David Lynch, CEO of water utility software company Klir, predicts that the first trillionaire will be a water entrepreneur. It makes sense — humanity depends upon water. A human cannot survive more than three days without fresh drinking water. Global industries, including agriculture, pharmaceuticals and chip manufacturing, rely on massive amounts of water for production — Taiwan Semiconductor Manufacturing uses more than 150,000 tons of water per day. Clearly, global fresh water dependence is crucial to life and the economy. Yet, despite intensifying droughts and groundwater depletion, water tech is a largely nascent field for disruption.
Out of around $54 billion invested in climate tech in 2021, just $470 million was allocated for water tech. That’s minuscule considering climate tech investment raised $26.8 billion in the first half of 2022. Shouldn’t the most precious resource for life on planet earth receive more than 0.8 percent of total investment?
What is water tech, anyway?
Water tech is broadly defined as any technological solution that has water at the core of its value proposition. I like to think of it as any technology (software and hardware) that reduces freshwater use (including protection and recycling) and generates more H20 (desalination and atmospheric water generation). Some water tech startups to keep an eye on include ElectraMet, Lumo and KMX Technologies.
What’s up with water tech funding?
Water tech is an emerging sector comprised of only a small number of companies and funds, with most investments in the later growth stage and beyond. Given the infancy of the space, the uptake of solutions is slow, resulting in a tepid response from investors.
Water is malleable. Its presence is necessary in almost every market segment. The top three global sectors — agricultural, industrial and municipal — each individually use 71 percent, 19 percent and 12 percent of available freshwater, respectively. Also, it’s difficult to commercialize water solutions because of decision-making processes and regulatory hurdles. Water systems are a bureaucratic act of cooperation between states, local authorities, water suppliers and the EPA and is therefore difficult to disrupt.
Water infrastructure is poor, outdated and under-resourced, as well as notoriously inadequate and underfunded — in some cities and states, it’s over 100 years old. The EPA estimates that it could take an investment of up to $839 million per year to replace and monitor lead service lines in use in the US Unfortunately, these outdated water systems are already failing. In September 2021, 180,000 residents of Jackson, Mississippi, were out of safe tap water due to decaying water infrastructure and flooding, which overwhelmed the water treatment center. This reality makes for a difficult, and sometimes impossible, partner when piloting new technology.
The opportunity of water technology
Given that water systems are essentially a gargantuan blackbox, software is an immediate (and long-term) opportunity to create efficiency and transparency. Digitization in water cycle management can help utility, industrial and agricultural companies anticipate and respond to water demands accurately and in real time, saving water and cutting costs.
For example, the Chinese semiconductor industry spends around $1 billion on water use annually (mainly for cleaning the semiconductors). Through the reduction, reuse and recycling of water at semiconductor plants, the industry could save over $100 million per year. And that’s just one industry.
Another water tech opportunity is collaboration with utilities for innovation and adoption. However, this comes at a risk considering utilities generally do not have the resources (capital and personnel) to test pilots. To reduce risk, startups could take advantage of the funding available through The Inflation Reduction Act, which provides $4 billion for drought relief programs and $550 million for domestic water programs in disadvantaged communities.
The world needs VCs to take bold action on water tech
Let’s face it — the United States’ water system resilience is frighteningly bad. In the face of increasing droughts, floods and storms, we desperately need a water system upgrade. The costs are too high to not get this right.
We need water tech investment to accelerate water innovation and adoption. It’s a colossal challenge, but that means it’s also a colossal opportunity.