Water is an enormous issue around the globe -- for drinking, farming and industry.
There is a looming water crisis facing everyone on Earth as populations rise, pollution increases and climate and weather patterns change. There is already a water crisis in many developing nations and in some not-so-developing regions, like Australia and California. The stats for "embedded" or "virtual" water are sobering -- for example, the production of 1 kilogram of beef requires the use of 15,500 liters of water (see WaterFootprint.org).
And water is inextricably linked to energy -- California uses an extraordinary amount of power to move water around the state. In fact, a fifth of the electricity used in California is intertwined with water. So is 30 percent of the natural gas, according to the California Energy Commission. Most of that power is actually used to heat water for hot showers and clean hospital equipment, but around five percent to six percent of all of California's energy gets consumed simply by moving water.
Business growth opportunities in the water market seem obvious. The water market is:
• Huge and expanding
• In a crisis that cries out for innovation and efficiency
• Deeply enmeshed with energy usage
• In urgent need of a variety of new technology approaches
But VC lore and conventional wisdom has it that you can't make money in water; it's too long a design cycle, too regulated, and too fragmented a market. The main players in water are large conglomerates like General Electric, Veolia, Siemens -- and they dominate the market.
Flying in the face of this theory is the fact that Energy Recovery, a water desalination company, went public a few years ago. In fact, the Voltea investment covered below is just one indication that VCs are indeed investing in water across a variety of water sectors. And there has been a robust M&A scene for water companies -- it just doesn't get a lot of press.
Here's a quick list of of the more than $150 million in water investments in 2009. Note that while Israel has its share of water startups, U.S. VCs seem to be waking up to the water market, as well. Watch out for a surge in water investments this year and next. It's still a small percentage of total VC in greentech -- but it's not negligible.
Some Venture Capitalist Views on Water
Susan Preston at CalCEF
is "looking hard" for an investment "at the intersection of energy and water."Peter Nieh, a partner at VC investment firm Lightspeed Venture Partners
said via email, ”Water is an alluring market because the need is clearly there and the opportunity is large. [There is] some great technology out there. The issue for us is that economically attractive distribution is hard to achieve because the market is so fragmented.”
“ definitely agree that water is a challenging sector... and as such, it's sort of the Rodney Dangerfield of cleantech investments,” observed Steve Vassallo of Foundation Capital. “That said, we have invested in this area and are actively looking for opportunities to invest in capital efficient businesses that address the needs of commercial, industrial, and agricultural users of water.” PurFresh was one of Foundation’s first cleantech investments. Purfresh has an ozone purification system that many bottled water vendors use to sterilize their bottles.
Will Coleman of VC firm Mohr Davidow Ventures is also looking carefully at water deals and states. “As for water, yes, we have had an interest in water for quite a while, but it has always been hard to identity venture opportunities in the space. The market is huge. The "water" market in the U.S. alone is over $100 billion annually, but a significant portion of that is in earthworks and pipes. When you slice it a little finer you find that a third of the market is driven by residential, where the cost of water to the end customer is really not a driver” [emphasis mine].
was a water expert at Intel, dealing with the flood of wastewater produced in the fabrication of Intel’s semiconductor products. Today, she’s at CMEA Ventures and part of the investment firm's Energy & Materials team. She vets the VC firm’s cleantech deals but has a particular thirst for water startups, and states, “I believe there’s an opportunity in water but I haven’t found the investment yet.”
Sheinbein added, “We’re good at materials and membranes,” adding, “We would look to get to market through the commercial and industrial space first, as opposed to the conservative municipal water channel.”
, a 20-employee U.K.-based startup founded in 2006, just closed a $5.5M investment from Rabo Ventures and Pentair, a U.S. water technology company, for water desalination via capacitive deionization. Initial investment for Voltea came from Unilever Ventures.Capacitive deionization (CD) is an electrical process that combines oppositely charged electrodes with anionic and cationic selective membranes. When salt water flows into the cell between an electric field, the ions move through the selective membranes to the oppositely charged electrodes and desalinated water leaves the cell. When the surface of both electrodes is covered with ions, the electrodes are cleaned by reversing the electrode polarity. The ions are pushed from the electrodes and are trapped between the membranes. The concentrated brine that forms between both membranes can then be removed from the cell. When the polarity of the electrodes is reset to normal, the cell is ready for use again.The predominant technologies used to desalinate water are reverse osmosis (RO) and electrodialysis reversal
(EDR), and they both tend to be costly, environmentally unfriendly, and energy-intensive processes that produce large amounts of wastewater.
