Smart Water Investment by the Numbers

The state of smart water investment

WaterInvestmentSmart water innovation addresses a wide range of applications — from precision agriculture, to wastewater recovery, to water utility operation optimization, to consumer water usage reduction. Despite this diversity, all smart water ventures do have a common denominator: putting cutting-edge technologies to work in order to achieve water sustainability.

Since this blog is about investment and investment is about capturing value, I will put aside for the moment the pressing humanitarian importance of ensuring sustainable and universal access to clean water in the face of growing populations and shrinking water resources. The numbers are compelling: Markets & Markets forecast that the smart water management market (meters, solutions, analytics) will be worth $20.1 billion by 2021, at a truly remarkable compound annual growth rate of 18.9%.

comparative-performanceSmart water start-ups have a good performance track record. In a comparison carried out on a set of 3,700 start-ups across many sectors (life sciences, electronics, materials, IT, etc.), the water start-ups outperformed the others in terms of the percentage that achieve profitability after 10 and 15 years. [2]

Yet despite the need and the opportunity, investment in smart water innovation is low. In the US in 2012, only $120 million in venture capital was invested in water companies, representing just 0.4% of total US venture capital investment that year. [1] The graph below from I3 Connect shows the number of deals and amount invested in smart water on a quarterly basis since 2013. In general, water and wastewater companies receive about 1% of angel and venture capital investment each year. [2]

smart-water-investment

Where is the money going?

So what kinds of companies are attracting the few hundreds of millions of dollars that are invested each year in the smart water sector? The following table summarizes some of the more significant transactions over the last 18 months or so. [3]

Company

What They Do

Amount Raised

When

From whom

Pluto AI

Analyzes big data from water treatment plant sensors to save time, money and water

$2.1 million seed round

April 2017

500 Startups (accelerator), Fall Line Capital, Refactor Capital, Unshackled Ventures, Comet Labs, angel investors

Banyan Water

Smart water management as a service for commercial and institutional businesses.

$540,000 venture round

$1.45 million venture round

March 2017

June 2016

Not listed

FarmLogs

Farm management software, including water optimization

$22 million Series C

($37 million raised to date)

January 2017

Led by Naspers, with 7 other investors

Flow Labs

Proprietary meters for water submetering in commercial properties for real-time water insights

$507,000 seed round

($852,000 raised to date)

August 2016

Angel investors, incubator

Valor Water Analytics

Aggregates big data from water utilities nationwide to enhance business intelli-gence, financial sustainability

$1.6 million seed round

($2.84 million raised to date)

June 2016

Shore Ventures II

Inflowmatix

Integrated monitoring and modeling solutions for resilient, adaptive and “calm” water networks.

$4.32 million Series A

May 2016

Led by Touchstone Innovations (venture arm of Imperial College of London)

CropX

An ag-analytics company, cloud based software solutions integrated with wireless sensors to boost crop yield

Total of $10 million Series A (in 2 tranches)

April 2016, June 2015

Robert Bosch Venture Capital, Finistere, OurCrowd and others.

 

Who is investing in smart water?

There are several types of investors who are active in the smart water sector:

  • Accelerators: A few of the companies mentioned got their start in accelerators such as 500 Startups, Y Combinator and Imagine H2O. The latter focuses exclusively on water innovation. Since 2009 they have supported 650 startups in more than 30 countries and have built a global innovation ecosystem that includes leading utilities, corporations, investors, academic institutions and associations.
  • Corporate investors: One of the major investors in CropX is Robert Bosch Venture Capital. Hutchison Water has taken ownership of Kinrot, Israel’s leading water technology incubator. And companies are being spun off from major water corporations, such as FATHOM, a utility-to-utility resource management solution, which began as an in-house solution for Global Water Resources, the owner and operator of water, wastewater and recycled water utilities.
  • Venture capital firms: Some of the VCs active in the water sector include Element Partners, Emerald Technology Ventures, Energy Technology Ventures, Liberation Capital, Meidlinger Partners, Draper Fisher Jurvetson and Chrysalix Energy Venture Capital. [4]
  • Angel investors (individuals and groups): Many of the seed investors in the smart water ventures listed above are individual angel investors or angel investment groups. The equity crowdfunder, OurCrowd, has invested $10.4 million in 4 greentech start-ups (including CropX), backed by 410 investors.
Strengthening smart water innovation

Here are some ideas that have been raised about how the water innovation ecosystem can be strengthened:

  • Establish industry frameworks/consortia to incubate, validate and promote novel technologies. This would reduce the need for early-stage companies to undergo multiple field trials, and the industry would learn how to assess the risk vs. benefit of innovative water solutions. [4]
  • Restructure water pricing: Assigning a true value to water and raising water utility revenues would create incentives and means for investment in smart water solutions. [5]
  • Innovation-friendly regulation: Regulatory trends regarding water utility performance metrics are already setting the stage for start-ups that can reduce non-revenue water and enhance water utility operations. Perhaps regulators should also mandate surcharges on water utility bills to create public R&D funds that would also attract private capital? [5]

Innovation in water meters and water monitoring solutions has been the hallmark of the Arad Group since its inception in 1941. We call on all stakeholders in the water sector to make smart water innovation a priority so that we can look ahead to a future of water sustainability. A strong return on investment is guaranteed for all!

References

[1] The US water sector on the verge of transformation, Global Cleantech Center White Paper, EY, 2013
[2] Tamin Pechet, Turning Water Problems Into Business Opportunities, June 22, 2015
[3] Data primarily from Crunchbase and I3 Connect
[4] The US water sector on the verge of transformation, Global Cleantech Center white paper, EY, 2013
[5] The Path to Water Innovation, October 2014, Stanford University

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