Sistema.bio: A Global Leader in Biogas Technology
Sistema.bio is a social enterprise and biogas system developer, as well as one of the Clean Cooking Alliance’s (CCA) Venture Catalyst companies. Since 2010, Sistema.bio has provided clean cooking technology, training, and financing to 30,000 smallholder farms across Latin America, India, and East Africa through partnerships, carbon offset programs and direct sales to farmers.
Alex Eaton, CEO and Co-Founder of Sistema.bio, spoke with Roberta Bove, CCA’s Senior Manager of Private Sector and Innovative Finance, about his company’s origins and achievements throughout the past decade.
This interview is part of a series of conversations CCA is having with business leaders across the clean cooking sector.
Roberta Bove (Bove): Sistema.bio recently celebrated 10 years of increasing access to biogas for clean cooking. Can you share the story of how the company was founded?
Alex Eaton (Eaton): The first time I had ever seen a digester was while working on solar energy in Nicaragua in 2005 and I was impressed by its potential. We began offering digestor installation courses, and eventually realized that the technology had to be professionalised and improved for it to work well. In 2007, using advanced engineering, we designed our first digestor, which is quite similar to how Sistema.bio develops them today. I had met one of our co-founders, Camilo Pagés, about 6 months earlier. He had worked in the auto industry and had the industrial space needed to produce digestors. Our other co-founder, Ilan Adler, was about to leave for London to do his PhD but, before doing so, helped us with most of the early work and even donated his pick-up truck.
The early days were amazing; it was the three of us working very closely with a group of farmers and making the units in a garage at night.
Bove: Can you describe Sistema.bio’s product and services?
Eaton: I would describe our package as a partnership with farmers. Biogas is a complicated business, and we have identified three pillars that make us successful: 1) robust and reliable technology; 2) service and training, guaranteeing close and on-the-ground interactions with our clients so farmers can learn how to properly use the technology; 3) direct sales and financing, providing farmers with payment plans and ensuring they are not only convinced by the technology but also want us to install it. While the pillars evolved over time, what helped us was getting the technology right early on. Our system is a lease-to-own product, which we take back if our clients don’t want it. Therefore, it’s a pure market test with every single farmer, confirming that they are satisfied with the product and are happy to keep paying for it under resource-limited conditions.
Bove: Sistema.bio currently operates on four continents. What drove this expansion strategy?
Eaton: Sistema.bio’s technology and service package was always originally conceived for scale, to address the following question: “How could every farmer in the world use it?”
The initial filter was to have a perfect product and package for farmers in central Mexico, which turned out to be a great laboratory. We were able to test the system in different conditions: high altitude, cold weather, tropical jungle, deserts, earthquake, and floods. We also tested our ability to deal with challenges that are not directly business-related, such as the swine flu, the social unrest deriving from cartel wars, etc. We now have over 5,000 farmers using our technology in Mexico and we are continuing to grow there, but we also realized that we had to de-risk ourselves because we face the same risk exposure as our smallholder farmers. Therefore, we decided to expand geographically so that when something happens in Kenya, it does not impact our business in Mexico or India. The COVID-19 pandemic was a global risk that impacted all our operations almost simultaneously, but we were able to respond to a global threat with a coordinated response, with our team being used to responding to smaller localised risks over time.
Bove: How do these markets differ and how does Sistema.bio approach these differences?
Eaton: I have probably one of the best jobs in the whole world: working with smallholder farmers in all these different regions. We focus on the common socioeconomic and technical challenges they face, regardless of what they are celebrating, eating, and growing, and that helps us think about our global impact at scale.
Beyond cultural differences, each market has a very different level of knowledge about biogas. When we started in Mexico, the biogas market was almost non-existent. Over the previous 50 years, a few hundred digestors had been distributed, with no institutional support, poor results, and the technology – if known at all – had a bad reputation. Therefore, we spent the first six to seven years building the market, educating communities on the technology, and convincing farmers of its value.
On the other hand, when we opened in Kenya, about 20-30% of farmers had heard of biogas, and Sistema.bio could focus on competitive market placement and introducing the best biogas option and offer.
Finally, in India, people had been using biogas for about 80-100 years. Entering such a mature market with the ability to speak fluently about biogas allowed us to offer a very disruptive brand with a disruptive strategy, focusing on the features of our product rather than having to explain its fundamental mechanics. We’ll have 20,000 units installed in India by the end of 2021, becoming the leading biogas brand in the country.
Bove: In 2019, Sistema.bio successfully raised US$12 million in a Series A equity investment round. Can you share some of the milestones achieved so far from this investment?
Eaton: The Series A equity raise was super impactful for us, enabling expansion in both Kenya and India. We on-boarded an extraordinary team of over 100 people in both countries, all made up of local leadership. We opened a manufacturing facility in India and were able to dramatically reduce costs, and therefore the product price. We invested in our communication tools to promote the technology in 25 different languages around the world. We advanced our methodology development and registration for carbon offsets, which has led to further price reductions. Finally, we worked with experts on improving the quality and performance of our credit portfolio, finding a balance between offering flexibility to farmers while also being selective.
“It’s been an extraordinary period of growth since the Series A round: we were just at over $1M in sales, and we’ve been able to grow to over $7.5M in sales this year.”
Bove: Two years later, you are fundraising for new capital. What differentiates Sistema.bio as an investment opportunity?
Eaton: First, we have a team of 350 individuals that care about the impact on smallholder farmers – the single largest group of people still cooking on unimproved fuels – with most of us, including myself, coming from small farms.
Second, our technology serves a wide range of farmers, from those owning one cow up to those owning 1,000 cows.
Third, we’ve built our business model based on relationships with farmers. Rather than selling a unit, shipping it somewhere, and hoping it works, Sistema.bio focuses more on the outcome. We are the only biogas company with clients that have been using our technology for over 12 years. All our clients are registered with GPS location services and receive constant communication from our team. While initially more expensive, this level of customer service creates value for Sistema.bio over time.
“Our work is successful when we put tools in the hands of smallholder farmers, who are some of the most hard-working dedicated folks you’re going to meet. If we want to achieve the SDGs, they’re not going to happen if we’re not fully engaging smallholder farmers.”
Finally, our additional differentiating factor is being able to operate at scale in different geographies. We’re still operating in small numbers compared to where we need to go, but we’re proving that biogas can be profitably delivered at scale through social enterprises, with good results.
Bove: Finally, where do you see major challenges and opportunities in the biogas sector and what are Sistema.bio’s next steps to address them?
Eaton: If I could snap my fingers today and all 450 million smallholder farmers worldwide had access to biogas, fully treating their waste and maximizing their use of energy and fertilizer resources, we would instantly reduce about 10% of global greenhouse gases, as well as add an additional 5-10% in potential carbon sequestration through good agricultural practices and forest protection. The environmental and social justice opportunity is enormous, and disproportionate compared to the number of organizations and amount of funding currently dedicated to it. Companies like Sistema.bio need support from strong investors, as well as enabling policies, to ensure we’re best positioned to accomplish our challenging mission.