Despite witnessing an overflow of water innovation (bad pun #1) this year, I’ve noticed a dismissive attitude from the investor community when evaluating water-based technology companies. Some of the better quips I’ve heard include:
- “There is a fundamental mismatch between VC return timeline expectations and adoption cycles for water technologies.”
- “Long technology development cycles with even longer piloting trials will evaporate (bad pun #2) your IRR.”
- “But water itself has no value. At least saving energy can result in cost savings.”
This is sage advice, as water problems are complicated and it does take a long time to achieve significant adoption, especially when according to the Cleantech Group, 66 percent of 2012 VC water investments are targeting municipalities as early adopters.
But the investment community sometimes gets caught up in 'investing in soundbites' and believing that water is simply focused on desalination and the purification of drinking water; whereas water processing is a necessity to the vast majority of energy infrastructure and industrial operating equipment. Without adequate water supply or sufficient quality, industrial processes are at risk of fouling, losing production, and sustaining higher operational costs. In other words, certain ‘water issues’ are simply industrial bottlenecks that carry substantial operational risks and can cause meaningful and costly problems to their operators.
Chrysalix is an energy investor that targets groundbreaking, early-stage industrial technology innovation that offers superior cost savings and performance to large industrial end users. With this theme in mind, our latest portfolio investment, Axine Water Technologies is targeting such ‘water issues’ that contain difficult-to-treat toxic dissolved organics in the oil and gas, pharmaceuticals, chemicals, food and beverage, and other heavy industries where its technology can be integrated into existing wastewater treatment plants to improve performance and reduce cost.
Wastewaters with these characteristics -- and with chemical oxygen demand (COD) levels between 100 to 5000 -- are typically responsible for creating ‘industrial inefficiencies' that simply do not have a cost-effective solution. The result is production bottlenecks, higher equipment maintenance and operating costs, higher wastewater permit and discharge fees, higher water supply costs, higher costs of sludge disposal, and non-compliance fees.
By pairing economically disruptive technology that has an accelerated path to commercialization with large industrial early adopters that suffer from massively expensive pain points, one can easily argue against the strong currents(bad pun #3!) for investing in water technology.
After all, solving these ‘water issues’ is just another way to enhance industrial process efficiency.
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James Wells is an Associate at Chrysalix Energy Venture Capital.