CD would seem to most closely resemble EDR, but Voltea claims that CD has a higher recovery water rate, requires less maintenance and pre-treatment, and is not as sensitive to scaling and fouling. The company also claims that CD requires much less energy than RO and fewer chemicals than either RO or EDR.Current applications for the Voltea technology are in cooling towers, water softening, and desalinating brackish groundwater.
Profiles of a Few Other Water Companies
, a well-funded water startup, is commercializing a new membrane material for reverse osmosis based on technology developed by UCLA's Eric Hoek.
"It all comes down to the performance of the membrane," claims Jeff Green, the startup's CEO. "A more productive membrane allows less energy to be used or provides higher throughput."
A higher-performance, more permeable membrane allows more fresh water to cross the barrier with less pressure from a pump -- a pump that needs to be driven by an energy source, be it natural gas, diesel, or coal. The high pressure pump consumes 35 percent to 60 percent of the process' energy budget. According to the company, municipal and industrial plants optimized for NanoH2O’s membranes can expect up to a 20 percent reduction in energy consumption, a 70 percent increase in water production, or a 40 percent smaller plant footprint.
According to Green, seawater desalination comprises about two-thirds of the desalination market. Another 20 percent is for desalination of brackish water and the remainder is for desalination of wastewater streams.
The industry standard membrane module is a cylinder 8 inches in diameter and 40 inches long. A flat sheet of membrane is spiral wound in the cylinder. Under pressure, the desalinated water moves through the membrane into a tube on the inside, while the waste stream or brine stream remains on the outside. A typical pressure vessel contains a number of the membrane modules.
Green said, "We will be able to produce the entire product, from fabricating the membrane to the membrane module itself." The goal is to make a membrane module that fits into RO systems with an identical size and shape to the existing product.
Traditional membranes have been made from a polyamide material for decades, but they had a propensity for fouling. “Fouling can severely degrade the productivity of the process or cause a complete shut-down of a system,” said Green.
"If you want to move this forward, you need a better membrane. We have added nano-particles to the synthesis of the membrane -- it is not a coating; it is a nanocomposite. That allows these systems to have much lower operating pressures or much higher throughput." And that translates to less energy consumption or greater productivity. The firm claims that NanoH2O's technology is the first materials breakthrough in RO membranes since the 1970s.
Initial VC funding for NanoH2O was a $5 million Round A from Khosla Ventures, followed by $20 million from Oak Investment Partners and Khosla Ventures. That funding has taken them from an academic research project to the cusp of manufacturing a commercial product.
The goal now is to scale-up manufacturing. The firm has 26,000 square feet of manufacturing infrastructure in the Los Angeles area and looks to come to market with a commercial product this year.
Other firms working on membranes for water applications include the industrial plumbing giant Danfoss, while Novozymes and a startup called Aquaporin are doing similar work. The challenge, said Aquaporin CEO Peter Jensen to Greentech Media, is making the membrane durable.
pilot testing has purified Mediterranean saltwater, using a Closed-Circuit Desalination saltwater reverse osmosis method (SWRO-CCD).
Using common components, without energy recovery, running a high-pressure pump at 81 percent mean efficiency and circulation pump at 37.5 percent mean efficiency, the pilot achieved 48 percent recovery at 2.05 to 2.40 kWh per cubic meter of fresh water. For comparison, Perth's desalination plant using Energy Recovery from ERI achieves 43 percent recovery at 2.32 kWh/m3.
Desalitech aims to increase the mean efficiency of the off-the-shelf, high-pressure pump to 88 percent, to provide recovery at 1.75 to 1.95 kWh/m3 on Mediterranean saltwater. The same pumps used on ocean water could produce equal recovery at 1.5 to 1.7 kWh/m3.
Desalitech's implementation reduces the cost of powering desalination processes. It also decreases capital expenditures. Nadav Efraty, CEO of Desalitech, said, "This technology is reducing energy consumption by up to 50 percent when we utilize about twice the membranes, reduces energy by about 10 percent to 15 percent when we use only 40 percent of the membranes compared to a conventional plant, or reduces energy about 30 percent when we utilize the same amount of membranes, but in this mode, since we don't utilize any form of energy recovery, we still see a reduction in capital expenditures" (reporting on Desalitech was provided by Galen Sanford).