What does the investment landscape look like in the water-tech sector? Where are the opportunities for funding and collaboration and how can emerging start-ups thrive in North America?
Ahead of the virtual World Water-Tech North America Summit on October 5-6, we spoke to some of the leading industry financiers on our speaker faculty, to find out how new funding sources are influencing their investment decisions and bringing entrepreneurial talent into the space.
Tom Ferguson, Managing Partner, BURNT ISLAND VENTURES: “I run the fund as the Managing Partner after founding Burnt Island Ventures in October 2020. Water is an enormous, unidirectional and increasingly dynamic opportunity. Climate change is water change, and water change means we have to figure out a new paradigm of managing the water molecule if we are to avoid epochal societal upheaval. We have a hell of a lot of work to do and it doesn’t get more exciting than that!
Unfortunately, the investment landscape is still nascent, but we have exceeded the median fund size for first time funds in about half the median raise time – so people worldwide seem to get what’s going on. The events of the summer have led to an uptick in LP interest. But water still goes on the “too hard” pile – which is fine by us because it insulates us from frothiness. But the next companies are raising fast – Daupler took four weeks, StormSensor raised $10m+ in five weeks, Aquafortus secured a $6m latest round in 6 weeks, and Cloud to Street took four weeks. And better firms are coming in: DCVC, LowerCarbon Capital (Chris Sacca), Afore, and the Collaborative Fund. Hopefully things are looking up and growth capital in the next 18-36 months will be a real test.
We’re seeing a lot of great companies come up, and we’ve had to pass on a few that I think will go places. Collaboration amongst investors, particularly outside water, is really important, because those who get it should work together to maximize the success of the best companies, while also help those who don’t get it to get involved. As far as the start-ups go, we’re a big believer in avoiding things that will kill you, and obviously it’s a long list, but if you can make solid decisions early, especially the pain point you solve and for whom, and get your unit economics right from the start, then you set the right foundations. The Burnt Island Five is a good encapsulation of this. Build an actual business and don’t try and build a Sand Hill Road kool-aid aggressive maxi-unicorn or whatever. There’s no margin of safety in that. Create a lot of value wherever you go, and in every interaction, good things will happen.”
Anders Hallsby, Partner, MAZARINE VENTURES: “As a Partner in Mazarine Ventures I spend most of my time conducting technical and commercial due diligence, evaluating technologies and assessing the companies’ ability to succeed in the target markets. Investing in water-tech is exciting as there is much innovative technology being developed, and the innovations address real problems that must be solved. It is also personally rewarding to be able to leverage the expertise gained over 30+ years in the water industry and help these small companies succeed in a space that can be very complex.
We created Mazarine Labs because we saw the need to have a formal way to collaborate and partner with young technology companies and help them get ready for their first funding round. Commercializing water related innovations is as complex as the value chain, decision-making process and sales channel varies between market segments, and as already mentioned, water cuts across almost every market segment. We see financial capital as only one of four critical components for a company to succeed, the others being social, intellectual, and human capital. For companies in Mazarine Labs our focus is to provide the three latter, and then when the company is ready to get funded, we typically would lead the round.
There is only a handful of companies and funds focused on investing in the water-tech sector. Most of these invest in companies that are in the growth stage or beyond. Water-tech cuts across a wide spectrum of market segments; water-tech innovations address challenges in market segments as diverse as agriculture, process industry, power generation, manufacturing, semiconductors, oil and gas extraction and processing, and food and beverage.”
George Hawkins, CEO, MOONSHOT MISSIONS: “My role at Moonshot Missions is to focus on the demand for water-technology, rather than investing in the supply. My sense is that while there is always room for new and improved technologies, there exists today field-tested technologies that can enable most utilities to operate at lower cost, even while improving performance. The key question for me is how to enable water utilities to identify, develop, procure, and implement these solutions that “work better and cost less.” I encourage investors to review not just the characteristics and capabilities of a new technology, but the capacity of management to engage early and often with utility officials in a collaborative approach to develop, pilot and implement new technology.
The investment landscape for water-tech has risen in importance in parallel to the rise in importance of water issues broadly. Three truths underpin this landscape: 1) existing water systems are often outdated, underfunded and in poor condition; 2) water systems face new or more intensive existing threats, whether emerging contaminants or extreme flooding and drought; and 3) even with significant new funding in some cases, there is simply not enough government or customer revenue to solve both legacy and emerging challenges. Investment to help scale up new approaches can offer a pathway, perhaps the only pathway, for struggling utilities, public or private, to solve these challenges in an affordable way.
I see two main areas for funding to help emerging start-ups thrive. The first focuses on the utilities that may consider adopting new technologies. Particularly for smaller and resource-constrained utilities, the primary challenge is finding the resources e.g. personnel, finance and time – to evaluate, test and then implement technologies that can improve performance and lower costs. I encourage investors to consider how a pre-development fund can be developed to help cover these costs, to be repaid from the savings from projects adopted. Second, I encourage investment to cover the costs of pilots to develop and test of new technologies in collaboration with utilities which is a priceless foundation for success to follow.”
Stuart Rudick, Founder & CEO, WATER INNOVATION ACCELERATOR: “As the Founder of the Water Innovation Accelerator (WIA) my priority is to educate others about the myriad magical aspects of water and the fundamental role water plays in nearly every aspect of our lives and business. WIA funds and advances new innovations in the water industry that will become the future water solutions and technologies that will lead the water industry into an exciting new era of advancement. What excites me most is the open ocean of new innovations that will transform the water industry and provide extraordinary returns to our investors. The investment areas where WIA is focused are: food and agriculture, wastewater treatment, data science and smart water, infrastructure, and ocean conservation. We are eager to collaborate and co-invest with astute, value-added water funds, investors, and strategic partners.
The water industry has traditionally been a conservative, slow-to-move industry with little innovation. There is a select, yet growing group of new investment funds focused on investing in early and growth stage water technologies. There is also an increasing number of acquisitions the larger, publicly traded water companies are becoming more actively engaged in. The key for the water sector is to fund and invest in innovative new technologies in wastewater treatment, data science, and ‘smart water’ technologies.”