When Gilberto Loureiro grew up in Portugal, he found himself feeling "hate and love" about the way clothes were produced.

The job is tough: Loureiro's job is to take a long time to stand and drive on the woven fabric at a speed of about 15 to 20 meters per minute into the machine.

"I really like the textile industry and problem-solving industries, but I hate that...checking work, inefficiency and waste. It's really one of the hardest jobs in the world," Loureeiro told CNBC via video call.

Laurelo's mentality has changed in the decade since he first turned on the factory floor. After earning his master's degree in physics, he co-founded SmartEx, a technology company that uses cameras, vision software and artificial intelligence to find defects in production, thus reducing the proportion of waste fabrics. Loureiro claims the technology has prevented 1 million kilograms of fabric waste over the past three years.

The nonprofit Ellen MacArthur Foundation said fashion has a big junk problem, throwing away a clothing every second, burying or burning. SmartEx claims its flawed technology means 0.37% of clothing can be produced per kilo of finished fabric, which will add up if you think the fashion giant Inditex (owner of Zara) used 678,596 tons of raw materials in its products in 2024.

Most importantly, fashion is an industry that has not yet fully embraced digitalization, partly because it is difficult to do. Making clothes is complicated because the supply chain can be long and dispersed, from growing and processing raw materials such as cotton to weaving and dyeing textiles, designing patterns and sewn fabrics into clothing. At the same time, this is a rapidly growing and unpredictable industry.

"If it was the biggest industry, it was still unaffected by the internet and one of the world's largest pollutants, and no one is doing this in technology (at the time), there was a huge gap here," said Laurero. The EU said about 20% of the world's water pollution is caused by dyeing and finishing in the production process of textiles.

Loureiro said this lack of garment production technology and the potential of the industry to become more efficient have made SmartEx attract investors. H&M Group Invested in SmartEx in 2022, while Tony Fadell, the inventor of iPod and Nest Thermostat, conducted a $24.7 million investment round with Lightspeed Venture Partners the same year. According to Loureiro, SmartEx has raised more than $40 million in funding to date, but investors “courage” to back it, given the complexity and operations of the industry in multiple countries. Given the size of the industry, he added: “Therefore, the value of capture is great. It is a big risk.

SmartEx and its high-profile investors caught the attention Amazonwhich also puts funds into the company through its AWS Compperate for Callimate scholarship, a program that supports technology startups in areas such as food security, protection and climate resilience. Lisbeth Kaufman, head of AWS’s climate technology business development, startups and venture capital, launched a fellowship in 2023, and four companies have won a place in the program.

Kaufman told CNBC via video call: “There are so many research and development (research and development) in climate technology startups…even more than…standard tech companies, they have to invent new science or new technologies and new business models.” Companies in the scholarship can access AWS experts and advanced computing services, and will select 20 companies to participate in a total investment of $4 million this year. SmartEx uses AWS technology to train its machine learning models to identify defects in fabrics, which can make a big difference.

Loureiro spent a lot of time visiting textile mills, mainly in Asian countries such as Bangladesh and Vietnam, where he found factory owners were keen to understand how quickly SmartEx's investment would be paid back.

"For example, if he doesn't believe in the return on ROI (ROI), you'll exit the competition in less than a year...we need to prove to them that they will save materials in YARN or electricity," Lurero said. Most of the registered factory owners spend "hundreds of thousands" on SmartEx. "We need to make sure that savings are much greater than the cost," Laurero said. According to the Apparel Impact Institute, the average investment period for SmartEx investment is 9 to 18 months.

SmartEx aims to be the "operating system" of factories throughout the fashion supply chain so that brands can track such as the source of clothing, locations in the production process, and water used to produce items. “These are fundamental questions that most fashion brands are difficult or impossible to answer,” Laurero said.

Fadell compares SmartEx's potential to appleLoureiro says the software ecosystem. “It has nothing to do with computers, Macs, iPhones, or AirPods, but about what they can do together, creating an ecosystem, the most valuable layer.”