Exploring WLabku Kitchen, Recycling Sugarcane Bagasse for "Zero Carbon Emission" Acceleration in Indonesia

"Many business leaders are seeing the relationship between long term success and sustainability, and that's very heartening." — Jacqueline Novogratz, entrepreneur

There are various perceptions that say that it is not easy to be in business in Indonesia environmental impact. The first assumption is that it is difficult for startup actors to make money--let alone profit--and its realization takes a long time. Second, this assumption makes investors' interest even more limited. However, that doesn't mean it doesn't exist.

Many startups in the world carry a mission to save the earth instead of promoting profit. In Indonesia, the number may still be counted on the fingers. There is renewable energy startup Xurya and garbage collection startup Duitin. All of this wants to make the earth greener and friendly to humans.

WLabku, a startup waste management who received funding from impact investors Gayo Capital, has the same mission, namely recycling sugarcane bagasse into valuable products in order to realize acceleration zero carbon emissions in Indonesia.

DailySocial had the opportunity to chat with two important figures in Gayo Capital, namely Jefri R Sirait as Co-Founder & Managing Partner and Eldo Wana Kusuma as Investment Principal regarding recycling development, business metrics, and environmental impacts in this business segment.

Regarding my WLab

Founded in 2019, WLabku is a startup in the field waste management solutions which recycles sugar cane waste as animal feed (bagasse). Not only that, this recycling result can be used as biofuel (fuel from plant and animal matter) to produce heat, energy, electricity, and manufacturing pulp and building materials. The quantity obtained ranges from 22% -36%, depending on the fiber portion and cleanliness of the sugar cane supply.

Why sugarcane? Quoting information on the official Gayo website, bagasse is a fibrous residue left after milling, containing a water content of 45% -50% with a mixture of fiber fibers and soft and smooth parenchymal tissue with high hygroscopic properties. Sugarcane bagasse also contains cellulose, hemi cellulose, pentosan, lignin, sugar, wax and minerals.

In Indonesia, sugar cane has been planted on an area of ​​up to 450.000 hectares. The average production output is at community plantations (around 266.000 hectares) less than 80 tons per hectare with yield level below 8%. The potential market capitalization for sugarcane recycling is around 5% of old sugarcane bagasse, which is IDR 2,2 trillion.

In 2020, WLabku received investment from Gayo Capital through two rounds of funding. Based on data Crunchbase, WLabku received initial funding (seed) in January 2020 for $ 1 million, and a second round in July 2020 through convertible notes of $90.000.

Co-Founder & Managing Partner Jefri R Sirait revealed that WLabku is one of Gayo Capital's investment portfolios that offers value added sebagai biomass waster. According to him, there is a lot of unused material (unused) which can actually be reused (circular economics) in the agricultural, livestock and even Indonesian society sectors.

He considers recycling used materials to be one of the important keys to strengthening food and energy security in Indonesia, as well as being able to produce carbon farming.

"From the start, Edward [Ismawan Chamdani] and I as the Founders of Gayo Capital, saw that Sustainable Development Goals (SDG) and farmers, breeders, fishermen and MSMEs must become the epicenter in Indonesia. This is a strong basis for how rural areas can strengthen urban areas. This is also fundamental in our investments and we bring the tech to them. WLabku will complement our portfolio ecosystem in the field waste management and agriculture" said Jefri.

My WLab Agenda

There are two big agendas that WLabku will carry out. First, exporting bagasse waste that has been recycled into valuable products. For example, recycling into raw materials (feedstock). WLabku takes the role of recycling and processing it into cow food, then exporting it to several countries, such as Japan and possibly New Zealand.

Investment Principal Eldo Wana Kusuma revealed that one of his supplier clients was confused about processing sugarcane bagasse waste that had been accumulating for years. If this waste is burned, the process produces more carbon emissions which actually causes pollution to the environment. This means that the burning method is not the right solution for processing organic waste.

Apart from that, the process also takes a long time so that the production results are not balanced with the waste destruction process. This is not to mention the potential for new costs to collect waste.

Without a processing plant, bagasse would be wasted because it would only end up being burned and losing its value. This will have a negative impact on the environment because it triggers carbon production. WLabku plays a role in solving the problems above by turning rubbish or waste into valuable products. 

Based on reports Ministry of Environment and Forestry (KLHK), the amount of national waste generation reaches 175.000 tons per day or the equivalent of 64 million tons per year (assuming the waste produced by each person per day is 0,7 kg)

Detailed in terms of composition, the majority of waste, 50%, comes from organic (food and plant waste), plastic (15%), and paper (10%). The rest comes from metal, rubber, fabric, glass, and others. From the source category, households produce the most waste (48%), followed by traditional markets (24%), commercial areas (9%), and the rest from public facilities, schools, offices and roads.

