Material Innovators Must Navigate the ‘Hype Cycle,’ MII Says

While global venture capital funding fell 42 percent and deal count dropped 30 percent—reaching a six-year low—in 2023, one industry remained resilient: material innovation, according to a new report.

The next-generation materials industry experienced an 8.6 percent rise in investment funding last year, exhibiting considerably higher investments than the general market, the Material Innovation Initiative (MII) found in its fourth state of the industry report.

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“The good news for material innovators is that searches for sustainable textiles are at an all-time high,” Thomasine Dolan Dow, director of materials innovation and design at MII, said. “The good news for brands is that, while they are facing the grand challenge of sustainability, there’s an emerging industry that has sustainability baked-in to their products and operations that can help them transition.”

And there is good news. There were more than 80 unique investors in 2023, with the largest funding round racking up $245 million. Plus, regulations continue to become commonplace, forcing the industry to make good on its sustainable promises and take advantage of the material revolution.

“By the end of 2023, we were pleasantly surprised by an upward trend in investments [in the next-gen materials industry] once again,” Elaine Siu, advisor at MII, said. “The next-gen materials space may come out of the trough faster than we thought.”

But, the MII said, there is no “silver bullet” solution. Challenges remain ahead—like scaling and commercialization—as the media-hyped mycelium movement dies down, demanding stakeholders to work together to find solutions.

“End consumers’ sentiment matters, but the multiple laws and regulations coming into force globally, such as the EU’s corporate sustainability due diligence directive, France’s AGEC law, and the New York Fashion Act, are replacing the once voluntary system with mandatory targets to meet and consequences for non-compliance,” Siu said.

MII tallied 137 companies developing next-gen materials, with the majority working on next-gen leather with plant-based inputs. Having tracked material innovators for the past few years, MII said it’s “clear” that many choose to stay in stealth mode until they’re ready to launch. And while no new ventures were publicly announced to have been incorporated in 2023, MII’s analysis covered an additional 22 companies that existed previously but didn’t publicly disclose their activities in next-gen materials until 2023.

Of those 137 companies, 88 work on biomimicry of animal leather and exotic skins, 21 work on biomimicry of silk, 16 work on wool, 14 work on down and 10 work on fur. That means 64 percent of players are working on next-gen leather, leaving those other categories with limited innovation efforts; however, silk, fur and exotic skins, in particular, offer attraction to early-stage investors.

“High product targets could enable a faster path to price parity than commodity markets,” the organization said; for example, polyester yarn hovers around $1/kg, while raw silk averages around $55/kg. “These underserves product categories currently mean a lack of competition, which may be attractive to innovators and investors looking to enter the next-gen materials industry.”

Speaking of investors, 2023 saw just under $500 million raised by next-gen companies from 30 publicly disclosed deals—though this number does not include investments in the industry through companies’ internal investments in developing next-gen materials, MII clarified. Think of Gucci’s investment in its Demetra next-gen leather.

Notable funding in 2023 included Newlight’s $245 million Series G round, Natural Fiber Welding’s $40 million raised through venture capital, MycoWorks’ private equity round of $3.4 million and Ecovative’s $30 million raised in Series E funding.

Bolt Threads—which paused operations of its leather alternative Mylo last summer—brought in over $33 million through a private investment in public equity (PIPE) offering, which will be used to “refocus” on the company’s other product, B-Silk. Renewcell also had a PIPE offering, raising over $20 million, though the textile recycler filed for bankruptcy earlier this week.

“The broader economic atmosphere aside, there were market signals, such as Bolt Threads announcing to halt production of their alternative leather Mylo due to lack of funding to scale, and also ‘gotcha’ media coverage questioning how sustainable these materials really are—without much background data, we should add,” Siu said. “These signals point to this nascent industry perhaps going through the Trough of Disillusionment in Gartner’s Hype Cycle, where innovation typically progresses through a pattern of overenthusiasm followed by disillusionment then eventually productivity.”

The Gartner Hype Cycle, MII explained, is a graphical representation of technology life cycle stages. Seven “hype cycles” characterize the typical progression of innovation. It establishes the expectation that most innovations, services and disciplines will “progress through a pattern of overenthusiasm and disillusionment, followed by eventual productivity.”

While the length of the trough is one of the most variable parts of the Hype Cycle, innovations continue amid the disillusionment.

Throughout 2023, numerous partnerships flourished. Tory Burch debuted its first plant-based leather alternative tote through a collaboration with Modern Meadow. Bestseller and Reformation prototyped Kintra Fibers’ bio-polyester. Levi’s launched a plant-based version of its classic 501 jeans with a match made from NFW’s Mirum.

“Although Hype Cycles are nothing new, the fashion industry may find itself unprepared for this natural progression,” said Sydney Gladman, advisor at MII. After “decades” of minimal technological innovation and a low appetite for risk—what Gladman called the ‘Textile Dark Ages’—the industry now finds itself entering the “Next-Gen Material Renaissance,” she said, where novel materials and sustainable product launches are growing at “break-neck speed.”

“Along the way, there will be some bumps, potholes, and even some crash-and-burns,” Gladman continued. “These are not signs of the end-of-days, but signs of a maturing industry.”

But what stage, exactly, does that place the next-gen materials industry at?

Many of the common indicators of phase change have come and gone, MII said. The “innovation trigger” stage occurred in 2018 when many startups had their first round of venture capital funding. And the gap between “trigger” and “peak,” Gartner projected, is short—sometimes taking only two years. The “peak of inflated expectation” rolled in around 2020 when next-gen materials were violently trendy, and “mycelium” was a buzzword. This led to a bandwagon effect, pushing innovation to its limits as brands tried out material innovation in capsule collections.

“One of the main challenges for fashion brands, for example, is that innovative materials may take years to be ready for commercialization while the industry is used to sourcing materials within months,” MII said. “There’s also a lack of realization that different intended applications can have huge implications on performance requirements and how rigorously the material has to be tested and will significantly affect the realistic development and delivery timeline.”

All’s to say, the trough of disillusionment has been creeping in for some time now. But MII is ready to hit the “slope of enlightenment.”

“We continue to work with many companies that are doing the hard work: improving their products based on early feedback, tackling the scaling challenges and breaking out of the existing paradigm around what to innovate and what are the possible applications,” the nonprofit said. “Let’s take this journey up the slope together.”