Pegasus Sustainability Nabs $2M to Develop Cleanup-facilitating Tools
Mark Hope understands the power of auctions.
Hope is the founder and CEO of Pegasus Sustainability Solutions, whose software helps connect organizations or individuals that generate waste with groups that can come take it away. One mechanism behind this matchmaking is the reverse auction, where a waste-removal contract goes to the bidder willing to accept the lowest amount in payment.
“Auctions tap into deep human emotions and motivations,” Hope says. “We see a lot of interesting reasons why auctions are a compelling way to market products.”
Pegasus, launched in 2012, is seeking to disrupt regulated waste remediation, which Hope says is a $30 billion industry. The company’s business model incorporates some of the same elements as popular online services like eBay and Uber, setting Pegasus apart from the larger and more established companies that dominate its sector. The company’s “asset-light” approach has also been conducive to growth, Hope says: Revenues totaled about $6 million in 2015, up from about $3 million the previous year.
Hope says he believes that Pegasus can amass market share by focusing on smaller producers and disposers of waste. One way the company reaches these groups is through paid advertisements on Google, whose AdWords program uses auctions and “quality scores” to place ads related to search engine queries. That means that advertisers seeking to attract eyeballs not only need to monitor how much they’re bidding for keywords, but also metrics that factor into an ad’s quality score—its relevance to users and how often it’s clicked on when displayed, for example.
Sitting in a conference room at Pegasus’s Fitchburg, WI, headquarters, Hope clicks on a Google search box and types in “hazardous waste disposal in Atlanta.” The top paid result—the first one a user sees when scanning downward from the top of the page—is for Hazardous Waste Experts, one of six brands that Pegasus operates.
“My competitors are $3 billion companies, but I’m above all of them,” Hope says. “You can’t buy your way into number one on Google.”
Pegasus recently raised $2 million from investors, which Hope says will help fuel the company’s continued growth and allow it to add eight employees to the current 30-person staff by December. The two groups behind the financing are Milwaukee-based Capital Midwest Fund and WISC Partners, of Madison. Both provided $1 million. Dan Einhorn, a general partner at Capital Midwest, says that depending on how Pegasus performs during the next year, the two funds could pledge additional dollars.
Pegasus has now raised a total of nearly $5.5 million. (The first $3.5 million came predominantly from angel, or individual, investors, Hope says.) David Guinther, a general partner at WISC Partners, says his fund and Capital Midwest Fund will both be given seats on Pegasus’s board of directors.
When Pegasus gets calls from people saying they have waste they want to get rid of, the company verifies that the inquirer has a material safety data sheet and the proper Environmental Protection Agency forms on file. EPA regulations are typically set at the state level, Hope says, which requires Pegasus to stay current on dozens of different rulebooks. “California is like a different country—totally different set of regulations,” he says.
Hope says that PegEx, the company’s auction platform, is used for “small jobs”—those valued at less than $1,500—and there’s typically a 48-hour window for placing bids. With a job arranged through PegEx, the waste generator pays the disposer, who typically passes on 35 or 40 percent of the total to Pegasus as a commission.
For more lucrative jobs, Pegasus invoices waste generators directly, sets aside a portion of the money for itself, and gives the rest to the disposer, Hope says. But this distinction is of little importance to someone who is looking to offload waste; Hope says the software has algorithms that help route requests based on cost, location, and other factors.
Before striking out on his own, Hope was an executive at Safety-Kleen, an environmental services company based in the Dallas area. In 2012, Safety-Kleen was sold for $1.25 billion to Norwell, MA-based Clean Harbors (NYSE: CLH). Hope says Clean Harbors is one of the big players in waste disposal, along with Lake Forest, IL-based Stericycle (NASDAQ: SRCL).
Pointing to other recent acquisitions, Hope says the industry is going through a “consolidation phase,” that’s turned out to be auspicious for Pegasus. One reason is that his company concentrates on waste generators in smaller metropolitan areas, who Hope says are “generally poorly served” by companies like Clean Harbors and Stericycle.
“As these companies get bigger, they tend to focus on core customers,” he says. “All of the big companies that you’d normally be afraid of are moving away from our market, not closer to it.”
Like Uber—whose ride-hailing app essentially allows anyone with a smartphone, vehicle, and driver’s license to become a cab driver—Pegasus’s balance sheet is relatively light on capital assets, Hope says. This has allowed the business to scale up quickly, he says, especially compared to those competitors who have built out a network of brick-and-mortar locations.
“This isn’t a business that eats a lot of cash,” Hope says. “We don’t need to build things or buy things. We’re very close to being self-sustaining, from a cash standpoint.”
Hope says that while the current focus is on growing Pegasus into a $100 million company “as fast as possible,” an eventual exit is something that shouldn’t be ruled out. He says that could be in the form of a strategic sale to a competitor like Clean Harbors, or perhaps a private equity firm or a company like InterActiveCorp (NASDAQ: IAC), the parent organization of HomeAdvisor.
“They could be interested because we’re building this really efficient network of platforms,” Hope says. “There’s a lot of different options. The trick is to be profitable and successful and growing rapidly.”