|  | | College
students Jon Beyer, left, of Laurel and Tom Szaky pose in their
TerraCycle office in Princeton, N.J. Photo by Frank Wojciechowski.
Feeding tons of garbage to thousands of worms, then making plant
fertilizer from their manure doesn't exactly fit the image of life in
the Ivy League. But
for Jon Beyer _ a West Laurel native studying computer science at
Princeton University _ it's a sideline that might soon snag him $1
million in venture capital.
Beyer and fellow Princeton student Tom Szaky began investigating the
potential of starting a composting company simply so they could enter
the 2002 Princeton Business Plan competition hosted by the university's
engineering school. What started as an academic exercise rapidly acquired a life of its own.
In a year, TerraCycle International _ Beyer and Szaky's brainchild _
has evolved from concept to actual company, won two prestigious
business awards and landed its founders in Inc. Magazine.
With $140,000 of venture capital already in the business and the
possibility of another $1 million within months, TerraCycle's founders
are now hustling to get their product _ an organic fertilizer they say
will challenge Miracle Grow _ in 2,000 stores by summer's end.
"I never really thought that we were going to do more than the business
plan contest," Beyer said by phone from his Princeton dormitory.
The two undergraduates spent months preparing for the competition,
which requires participants to envision a business, analyze its
finances and markets, develop a branding strategy and perfect a
60-second pitch for potential investors. Beyer and Szaky placed fourth, and fell in love with their concept.
The plan was to turn trash into clean, nutrient-rich compost through a
process of vermicomposting (worm-assisted composting). The resulting
compost could be sold as potting soil and compost tea (an organic
liquid fertilizer made by soaking compost in water).
In addition to being environmentally friendly, the business would
enable the two students to break into America's $20-billion-a-year
gardening and agricultural supplies market.
Szaky, an economics major from Toronto, took a leave of absence,
located a Florida inventor who had designed a "worm gin" (a compact
machine to turn organic waste into compost within seven days), and
borrowed $30,000 from family and friends to finance construction of a
prototype and lease an office.
Beyer, who had planned to work as a waiter in Laurel last summer, made
a last-minute change of plans and stayed in New Jersey to help get the
business up and running. "We were basically garbagemen for the summer," Beyer said.
Beyer and Szaky arranged to collect food waste from a university
cafeteria during the summer and run it through their vermicomposting
process _ a three-step system that involves chopping the waste into
small parts, placing it in a 150-degree container to kill pathogens,
then funneling it onto trays where worms digest the food and excrete
nutrient-rich "castings" (TerraCycle's term for worm excrement). There were a few startup pains.
"The first night was ridiculous," Beyer recalled. The pair were still
assembling the machinery at an outdoor location "when a horrible
thunder storm started. It was absolutely pouring. There was thunder and
lightning everywhere." And there was all that garbage to deal with.
Beyer and Szaky were confronted daily with a line of "huge barrels with
probably 150 pounds of food each, and the cafeteria wouldn't give them
to us right away," Beyer said. "They would leave them sitting outside
for a week ... so they were in an advanced state of rotting." However unglamorous, the summer trials laid the foundation for promising business. "It's really a unique business model because we get paid for our raw material," Beyer said.
He noted that businesses actually pay TerraCycle to take their organic
trash, since otherwise they would have to pay landfill fees of roughly
$100 per ton. Beyer said his company can record a net profit of $20 to
$30 on every ton collected.
"Whenever we sit down with an investor or an accountant, it takes them
a second to realize that we have negative raw-material costs," he said.
"The numbers are almost unbelievable of how much we could actually
make," Beyer enthused. "We could probably break even giving away our
product. So when we're meeting an investor, we tend to divide (the
estimated profits) by 10 to make it believable."
Despite Beyer's and Szaky's brimming enthusiasm, TerraCycle nearly ran
out of money "numerous, numerous" times, Beyer said. "There were times
when the rent check (for TerraCycle's office space) was due and we
needed another investor."
In one pinch, Szaky and Beyer did a 40-minute radio interview that
attracted an investor willing to contribute several months' rent.
At other times, the fledgling entrepreneurs learned business lessons
the hard way. When a Toronto venture capital company surfaced, for
example, Beyer and Szaky believed they were about to collect several
hundred thousand dollars in start-up money. "We totally trusted these guys," Beyer said, "but it turned out they were some kind of frauds." A month ago, however, the TerraCycle partners were presented with a possible funding windfall.
After taking first place in the 2003 Princeton Business Plan
competition (and $5,000 in prize money), the partners entered the
Carrot Capital Business Plan Challenge _ a privately funded, nationwide
competition that offers the carrot of a $1 million investment in the
winner. After
reviewing business proposals from 2,600 students from 175 American
colleges and universities, Carrot Capital judges brought 20 finalist
teams to Manhattan April 26. "We thought we had done really poorly," Beyer said.
Following the formal presentations to a panel of judges, the
contestants were herded off to social gatherings and an awards dinner.
"It was really bizarre," Beyer recalled. "Everybody in the place had
the same exact blue suit on. We thought they must have shopped in the
same store." Beyer and Szaky, on the other hand, appeared in their
typical casual clothes and rumpled hair.
"Nobody was speaking with us. ... If we tried to talk to somebody (from
the organizing committee), they would leave and go talk to other
people. We were very close to hopping a cab and leaving."
Szaky and Beyer stayed long enough, however, to learn that they had won
the contest, the privilege of opening the NASDAQ stock market the
following Monday, and the possibility of collecting $1 million in
venture capital.
During an interview last week, Szaky said Carrot Capital is putting
together a funding proposal he expects to arrive within three weeks.
If the deal goes through, TerraCycle's principals will use the money to
obtain enough equipment and space to set up a "factory" in New Jersey
(right now its prototype is operating at a research center) and
possibly a second factory in Toronto, Szaky said.
Those facilities will start producing bottles of compost tea (the
company already has enough compost to produce 100,000 units) to be
distributed to 2,000 health food stores, organic groceries and other
shops within the next six months, he added.
Szaky and Beyer concede that they face formidable competitors,
including Miracle Grow and Scotts. But they believe their product will
land in a profitable niche among environmentally conscious consumers.
"Most people I know would sit around and think about all the reasons
why you shouldn't do something," said Nelson Beyer, Jon Beyer's father
and a zoologist at the Patuxent Wildlife Research Center _ who happens
to research worms.
"But Jon has some life in him and thinks about all the possibilities
that things can work. ... He believes there are no limits in this
world." E-mail Linda Strowbridge at lstrowbridge@patuxent.com. | 
