Why we invested in SQIM: Unveiling the Potential of Mycelium Innovation

Mridul Pareek , Eugen Kaprov and Marie Asano

At ECBF VC, we are thrilled to announce our recent financing of SQIM , a groundbreaking mycelium company at the forefront of the biotech revolution. Mycelium, seen by investors as an emerging and versatile biotech platform, aligns perfectly with the growing market demand for alternative proteins and next-gen textiles. SQIM distinguishes itself through its unique approach, utilizing a combination of solid and liquid state fermentation. For a deeper understanding of the opportunity in the mycelium space, explore our mycelium deep dive here.

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SQIM Vision and Fit

SQIM’s vision centers around co-designing with nature to create cutting-edge technologies and high-quality, naturally grown products. Their commitment to Circular Economy, namely by transforming residual substrates into high-value materials with minimal energy inputs, coupled with a deep understanding of mycelium biology, sets them apart. Being the most established “mycelium materials” companies in Europe, as well as one of the most advanced ones on a global scale in regard to delivering high-quality materials to the luxury fashion industry, we see SQIM as a pioneer capable of addressing diverse markets and applications, contributing significantly to the advancement of a more sustainable and circular bioeconomy, and thus an ideal match for our funds mission.

Market opportunity, timing, and traction

The global appetite for alternative materials, especially in the luxury sector, is on the rise due to consumer and brand sustainability pressures. It is utopian to believe that fashion companies will stop using conventional leather. However, they are actively seeking animal-free materials that are not wrapped in plastic and meet high-performance levels. Synthetic and biobased PU leathers cut down on the impact of animal leather production but raise other environmental concerns. They often do not perform well on quality and are considered “shiny, and plasticky” by brands. SQIM capitalizes on this trend with its innovative mycelium-based biofabrication processes, offering a new class of high-quality materials poised to positively disrupt the fashion, interior, and automotive industries.

Leather alternatives market can be divided in two categories:

1. Low complexity materials (plant based and recycled leather) are already launched in the market and have validated clear scale up and consumer demand but lack disruption, performance and aren’t plastic-free, which will limit their market share in the long run. They will likely reach sales of $1Bn+ by 2025-26.
2. High complexity materials (mycelium, lab grown and others) are still in development. We see that this category will be driven by advancements in mycelium technology in the short run. Cell-cultured will take longer than five years to mature and require very high investments. If these materials can reach near the price and performance of premium leather, they will disrupt the market.

SQIM's market timing is impeccable, with EPHEA?? making its debut at Paris Fashion Week in March 2022, and having launched in stores in November 2022, as in collaboration with Balenciaga. This strategic launch positions SQIM at the forefront of mycelium flexible materials, capturing the interest of both the fashion industry and environmentally conscious consumers. We also see SQIM’s? geo-location as an advantage – being in Italy and close to France makes a lot of sense for the company as the major luxury brands and their suppliers, e.g., tanneries, are all traditionally coming out of these regions.

Technology and USP

Nature serves as SQIM's ultimate engineering and manufacturing platform, leveraging billions of years of evolution. The company's cutting-edge research and experimentation enable the industrial-scale growth of unprecedented materials through fermentation. SQIM's unique platform blends biofoundry capabilities with the industrial approach of vertical farming, providing mastery over both micro and macro dimensions of mycelium-based fabrication. The tanning process for mycelium material utilizes green chemistry. With deep access to the supply chain and vertical actors, SQIM has proven its ability to build strong partnerships and develop brands and products, further solidifying its position as an industry leader.

SQIM’s technology platform currently encompasses two distinct product lines: EPHEA, specializing in mycelium-based alternative to leather, and Mogu, focusing on acoustic panels and flooring. Within our investment strategy, EPHEA takes center stage. The unique selling proposition (USP) of EPHEA lies in its proprietary semi-liquid fermentation technology, complemented by mycelium strains capable of thriving in ambient conditions. This distinctive combination empowers the company to economically produce top-tier mycelium leather products, marking a significant aspect of our investment thesis.

Product Performance

EPHEA??, SQIM’s flagship product, is not just a leather replacement but a revolutionary set of materials with superior values and functionalities. The material has been confirmed as “best in class” and has passed quality standards in line with the highest expectations of the luxury industry. The partnership with prestigious fashion and luxury brands for mycelium-based capsule collections, and beyond, is a testament to the quality and recognition of SQIM's products.

People and Team

Stefano Babbini and Maurizio Montalti , the passionate founders of SQIM, bring a unique blend of experience and expertise to the table. Stefano's engineering and scale-up experience, coupled with his relentless attitude, complements Maurizio's creativity and ability to bridge design and biotech. Together, they form a dynamic duo dedicated to transforming the industry.

Empowered by a strategically diverse investor base, including CDP Venture Capital SGR with their extensive local network and expertise in Italy, the backing of Kering Ventures, a globally recognized leader in the fashion industry, and the continued support of Progress Tech Transfer Fund , an early investor since the company's inception builds a robust blend of financial and strategic backing. This powerful combination sets the stage for scaling up production but also contributes to the growth of the organization and its commercial activities.

In conclusion, our investment in SQIM reflects our confidence in their vision, technology, and commitment to sustainability. SQIM supports a “local” circular bioeconomy and enables the sustainable production of animal-free alternatives to traditional leathers and interior architecture products using agri-waste as a feedstock. The funding round will enable SQIM to expand Industrial Scale-Up through the launch of a newly dedicated Demo Plant, while further accelerating R&D activities, and strengthening the team. We are excited to be part of their journey and look forward to witnessing the transformative impact of mycelium on the future of materials and products.

#mycelium #deeptech #vc #sustainability #impactinvesting #circularbioeconomy