Second, accelerate the program zero emissions. "The remaining filtered bagasse is not 100% usable feedstock. The remaining residue can be compacted and used for fuel co-firing in the form of pellet to reduce carbon emissions from combustion fossil. This is what I mean as program acceleration zero emissions," he said.

In 2030, Japan issued a policy that prohibits all factories from using fuel fossil. Sugarcane bagasse can be used as fuel in the form of pellet or feed ingredients that are compacted in such a way from concentrate or forage materials to reduce the dryness of the feed. Meanwhile, pellet produced by WLabku can reach 4.300 calories.

Business acceleration

With the various plans above, what are Gayo Capital's efforts to accelerate the WLabku business?

Gayo Capital also plays a role venture builder. They also provided assistance and connected business networks to the founder of WLabku. Gayo is not only involved in the capital aspect. Moreover, he said, the three partners at Gayo Capital have strong backgrounds in finance, operations, networks and business partnerships. This is an added value that we want to provide to WLabku.

Furthermore, Eldo said that WLabku's business scalability could be improved as long as it had a mature business model. According to him, business scalability impact difficult to achieve if the founder only thinks about the 'for the sake of humanity and mother earth'.

One of the challenges is that investing in the environmental sector requires more than one source of capital, namely combining private capital and development funding. Its use must also be right on target. For example, grant funds from foundations or CSR programs can be used for research needs, while investment from Venture Capital (VC) is used for operational costs (Opex) and working capital.

In the case of WLabku, the company has conducted its own research, while the funding source is still led by Gayo Capital. "As long as it is used on target, I think everything can run smoothly. Most people founder who plays in the realm impact, put too much emphasis on research and put aside business. "So this is quite a difficult challenge," he said.

To answer the question above, Eldo is targeting a strategic collaboration between WLabku and the portfolio ecosystem at Gayo Capital. Especially collaboration across products/services which is still in the corridor sustainability. For example, waste to energy or clean energy. It means, scale up business is not only limited to owners of business models similar to WLabku.

"We can't just depend on it fossil fuels and this has actually been our agenda for a long time. We hope there will be collaboration between portfolios and approaches penta-helix at Gayo Capital, and this should be accelerated even more quickly."

Impact vs profit

Which should come first, impact or profit? A difficult question to address the challenges various investors face when doing so impact investing in sector environmental or sustainability.

Eldo revealed that currently his party is trying to prove that the WLabku business model can be accepted in the market, namely turning waste into waste valuable product to solve the problem of the accumulation of factory waste. If successful, Gayo will talk about the matter financial returns.

Meanwhile, he said that the average VC investment is generally around 3-5 times in 5-10 years fund lifetime (range 27%-30% return per year).

"Profit has not yet become the main focus even though in the end investors definitely expect returns. For the initial stage, we hope to impact. Actually, thanks to help stakeholder, we've [started to] move towards both, okay impact nor financial returns," he said.

WLabku uses a number of metrics to measure business growth and impact on the environment. For business growth, Gayo uses metrics, such as numbers beg and buyers.

In parallel, he believes that the more supplies there are, the less factory waste will be. The more people buy, the faster the acceleration to realize the program zero carbon emissions.

Meanwhile, WLabku measures the amount of bagasse recycled and the environmental impact of the solutions they offer. This impact can be measured from the level of reduction in odor pollution or environmental pollution. "To [measure] that impact, we use tools with the ESG Report," he added.

For a little information, ESG (Environmental, Social, Governance) Reports are a reference or formula for measuring the impact of environmental pollution. ESG reports operational data for various companies that focuses on three areas, namely environmental, social and Corporate Governance.

In Indonesia, ESG implementation has begun to be implemented on the Indonesian Stock Exchange (BEI). In March 2021, BEI launched a new index IDX ESG to encourage environmental, social and governance practices of issuers (companies listed on the capital market). In the long term, the implementation of ESG is expected to drive more capital flows to Indonesia.

One-size-fits-all metrics

DailySocial brief conversation with Partner at Patamar Capital Dondi Hananto, talking about metrics and scalability impact investing in Indonesia in general. Take the example on social impacts, according to him there is currently no one-size-fits-all metric (one for all) which can be used to measure business growth, both in nature equity nor non-equity. It all depends on the business model and impact pursued by the startup.

While in segment environmental impact, Dondi believes that his business development cannot yet be relied on commercial financing fully considering its market in Southeast Asia is not yet mature. So it needs encouragement from other funding sources (blended finance), such as foundations, CSR, or social funds.

This is one of the factors why business scalability in startups is increasing environmental impact difficult to accelerate. Not to mention talking about clashes in pursuit of 'impact versus profit' considering that both are difficult to achieve simultaneously. Dondi believes that it is difficult to withstand the impact in the long term if the business has started profit-oriented.

"By business model, I haven't seen [environmental startups] that can be fast scalable. However, the trend is going there," said Dondi.