Latest / Hardware Startups with Fexingo: Devices, Robotics, and Manufacturing Tech Companies / How Hardware Startups Can Turn E-Waste Into Revenue
Transcript
- Lucas: So there's this hardware startup called Circular Devices — not a household name, but they do something I find genuinely clever. They take old smartphones, the kind most people throw in a drawer, and they retrofit them into IoT sensors for logistics companies. Temperature trackers, vibration monitors, that kind of thing. Luna: Right, so instead of building a sensor from scratch, they're essentially giving a second life to existing hardware. That's got to cut their BOM cost significantly. Lucas: Exactly. Their bill of materials is basically zero for the core electronics. They pay pennies per phone to e-waste recyclers — sometimes they even get paid to take the phones off a recycler's hands. Then they strip out the cellular modem, the GPS chip, the battery, and repackage it into a rugged enclosure. They sell each unit for about $120, and their all-in cost is under $70. That's a 40% margin on hardware, which is rare in IoT. Luna: Forty percent margin on hardware? That's better than most consumer electronics companies. How big is this operation? Lucas: They're doing about three thousand units a month right now, selling to mid-sized logistics firms in Germany and the Netherlands. They started in early 2024, so they've been at it for about two years. What's interesting is that their revenue is growing faster than their cost base because they're getting better at sourcing phones — they've built relationships with three municipal e-waste facilities in Berlin alone. Luna: So e-waste isn't just a disposal problem for them — it's their raw material supply chain. That's a totally different mindset from most hardware startups, which are usually worried about sourcing new components. Lucas: And that's exactly what I want to talk about today — the idea that e-waste can be a deliberate revenue stream, not just a compliance cost. I think a lot of hardware founders overlook this because they assume recycled materials are unreliable or poor quality. But the reality is, the smartphone supply chain produces a huge number of perfectly functional components that get discarded because the aesthetics are out of date or the screen cracked. Luna: But isn't there a certification problem? If you're retrofitting a device, you need to certify it for things like FCC or CE marking. Does the fact that the core electronics are reused change the testing process? Lucas: Great question. It actually makes certification easier in some ways. The radio modules inside a modern smartphone are already certified — the modem, the Bluetooth, the Wi-Fi. So if you keep those subsystems intact and just change the housing and power management, you can often do a 'modular certification' where you reference the original device's test data. Circular Devices did that — they leaned on the original iPhone SE's FCC filing for the cellular part. Saved them about six months and maybe $80,000 in testing fees. Luna: Smart. So the regulatory path is actually shorter than building from scratch. That's a big deal for a startup with limited runway. Lucas: It is. And there's another angle — the EU's new repairability mandate that took effect in March 2025. It requires phone manufacturers to supply spare parts and repair documentation for seven years after a model's launch. That means there's a growing stock of replacement screens, batteries, and cameras available for older phones. Startups can buy those parts at wholesale and use them in retrofit projects. Luna: So the regulatory environment is actually creating a secondary market for components. That feels like an opportunity that's still under the radar for most hardware startups. Lucas: I think so. And the economics get even better when you look at materials recovery. A startup in Belgium called ReVibe focuses on extracting rare-earth magnets from old hard drives and speakers. They sell those magnets to motor manufacturers at a 30% discount to virgin material, but their own cost is just the labor to deconstruct the drives. They're doing about $2 million in revenue this year with a team of twelve. Luna: Two million on a team of twelve — that's a nice lean operation. But sourcing must be the bottleneck, right? You can't just walk into a Best Buy and take their e-waste. Lucas: That's the real challenge. The startups that succeed in this space treat sourcing as their core sales motion. They sign contracts with corporate IT departments — think banks, insurance companies, hospitals — who upgrade their equipment regularly and need to dispose of old gear responsibly. The startup gets first pick of the devices, and the corporation gets a sustainability report they can use in their ESG filings. It's a win-win. Circular Devices gets about 60% of its phone supply from two bank refurbishment programs. Luna: So it's not just about finding e-waste — it's about building a predictable pipeline. That sounds like a sales problem, not a technology problem. Lucas: Exactly. The technology of retrofitting is straightforward once you've done it a few times. The hard part is convincing a procurement manager at a large company to give you access to their asset disposal stream. But once you have that relationship, the unit economics are solid because your input cost is essentially negative — you often get paid a small fee to take the equipment. Luna: Which flips the traditional hardware startup cost structure upside down. Normally your biggest line item is components. Here, components are a revenue source. Lucas: Yeah. And this is where I think a lot of hardware founders miss an opportunity. They're so focused on building the perfect new device that they don't consider the used-device market. But if you look at