Meet the sustainable fashion startup backed by H&M and Amazon

When Gilberto Loureiro spent summers working in a textile factory as a teenager growing up in Portugal, he discovered that he felt “hate and love” for how clothes were produced.

The work was tough: Loureiro’s job was to spend long days standing and watching for flaws in woven fabric as it ran through machines at a rate of about 15 to 20 meters per minute.

“I really love the textile industry and problem solving, but I hate this … inspection working and inefficiencies and the waste. It’s really one of the most difficult jobs in the world,” Loureiro told CNBC via video call.

In the decade since he undertook his first shift on the factory floor, Loureiro’s mindset shifted. After taking a master’s degree in physics, he co-founded of Smartex, a tech company that uses cameras, vision software and artificial intelligence to spot defects in textiles during their production, and therefore reduce the proportion of fabric going to waste. Loureiro claims the technology has prevented 1 million kilograms of fabric from going to waste in the past three years.

Fashion has a big waste problem, with about a truckload of clothes thrown away and buried or burned every second, according to the Ellen MacArthur Foundation, a nonprofit. Smartex claims that its defect-spotting technology means 0.37% more garments can be produced per kilogram of finished fabric — which adds up, if you consider that fashion giant Inditex (owner of Zara) used 678,596 tonnes of raw materials in its products in 2024, per its annual report.

On top of that, fashion is an industry that’s yet to fully embrace digitalization, Loureiro said, partly because it’s seen as hard to do. Making clothes is complicated because supply chains can be long and fragmented, from growing and processing raw materials such as cotton, to weaving and dyeing textiles, designing patterns and sewing fabric into garments. At the same time, it’s a fast-moving and unpredictable industry.

“If this is the largest industry that is still untouched by [the] internet and is one of the largest pollutants in the world, and nobody is working on this in terms of technology [then] there is a massive gap here,” Loureiro said. About 20% of water pollution globally is caused by dyeing and finishing during textile production, according to the EU.

This lack of technology in apparel production and the potential for the industry to become more efficient has made Smartex appealing to investors, Loureiro said. H&M Group invested in Smartex in 2022, while Tony Fadell — inventor of the iPod and the Nest thermostat — led a $24.7 million investment round with Lightspeed Venture Partners in the same year. Smartex has raised more than $40 million to date, according to Loureiro, but given the industry’s complexity and operations in multiple countries, he said, investors are “brave” to back it. “There is a huge value to capture. So that’s a big risk, being reward,” he added, given the size of the industry, which is estimated to be worth more than $1.8 trillion in 2025.

Smartex and its high-profile investors caught the eye of Amazon, which has also put money into the company via its AWS Compute for Climate Fellowship, an initiative that backs tech startups in areas like food security, conservation and climate resilience. Lisbeth Kaufman, head of climate tech business development, startups and venture capital at AWS, launched the fellowship in 2023, with four companies winning a place on the program.

“Climate tech startups, they have so much R&D [research and development] that they need to do … maybe even more than … standard tech companies, they have to invent new science or new technology, as well as new business models,” Kaufman told CNBC via video call. Companies in the fellowship are given access to AWS experts as well as advanced computing services, and 20 firms will be selected to take part this year with a total investment of $4 million. Smartex uses AWS technology to train its machine learning models to identify flaws in fabric, which can vary significantly.

Loureiro spends much of his time visiting textile factories, mostly in Asian countries like Bangladesh and Vietnam, where he finds factory owners keen to understand how quickly an investment in Smartex will pay back.

“If in 30 seconds he’s not convinced about the ROI [return on investment] payback, in less than one year, for example, you are out of the game … We need to prove to them that they will save in materials, in yarn or in electricity,” Loureiro said. Most of the factory owners who sign up spend “a few hundreds of thousands of dollars” on Smartex. “We need to make sure the savings are much, much bigger than the cost,” Loureiro said. The average payback period for an investment in Smartex is nine to 18 months, according to the Apparel Impact Institute.

The goal of Smartex is to become an “operating system” for factories in the whole fashion supply chain so that brands can track information such as where garments are coming from, where they are in the production process and how much water is used to produce items. “These are basic questions that are very difficult or impossible to answer by most fashion brands,” Loureiro said.

Fadell has likened the potential of Smartex to Apple‘s software ecosystem, Loureiro said. “It’s not about the computer, the Mac or the iPhone or the AirPods, it’s about what they can do all together, creates an ecosystem, a layer on top that becomes much more valuable.”