VCs Say Water Industry Should Take Lessons From Energy

Oct. 30, 2007

The water industry could learn a few lessons from the energy sector about using technology to manage an increasingly scarce resource, according to panelists at the Cleantech Forum in Toronto on Friday.

"Water is inextricably linked to energy," said Greg Sullivan, managing director of Vancouver, British Columbia-based venture-capital firm Chrysalix Energy, who moderated a wide-ranging discussion on the drivers and challenges of water-technology investing and emerging opportunities for early-stage deals.

Zeroing in on California, he said 20 to 30% of the state's electricity goes to water transport, treatment, delivery and pre-treatment before disposal. A significant portion of energy is used to process and deliver water that is ultimately lost through leaks or simply wasted in a complex system of aging pipes and pumps.

According to the most recent figures from the U.S. Environmental Protection Agency, the country has 74,400 water systems that will need an estimated $276.8 billion in investment in the next two decades.

The U.S. market, however, is highly regulated, meaning that prices are not market-driven, and the major players are conservative and difficult to penetrate.

"It is an area that's dangerous for early-stage investing," said Michael Bevan, managing director of DFJ Element, which is an investor in Seven Seas, which owns, consolidates and operates drinking-water and wastewater-treatment plants in the Caribbean.

North America is a more challenging market to tackle, he said, pointing to the existence today of water subsidies and the public perception that it's an abundant, cheap resource. "In North America, water prices are highly regulated, but we think that will change," Bevan said.

Risk aside, investors are excited about the space. North American and European venture capital investments in water and wastewater jumped 146% in the third quarter compared to the previous quarter, according to data released Thursday from the Cleantech Network.

But water's portion of investment is small compared to areas such as clean energy generation. "There's going to have to be some event to stimulate fast adoption of the technology," said Todd Wilson, managing partner at RockPort Capital Partners, an investor in HydroPoint Data Systems, which has developed software for managing irrigation of residential and commercial properties.

More technologies that can eliminate the wasteful use of water and drive efficiencies in its treatment and delivery are needed, said Wilson, adding that there's room for new business models that mirror the kind of new ventures that have emerged in the electricity sector.

Source: Greentech Media