the numbers — globally, we generate about 62 million tons of e-waste per year, and only about 20% is formally recycled. The rest ends up in landfills or informal scrap yards. That's a massive, unorganized supply base. Luna: It also means there's a huge environmental story here. If you're a startup pitching to venture capitalists who care about ESG — and most do now — being able to say 'we divert 50 tons of e-waste from landfill per quarter' is a powerful narrative. Lucas: Absolutely. And some VCs are specifically allocating funds to circular-economy hardware. I know of a $50 million fund in Amsterdam that only invests in startups that use recycled or refurbished components as a core part of their value proposition. So the fundraising angle is real. Luna: Before we go deeper into the numbers — and I want to talk about the margin breakdown — I want to acknowledge something. If this conversation is useful for what you're building or running, the reason episodes like this stay ad-free is that listeners chip in. You can find us at buy me a coffee dot com slash fexingo. No pressure, just know that it keeps us independent. Lucas: Yeah, and it really does make a difference. We hear from founders who say a single insight from an episode saved them months of trial and error. If that's you, even a small contribution helps us keep going. Luna: Alright, back to the margin breakdown. Lucas, you mentioned Circular Devices is at 40% gross margin. How much of that comes from the negative cost of the phones versus the value-add of the retrofit? Lucas: Let me break it down. Their revenue per unit is $120. The cost breakdown: enclosure and potting material — about $12. New battery — $8. The cellular certification license — $5 per unit amortized. Labor — $20. And then the phone itself — they get it for free effectively, sometimes with a small credit of $2 per phone from the recycler for taking it off their hands. So total cost around $45. That leaves $75 gross profit, which is 62.5% margin. I said 40% earlier, that was wrong — I was thinking of net margin after overhead. Luna: Sixty-two percent gross margin on a hardware product is outstanding. Most IoT devices are lucky to hit 35%. So the key insight is that the input cost is zero or negative, and the value-add is relatively low-touch. Lucas: Exactly. And the barrier to entry is not technology — it's logistics and relationships. You need a clean room to do the retrofitting, some basic soldering and potting equipment, and a salesperson who can pitch to corporate IT departments. The total startup cost is probably under $200,000 for a pilot operation. Luna: That's much lower than a typical hardware startup, which might need a million dollars just for tooling and molds. So this model could be a viable first step for founders who want to get into hardware but don't have deep pockets. Lucas: And it de-risks the demand side too, because you can build to order more easily. Since you're not dependent on a long supply chain for custom components, you can spin up production in weeks, not months. Circular Devices went from concept to first shipment in five months. Luna: That's fast. Most hardware startups take 12 to 18 months to ship anything. So the e-waste model gives you speed as well as cost advantages. Lucas: Right. And I think there's a next wave coming — startups that not only retrofit phones but also recover raw materials like lithium, cobalt, and rare earths from e-waste at small scale. Right now, materials recovery is dominated by big smelters that need tons of volume. But new hydrometallurgical processes are being developed that work at the kilogram scale. A startup in Canada called Reclaim Metals has a pilot plant that can process 50 kilograms of e-waste per day and recover 95% of the lithium and cobalt. They're licensing the technology to hardware startups for a royalty. Luna: So you could have a hardware startup that both retrofits devices for revenue and recovers materials from the parts that can't be reused. That's a double revenue stream. Lucas: Exactly. And the recovered materials can be sold back to component manufacturers at a premium because they're 'certified circular materials' — which big electronics brands like Apple and Samsung are increasingly willing to pay for. Apple has a stated goal of using 100% recycled cobalt in their batteries by 2030. They'll pay above market price for verified recycled material. Luna: So there's a premium play here, not just a discount play. That's a different narrative than 'cheap refurbished goods'. Lucas: Completely different. And it's a narrative that resonates with customers too. If you're a logistics company buying IoT sensors from Circular Devices, you can tell your own customers that your supply chain is circular. That has marketing value. One of their clients — a cold-chain logistics firm — actually features the Circular Devices story in their sustainability report. They see it as a differentiator. Luna: That's smart. So the e-waste model isn't just about saving money — it's about building a brand that stands for something. And in a crowded hardware market, that's a real advantage. Lucas: It is. And I think we're going to see more hardware startups adopt this model over the next few years, especially as the EU mandates and similar regulations in California and Japan make e-waste more traceable. The startups that get in early and build those sourcing relationships will have a moat. Luna: Any final thoughts on what a founder should do tomorrow if they want to explore this? Lucas: Call the IT asset disposition manager at a large local company — a bank, a hospital, a university. Ask if they have a take-back program for old phones and laptops. Offer to take them for free and provide a certificate of recycling. That's the first step. The technology comes later.