Startup uses ATM machine to recycle cellphones
SAN FRANCISCO (Private Equity Week) - Mark Bowles said the idea behind ecoATM was born at a coffee shop.
At a Starbucks in Del Mar, California, located north of San Diego, Bowles would routinely meet with Michael Librizzi and Pieter van Rooyen to hatch out their next brainchild. The three multi-year veterans of the wireless, mobile and semiconductor industries have collectively started about a dozen companies, Bowles estimated.
One day Librizzi mentioned a survey he had come across from Nokia, which reported that of 6,500 households surveyed nationwide, only 3 percent had ever recycled a handset.
That was when the light bulb went on: What's happening with the other 97 percent?
"As veterans of the tech industry, we helped to create this accumulating mass of cell phones and other electronic devices," said Bowles, co-founder and chief marketing officer of ecoATM. "We decided it would be nice to help clean it up."
San Diego-based ecoATM www.ecoatm.com aims to reduce all that "e-waste" through the use of recycling kiosks - similar to Coinstar vending machines - that calculate the value of an old cell phone's components, and then pays the consumer on the spot in cash or coupons for depositing the device.
To use a kiosk, a consumer plugs in their phone - using the cable provided - and the ecoATM scans the phone's contents and uses a camera that inspects the LCD screen for scratches and checks the phone for missing keys, to determine if it has any monetary value on the secondary market. The kiosk also will erase all data on the phone. The company works with a network of buyers, about 50 worldwide, said Bowles, that resells the phones on the secondary market, mostly offshore, but also domestically.
During trials at a Furniture Mart in Nebraska, consumers on average were paid $11 for each phone. At a similar trial in San Diego, the average payment for cell phones dropped off at the kiosk was $20. Bowles did not disclose what service fee his ecoATM charges at the point of transaction.
Bowles said the trials convinced him and his partners their idea would take off. A few weeks into the Nebraska trial, Bowles said a perpetual line was streaming out from the kiosk as some folks, carrying shopping bags full of old cell phones, waited up to 45 minutes to get their turn at the machine.
"It's hard to predict how consumers will react to kiosks," Bowles said. "But we're not asking for consumers to pay us. We're paying them for the used phones, like a Coinstar machine, which is why we think this automated approach will work."
Apparently, investors are also convinced.
Last week ecoATM, which launched last year, announced it raised an undisclosed amount of start-up capital from Tao Venture Partners and individual investor Jens Molbak, who has joined the company's board.
In 1989, Molbak founded Coinstar Inc., which, through 60,000 current locations worldwide, has helped people convert their jars of loose pennies and other change into currency, donations or gift cards.
Bowles said the funding from Tao and Molbak is part of a Series A round that remains open and which the company hopes to close within the next couple months.
Tom Clancy, managing director of Tao and a former program manager for ATM and kiosk development for Citibank, said the initial market tests convinced him that ecoATM's approach will enable an increase in recycling.
"Ewaste recycling has been inconvenient and costly as evidenced by the hundreds of millions of old devices still sitting in consumer's drawers at homes," said Clancy, who also sits on the board.
Bowles added the company hopes to expand its cell phone recycling capabilities to include video games, camcorders, MP3 players and laptops.
Currently, ecoATM, which is constructing the kiosks in San Diego, is deploying 11 of the machines in the Midwest, San Diego, Boston, Dallas and Seattle. The company hopes to expand its reach to 150 by the end of this year - mostly at electronic retail outlets - and then add another 700 by the end of 2011.
EcoATM believes it has hit upon a ripe market opportunity. The company's initial research indicated there is an average of six used phones per household in the United States. In addition, the Environmental Protection Agency (EPA) reported that U.S. consumers generated two million tons of e-waste in 2005 and just 350,000 tons of it was recycled. EcoATM is not the only company looking to capitalize on the recycling of e-waste. Dexter, Michigan-based ReCellular www.recellular.com/, founded in 1991 and which raised $15 million in venture funding from Investor Growth Capital and others in 2008, recycles and resells used cellular phones and accessories.
Similarly, Boston-based Second Rotation operates an online site at gazelle.com www.gazelle.com for consumers to buy and sell electronics. Second Rotation, founded in 2006, has raised $12 million in VC funding from Venrock and Rockport Capital Partners.
Also, Philadelphia-based RecycleBank www.recyclebank.com/, which has raised more than $43 million in funding from Kleiner Perkins Caufield & Byers, RRE Ventures and Sigma Partners, helps consumers recycle electronics using radio frequency identification monitoring chips.
"Most people don't want to go through the hassle of labeling and shipping their used items and finding prospective buyers," Bowles said. "We started ecoATM with the idea of rewarding consumers who recycle their retired mobile phones by providing an automated kiosk that makes it easy for them."