Only about 2 percent of the water that gets filtered and purified for human consumption actually needs to be clean enough to drink, according to Kevin McGovern.

First, 40 percent to 70 percent of the water that gets treated at centralized water stations gets lost in the voyage between the water authority and your home because of leaky pipes, mismanagement and evaporation. Clearly, lost water doesn't need treatment. And the water that makes it into homes? 90 percent gets consumed in showers and washing clothes. That water can contain higher levels of fluoride and arsenic than drinking water.

"The problem is that there is so much mismanagement and waste in the water industry," said McGovern, an investor with a long history in the water and beverage industry. "The water industry is bigger than pharma, but you'd never know it."

He's hoping to start to change that pattern with The Water Initiative, a start-up that wants to deploy point-of-use water purifiers. The company-which counts record producer Quincy Jones, MIT professor Eugene Fitzgerald (The Merton Flemings professor of Materials Engineering--we incorrectly said Flemings was involved) among others as principals – will start selling its first units in Mexico in January or February. The units will cost around $12 to $15 a month and be sold as a service. Because the water flows through with gravity, they will require almost no energy.

"We like to say we are the last mile of water," he said. "Distribution is just as important as the [purification] technology."

After the Mexican launch, TWI will look to expand in other Latin American countries. In the second half of 2009, it will explore the possibility of entering India. Another one of the principals in the company is R.N. Tata, the head of the sprawling Tata conglomerate.

For the past four years, a growing chorus of experts and scientists has warned about the dire shortages of water for agriculture and human consumption. Droughts in Ukraine and Australia exacerbated the shortage of food earlier this year. Half of the hospital beds in many countries are filled with patients suffering from water borne diseases, which also kill three to five million children a year. Residents in some neighborhoods in cities like New Delhi get their drinking water delivered by truck.

Right now, water purification in most parts of the world is conducted in centralized, government-owned plants. The water then gets shuttled down pipes to homes and factories. Consumers in Europe, North America and parts of Asia might have Brita filters at their homes, but that water has already passed through multibillion dollar facilities before it comes out of taps.

In countries like Israel and Singapore centralized processing can cost even more because of extra processing. Israel gets about five percent of its drinking water from the Ashkelon desalination plant while a small percentage of Singapore's industrial and drinking water is NEWater, or water reclaimed from the sewage system.

Improving point-of-use filters and increasing their numbers can help developed and emerging nations avoid the time and expense-vote on a bond issue anyone?---required for centralized processing.

A shift toward point-of-use filtration and purification could conceivably also help break the logjam in water investing for VCs. Almost all greentech VCs express interest in investing in water. Energy Recovery, which produces equipment to make desalination more energy efficient, held one of the few green IPOs this year. Before the stock market swoon, the stock was up around 50 percent from its IPO price. Still, most complain that good deals are few and far between. Most also don't want to get into large, capital-intensive projects.

Interestingly, some of the companies that have received VC funds this year – Miox (purification with salt) and HaloSource (disinfecting chemical beads and point-of-use filters) – are focused on localized purification.

Others, of course, are also looking at the market at TWI, including the Reliance Industries conglomerate that competes with Tata. Iluxon, a Mexican company, has a device that can distill two gallons of water a day with sunlight. Charging $12 to $15 a month in emerging markets will likely limit the customer base to only certain segments of the population. 

TWI's in some ways functions more like an integrator than an inventor. It meets with professors at various universities-MIT, Cornell, UCLA, etc. – and then licenses what it believes is promising technology, builds a device around it with input from local residents and  figures out a sales strategy.

The initial devices will not be all-purpose purifiers. They will eliminate fluoride, arsenic and some other substances. They will not eliminate biological materials  and cannot be used for desalination. (UPDATE: McGovern updated and said that it will eliminate biological materials and testing will continue for more contaminants.) He also won't share a picture of it yet.

Nonetheless, modules for biological purification, desalination and other types of purification will be possible in the future.