7 INVESTORS EVERY WATER TECHNOLOGY START-UP SHOULD KNOW

In 2021 $470 million was raised to fund water start-ups. But where should new water technology companies start? Tom Freyberg checks out seven notable investors.

The rise of the ‘half unicorn’
As Liza Minnelli once sang, ‘Money makes the world go round’.

If the song was to be rewritten, the word ‘water’ should perhaps be included as recent investment into the sector is certainly helping to make the water world go round.

In 2021, it was estimated that a staggering $470 million was raised by water start-ups across 90 countries, according to GWI WaterData.

While the investment community could be called occupied with ESG (environmental, social and governance) related investments right now, the water sector is slowly but surely attracting more capital as an emergence of digital-led innovations are promising to deliver asset improvements.

Water has historically been seen by many investors as the poorer, less-sexy cousin of renewables, electric vehicles, dating apps, despite offering what is a critical, underfunded service. The slow uptake of new solutions, coupled with potential slower returns of investments, have meant investors have shied away.

Yet, that time is changing.

Notable investments saw the digital space gaining traction, with smart water company Olea Edge Analytics raising $35 million Series C investment, as well as Canadian company Klir raising $16 million Series A.

Furthermore, a $105 million raise by Gradiant Corporation effectively valued the company as the industry’s first “half unicorn” ($500 million).

"This could be called one of the most exciting times for water-starts.”

Water-specialised investment funds are now gathering pace.

For example, Burnt Island Ventures recently raised $30 million for early stage-water start-ups. PureTerra Ventures, after raising significant capital including €5 million from entrepreneur Shawn Harris, announced an equity investment into Transcend Software, with a total raise of $10 million.

Emerald Technology Ventures closed its $100 million water impact fund, including investment from Temasek and strategic investors, including SKion Water, Ecolab and Microsoft.

Furthermore, the Colorado River Basin Fund focuses on the future of water utilizing the parched American West to catalyze investors and innovative solutions, to solve water quality and equitable access globally.

Clearly, more investment is now available for the sector, in what could be called one of the most exciting times for water start-ups. In fact, the challenge now facing many investors is not building sizeable funds.

Investors told Aquatech Online that they have significant amounts of money available to invest, but there’s a lack of companies in this space that are “investable”, either with extraordinary, pre-revenue valuations, or solutions that are not scalable.

So, start-ups, your time is now!

The question is where to start if you’re a water technology company looking to raise capital? We checked out seven water-focused investors worth knowing in this space.

Fund focus area: Global, early to expansion stage investing.
Total fund size: USD$100 million
Typical investment size: €3-5 million
Previous investments: Optimatics (acquired by SUEZ), Takadu, Pure Technologies (acquired by Xylem for $400 million), Sofi Filtration, inge watertechnologies (acquired by BASF, now part of DUPONT), HydroPoint Data Systems.

"Implementing an ESG policy is part of our term sheet, which includes the aspects of diversity.”

Investment thesis – what are you looking for in a water-tech start-up?
Differentiated approach (mostly based on a strong and unique technology), strong team, convincing business model.
How are you supporting diversity when investing?
Implementing an ESG (environmental, social & governance) policy is part of our term sheet, which also includes the aspects of diversity.

 Avent Bezuidenhoudt 
Fund focus area: Sustainable technologies that mitigate climate change with a focus on the Water, Energy and Food sector
Total fund size: $300 million
Typical investment size: $10 million
Previous investments: Propelair, SoftIron, Noka Farm

"Within the water sector we are focused on technologies that solve customer pain.”

Investment thesis – what are you looking for in a water-tech start-up?
We are focused on growth companies with proven technologies, repeat sales and turnover in excess of $2 million, looking to grow globally and enter new geographic markets. Companies should have defendable IP and a clear USP. Within the water sector we are focused on technologies that solve customer pain in relation to water saving, water purification and digitisation of the water sector.

How are you supporting diversity when investing?
Earth Capital (EC) is a founding signatory of HM Treasury's Investing in Women Code which is a commitment to support the advancement of female entrepreneurship in the UK by improving female entrepreneurs’ access to tools, resources and finance from the financial services sector.

As a signatory, EC is committed to a culture of inclusion and to advancing access to capital for female entrepreneurs by having a nominated member of the senior leadership team who is responsible for supporting equality in all our interactions with entrepreneurs.

 Tom Ferguson 
Fund focus area: Anything with water at the core of the value proposition - though we get nervous around oceans.
Total fund size: $30 million
Typical investment size: $1.25 million in aggregate, $350k-$750k first check, but we have ranged widely already.
Previous investments: Spout, Cloud to Street, Sewer AI, CivilGrid, Daupler, Ziptility, NLine Energy, ZwitterCo, Aquafortus, Shower Stream, StormSensor, Zilper Trenchless and SwiftComply.

"We take diversity very seriously give water’s pale, male and stale problem.”

Investment thesis – what are you looking for in a water-tech start-up?
We're a water fund, so obviously we have a thesis, but within water we prefer to see the present very clearly, vs predict the future. That is best done through the eyes of the right entrepreneur.

Our Checklist is 18 items with three to six sub-questions each, but the main themes we index closest to are:

Pain: water is slow, but miserable customers, for whatever reason, tend to act faster to deal with what ails them. This means that companies can sell surprisingly fast with the right solution.

Founder/Market Fit - we love it when founders used to be their customer. That they have lived the pain they're trying to solve. It just means they couldn't build something no-one wants if they tried.

Entrepreneurial Decision-Making - water is difficult, and good decision-making from the earliest stages of company formation is the best leading indicator of success. We think we have a good idea of what that has to look like in water.

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