Finance

Integrate circular value in models

Depreciation is the draw-down of an asset’s value over its economic lifetime for tax and accounting purposes. Conventional accounting practices draw the value of an asset to zero over a predetermined period. Buildings, machinery, equipment and vehicles are all assets that can be depreciated for tax deduction purposes.

Understandably, this is not intended to be a measure of “actual” asset value at any time after purchase. Most assets retain some value in the market well after their accounting lifetime has expired.

There is an opportunity to capture the actual value of products, components and materials after their first (accounting) life. Integrating real market values for these assets in discounted cash flows and pro forma creates a more informative model for basing financial decisions.

Resources

Example

Circularity Capital: The value of use

Situation

  • Megatrends such as the growing middle class, resource price volatility, supply security and changing consumer patterns all suggest the need for greater resource effectiveness.
  • There are many start-ups and SMEs with circular economy-based business models.

Challenges

  • Companies with circular models are perceived as having additional risk on top of average start-ups.
  • The circular economy and its implications remain foreign to most of the financial industry.
  • Atypical cash flows and balance sheets make conventional investors uneasy.
  • Supply chain collaboration is not typical and often very difficult.

Solution

  • Circularity Capital focuses on circular economy investment opportunities for private equity investors.
  • Circularity Capital aims to raise $62.8 million in its latest fund.
  • Circularity Capital allocates funding to growth-stage SMEs operating in Europe.
  • Focused on companies offering maintenance, repair, refurbishment, remanufacturing, leasing services and software.

Key benefits

  • Circularity Capital’s new Circularity European Growth Fund will invest between $1.2 to $6.2 million in European, growth-stage companies.
  • Opens opportunity for partnering with firms who understand the circular economy allows growing firms access to institutional knowledge, expert opinions and a network of other entrepreneurs.