Saving the World for a Latte

It's trash day in Everett, Mass., and the streets are lined with garbage cans. But as a white truck rumbles through this working-class suburb of Boston, there's something overshadowing the roadside cans: huge 96-gallon maroon recycling containers. At each stop, workers wheel the bins onto hydraulic lifts on the back of the truck. They pull a lever and a clanging mix of beer bottles, soup cans, milk jugs and newspapers spills into the truck. Before swallowing up that waste, the high-tech system scans radio-frequency ID tags embedded in the containers and weighs how much each household recycled that week. That data is instantly transmitted to a Web site, where it's converted into points that homeowners can redeem for discounts at stores like CVS or on national brands like Coke. Basically, it's like a frequent-flier program for recyclers.

Turning trash into treasure is the premise behind RecycleBank, a four-year-old green-tech startup out of New York that runs the Everett program. The brainchild of two high-school science partners, RecycleBank hopes to be serving 1 million U.S. homes by the end of 2009. The logo on those bins—a piggy bank with a garbage can stuck to its rump—gets at the company's simple proposition: What if you could be rewarded for recycling? The answer: soaring recycling rates in the East Coast markets where the company has rolled out. Wilmington, Del., has seen its recycling rate jump from 3 percent to 32 percent since RecycleBank arrived a year ago. In Everett, where the program launched citywide in July, the average household now recycles the equivalent of 830 pounds a year, up tenfold since the program launched. "The recycling buzz is out there," says Everett Mayor Carlo DeMaria. "It's fun filling that thing up to the top."

Perhaps it's a commentary on the woes of Wall Street, but investors are seeing gold in garbage. With rising demand from markets like China and India, prices for scrap material like aluminum and paper have soared, which makes the economics of recycling more compelling than ever. That's why venture capitalists dumped a record $161 million into recycling firms last year, up from just $17 million in 2001, according to Cleantech Group, a green-investing consultant. And RecycleBank is one of the hottest plays, attracting $40 million from backers like Silicon Valley venture-capital firm Kleiner Perkins Caufield & Byers, former American Express CEO James Robinson III and Coca-Cola.

The company was conceived six years ago when Fordham law student Patrick FitzGerald became transfixed by a New York Times story describing how Gotham was considering ditching recycling because it wasn't working economically. FitzGerald wondered: Would people recycle more if you gave them a financial incentive? He took that idea to his old high-school chum Ron Gonen, then an MBA student at Columbia University. Gonen worked up a Web-based business plan and convinced Columbia to kick in $100,000 to incubate the idea. Today, RecycleBank has 80 employees and operates in nine states, mostly on the East Coast. (FitzGerald left RecycleBank last year to start up two other green ventures).

Now, though, RecycleBank is testing its appeal by expanding into unfamiliar territory—the South and Midwest, where recycling rates are the lowest in the country. This fall, RecycleBank bins are wheeling into Texas, Ohio, Minnesota and South Dakota. Nationally, Americans recycle 32.5 percent of the mess we make, double the rate we recycled in 1990. Fueling that growth lately has been the move to "single-stream" recycling, where you throw all your recyclables into a single bin, rather than separating them, a convenience that made RecycleBank possible.

But recycling is most prevalent on the coasts. In the Midwest and South, recycling rates are often in the single digits to nonexistent. That's not driven by some regional lack of virtue. It's all about economics. In the wide-open spaces in the country's interior, building a landfill is a cheaper proposition—and so are the fees cities pay to dump there. So there's less motivation to fill those blue bins. "Technically, everybody is supposed to recycle," says Bob Novak, a Sioux Falls, S.D., waste hauler who's bringing RecycleBank to town this month. "But very few are doing everything they could. There's lots of room for growth."

Gonen, 33, remains undaunted by the lack of conservation culture in the center of the country. His company's appeal has never been solely about doing the right thing. It's a pocketbook play: Households get 2.5 points for every pound they recycle and can earn a maximum of 450 points a month. Each point is worth a dime, so the monthly max is $45. You can redeem those points for a Latte at Dunkin' Donuts or to cut your grocery bill. "I don't think culturally it's a tough sell," says Gonen. "Our customer is anyone who lives in a home and buys stuff. Anyone I've met in the Midwest lives in a home and is a consumer."

RecycleBank makes its money from fees paid by its retail partners for online advertising and other marketing support. It also can make millions splitting the savings cities realize from diverting trash from the dump to "materials recovery facilities" that sort it, crush it and ship it out for reuse. Take Everett, which pays $76 for every ton of garbage it tips into landfills. Since RecycleBank arrived, garbage trucks are picking up 14 tons of recycling a day, instead of 3 tons. That's 11 tons of trash no longer going to the dump daily. RecycleBank also is compiling a vast database of green consumers it can sell to marketers; the company hopes to service 10 million homes within five years. "RecycleBank doesn't run the trucks," says Scott Vitters, a recycling exec at Coke, which has invested $2 million. "They are a marketing tool."

Green as it is, RecycleBank is still running in the red. SEC documents from RecycleBank's only publicly traded investor, Casella Waste Systems, indicate the company lost about $2.5 million in the three months ended July 31, suggesting an annual burn rate of $10 million. RecycleBank says those numbers are outdated, and Gonen promises profits by the first quarter of 2010. That's just fine with his investors. "If we wanted it to be a smaller, more profitable company, we could do that right now," says Stuart Ellman of RRE Ventures. "We'd rather build out the company and lose some money early on."

To RecycleBank customers, the goal is to build up the points as quickly as possible. Sure, some have tried gaming the system, hiding bowling balls in the bottom of the bin, but many are simply confused about what you can toss. The waste haulers are trained to spot "contaminated loads" and can reject them by pushing a red button on the truck, which automatically generates a letter to that home on what can be recycled. On Winslow Street, the workers reject a container weighed down with wood. As they head off, the elderly homeowner comes hobbling after them on a cane. "Wood is not recyclable?" he asks. Told it's not, he scurries back, removes the wood and wheels his bin back to the truck to be weighed and dumped. And most important, so he can earn his points. After all, saving the planet is fine. But saving a buck is even better.