“It isn’t easy to open a production facility in Europe.” Releaf Paper building a €3.5M plant in France

The Ukrainian startup Releaf Paper makes paper and packaging out of fallen leaves. Its clients include L’Oreal, Samsung, and Louis Vuitton. In 2022, the startup received a grant from Google and €2.5 million from the EU. Also, it has recently announced the launch of a plant in France.

AIN.Capital editor interviewed the co-founder of the startup, Oleksandr Sobolenko, to find out what the plant will produce, how much such a project costs, and what the team’s plans are.

Tell me, please, about the plant in France: what will you produce and how much does the project cost?

The plant in France is our first-ever in-house production facility. Before that, we used to outsource all our production. We will produce pulp, processing leaves or another biowaste — the raw material for our main products, paper and packaging.

The cost of this project is 3.5 million euros. The lead investor is the European Commission. The rest of the financing we are securing ourselves. It took us almost a year to find a site. And now we have finally chosen the Ile-de-France region, which is about 50 km west of Paris.

When do you plan to launch? What will be the capacity of the plant?

The building is expected to take two years. It officially started on May 1, 2023. We anticipate that around November-December 2024, the equipment will be in place, and we will be producing trial batches. We plan to complete the project in early 2025.

The capacity of this production will be ~10,000 tons of pulp per year, and we need 25,000 tons of leaves, which will come from the surrounding cities and towns. The production will employ 25 people.

Are you looking for additional investments for this project?

We are not looking for additional funding at the moment. However, this production is only the first of many in our roadmap. Therefore, we are already starting the process of selecting a co-investor for the second and third production facilities. The next investment round will amount to €8 million — the European Commission is a co-investor for €4 million, and we are looking for a lead investor for another €4 million. The production will also be located in one of the Western European countries.

Is it challenging to launch production in Europe regarding rules and regulations? Was it difficult to find the staff?

It isn’t easy to open a production facility in Europe. For us, it was a challenge and a stress test. First, we had to choose a jurisdiction to register the company in. We initially decided it would be France, then we got investment from the European Commission. Since we received funding as a French company, we had to establish our business in France.

The whole process of launching a company is complicated and time-consuming. Even a supposedly simple question of finding leaves took us a long time to solve. We spent nine months looking for a place to get the leaves, despite the fierce interest of cities, political parties, and government bodies eager to help us. Nine months later, we finally found a source of leaves willing to provide us with large volumes for free.

Hiring is a different story: Finding and hiring people is challenging, and labor law is very rough. The labor cost is significantly higher than in Ukraine, plus high payroll taxes.

Regarding regulations, it is not more complicated than in Ukraine. But besides the difficulties, there are many advantages. Honestly, despite all our innovations, no one in Ukraine needed us. Since 2018, the creator of the technology, Valentyn (Frechka — ed.), has been running around every possible threshold, from politicians to business people in Ukraine, with his idea and has not even come near to getting any funding for production. There are no problems like this in Western Europe.

Also, despite the high taxes, France offers many opportunities and favorable conditions for new businesses. Government financial agencies are providing excellent financing for innovative companies. We can count on loans from government agencies for several million euros at meager rates—however, the main reason we started in Western Europe is closeness to the consumer. We had no consumers in Ukraine as of 2021, and our product was either not recognized or too expensive.

Will you expand your Ukrainian team?

Our Ukrainian team now consists of eight people, most of whom are in Ukraine: sales managers, PR, and marketers. We are not actively growing our Ukrainian squad because we are focused exclusively on the Western, Northern, and Southern European markets, and we need to know their markets.

But we are planning a production project in Ukraine. It is still confidential; we are still planning and considering various options. Should we build this production site in Ukraine, we will undoubtedly have a standalone technical team.

Can you tell us the financial indicators like sales or income? Can you tell us about customers?

Unfortunately, I cannot give you any figures. Firstly, it is confidential, and secondly, we have several companies involved in the process, and it will be technically difficult to summarize these figures.

Most of our clients come from Northern, Western, and Southern Europe. These are b2b clients: packaging manufacturers who buy our paper or brand owners who purchase both paper and finished packages. Among the famous brands we collaborate with are L’Oreal, Samsung, Schneider Electric.

Also, we are starting active cooperation with the LVMH group: Christian Dior, Louis Vuitton, and Balenciaga. We have been honored with the LVMH Innovation Award 2023. We are also a member of the LVMH accelerator program, which starts in September 2023 in Paris, with the opportunity to offer our solutions to all companies in the LVMH group.

Do you plan to build production sites in other countries as well?

Indeed, there are plans to expand to other continents, including North America (the United States and Canada), South Korea, and Japan, but relatively long-term. We will have enough work in Europe for another 5-7 years. After covering Europe, we plan to implement a pretty large project in Ukraine, and only then will we start further expansion.

Why did we choose those countries? The markets are vast, there are many producers of paper and paper packaging, and they are also large importers and exporters of pulp. It is also essential that these countries have quite strong trends in sustainability, i.e., environmental work. After all, we deliver not ordinary paper and cannot compete with the normal one by price.

Our strengths are innovation and ecological friendliness; we produce the most eco-friendly packaging paper in the world. Because of this, it has a particular added value and is sold only in countries where customers care not only about price and quality but also about ecology.

However, this will not happen overnight because we are engaged in production projects that take much longer to develop than IT projects. Each of them requires funding of 3-4 million euros if the project is small and 10-15 million euros for a medium-sized one.

We will most likely enter other continents with a different business model, and it will be a licensing model. This will be tentatively after 2027.