials is readily available. Essentially, Circular is trying to make buying recycled plastics as simple as buying new materials.

"When you look at the industry today, it's got so many challenges that aren't anyone's real fault," Arthurs told the Business Journal. "If you want to know how much a bale or a pound of resin or a ton of flakes might be, you typically have to go pay a research firm $25,000 a year to get that data ... That's not what Silicon Valley is."

Arthurs may seem an unlikely figure to try to transform the plastics industry. Prior to founding Circular last year, he had no background in the business or even in the broad clean technology industry.

But he has plenty of experience with startups and knows how transformational digital technologies and online marketplaces can be. He previously served as an executive at TaskRabbit Inc., which offers a marketplace for freelance work; at Airbnb Inc., which matches travelers with those offering places to stay; and for Google LLC's travel advertising business. Most recently, he served as the chief operating officer of Medium, the online publishing service legally known as A Medium Corp.

Arthurs reached out to experts

Arthurs also had a passion for outdoor activities and a desire to improve the environment for his two young kids. Living in California, which has been battling drought off and on for years, Arthurs initially thought he would do something related to water. But he came to believe that the problems related to that resource were more political than technical and not particularly amenable to technological fixes.

Realizing he needed expert advice, Arthurs reached out to Eclipse Ventures, a Palo Alto venture firm that invests in startups that focus on bringing digital technologies to traditional industries, such as manufacturing and transportation. He joined Eclipse as a venture partner, with the idea of creating a company with the firm's backing. Together, Arthurs and Eclipse quickly zeroed in on the recycled plastic industry, which they found to be lacking in both transparency and the adoption of digital processes, which made it seemingly ripe for digital disruption.

But the lack of transparency in the industry was a challenge as much as an opportunity — there just wasn't much readily available market data on the recycled plastic industry, Arthurs said. So he turned to another expert for help: Adam Lowry, co-founder of Method Products PBC, the maker of the popular eco-friendly cleaning products. Method uses recycled plastic in its packaging and at one point even went so far as to process plastic waste into recycled materials it could turn into bottles for its household cleaners. Lowry is now on Circular's advisory board.

Arthurs also started having in-depth conversations with potential customers to figure out how to design Circular's marketplace and the contracts that would be offered there.

"It's only that level of insight that would allow for this kind of company to grow and survive," he said. "There's been a few false starts in this industry, and I think I see why some of those folks haven't gotten traction."

Circular will charge two fees

Arthurs thinks Circular can take off with customers not just by understanding their needs but by offering them a better deal. The company charges buyers a fee of 5% of the gross value of each transaction. That's significantly less than what the brokers of these kinds of deals typically charge, he said.

Circular plans to also charge customers a subscription fee. Initially that fee — which will apply to both buyers and sellers — will be $10,000 per company. Eventually, the startup plans to move away from that flat, per-company charge and bill customers based on the number of employees they have accessing its marketplace, Arthurs said.

Subscription fees will help the marketplace thrive, he said.

"I need the buyers and sellers on our platform to be really committed," Arthurs said. "A subscription model allows us to vet them and then make sure they're committed."

The market for plastic materials — new and recycled — is huge, on the order of around $645 billion worldwide, he said. Although the market for recycled materials represents only about $45 billion of that total, that's due to supply constraints, not a lack of demand, he said. Indeed, the current market for recycled plastic — including unmet demand — is probably around $315 billion, he said.

So even if Circular was only able to claim a small portion of the market, it could still become a sizable business.

But Arthurs plans to have the company eventually open its marketplace — and broaden its market opportunity — to other recycled materials, including paper, aluminum and glass.

Circular's promise has already attracted venture funding. The company in December raised a $5 million seed round led by Eclipse, according to Arthurs. That funding should last the company two to three years; Arthurs plans to raise an A round for Circular late next year, he said.

Arthurs is the right man for the job, said Aidan Madigan-Curtis, an Eclipse partner. His passion and curiosity, along with his organizational skills, helped convince her that Circular was a worthwhile investment.

"We knew Ian was the real deal from the second we first talked with him," she said. "It's really tragic just how big the problem is, the millions of tons of new plastic that get created every year. A lot of people have tried to change the hearts and minds of consumers ... What I love about Circular is they're (addressing) a different part of the chain."