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.

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.

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.

How are you supporting diversity when investing?
We take this very seriously given water's ‘pale, male and stale problem’. I take all the calls I can with entrepreneurs who don't look like the typical person in water, and we think we're seeing more diversity - long may it continue.

Three of our thirteen investments have female founders, soon to be four out of fourteen. It's not great, but we think we'll end up at 40 per cent of the final group of founders being women. At the end of our fundraise, I refused larger checks from male LPs to bring in more female LPs. Furthermore, 80 per cent of our Spring/Summer associate hires have been female, and 40 per cent of our advisory board is female.

Focus area: Disruptive water-related technologies and business models. The European Water Tech Accelerator is the “one-stop shop” to access and connect to EU and Global water entrepreneurs and innovations.

One of the accelerator’s objectives is to contribute to increase the investment readiness of European start-ups. It addresses a huge gap, which is to bring the European water start-ups beyond the seed investment stage. We work with European and non-European Investment Funds towards this objective.

"We look for a disruptive tech, an entrepreneurial team with a vision.”

Typical investment size: We help companies raise funds beyond €2 million.

What are you looking for in a water-tech start-up?
We operate very much like an Investment Fund and undertake a thorough due diligence process before a start-up can enter the accelerator. We look for a disruptive tech, an entrepreneurial team with a vision for the company and can think “out of the traditional water box” to increase market uptake.

How are you supporting diversity?
We are looking to set up a new initiative, to increase the number of women entrepreneurs in the water innovation space.

Fund focus area: PureTerra is a water technology-based fund with particular attention to four focus areas. These are water quality, water and resource circularity, water treatment and water efficiency with a parallel goal of carbon neutrality.
Total fund size: Fund 1 has an anticipated final close of between €80-100 million in 2022 with investments currently being made as we approach that final close. We project 12 – 15 companies will complete the Fund 1 investment structure.

"We love a company with a clear vision. A goal without a plan is hope…hope is not a plan.”

Typical investment size: PureTerra has been created to support early-stage water technologies with a typical ticket size of €1-5 million. We will invest anywhere from seed through later Series rounds.

Previous investments: Ellona (formally RUBIX), Transcend and SIGA.

Investment thesis – what are you looking for in a water-tech start-up?
When PureTerra looks at a potential investment there are a few key factors that we use to evaluate suitability. First and foremost, we love a company with a clear vision. A goal without a plan is hope and hope is not a plan. The technology must have some commercial traction with a complete understanding of their market. Impact is very important to us.

There must be an impact to the status quo, and it must have the ability to be measured. PureTerra is not your typical investor. For this reason, some of the other more standard VC evaluations fall lower in our decision process. We are a very hands-on investor and as such can support in a lot of areas that typical investors would evaluate negatively in their due diligence process. In water, likely more than any other industry, it’s not always about what you know but more importantly who you know. Network is key.

How are you supporting diversity when investing?
We recognise diversity in our portfolio selection process, and we subscribe to a hybrid of globally recognized programs that support best practices. Traditionally water has been a male dominated industry, but we are excited to see this changing rapidly and as such support this transition when and wherever possible. PureTerra is agnostic as an investor to geography or nationality.

Fund focus area: Our fund is about the future of water. Addressing water scarcity (demand side reduction, alternative sources and reuse), water quality (water treatment) and equitable access (alternative off grid water supply and treatment). The focus is primarily on digital water technologies (e.g., real time data and predictive analytics) in the agricultural, industrial and residential sectors. All water is local and we are using the Colorado River Basin as a “catalytic community” to mobilize global investors and entrepreneurs to solve the most pressing water challenges that can be deployed in any watershed.
Total fund size: $5 million
Typical investment size: $100 - $500K
Previous investments: Due to announce initial round of investments in Q2, 2022.

Investment thesis – what are you looking for in a water-tech start-up?
An experienced team, commercial traction (customers), technology (IP) and executable market strategy. We are not interested in incremental innovation but instead focusing on “creative destruction” technologies and business models.

How are you supporting diversity when investing?
The founders/CEOs for our pipeline companies reflect gender and ethnic diversity in society. We are looking for innovative technologies with passionate diverse leadership teams. We are also interested in companies that address equitable access to safe water and environmental justice issues.

Fund focus area: Growth-stage companies with technology innovations that address climate adaptation-related water risks
Total fund size: US$25 million
Typical investment size: US$500k to US$5 million
Previous investments: Companies in Mazarine Fund I with technology innovations that help their customers adapt to a changing climate include AQUAOSO, Conservation Labs, EQO, Flume, SimpleLab, Swirltex, Veracet, and WaterClick.

Investment thesis – what are you looking for in a water-tech start-up?
Mazarine's Fund II seeks to back growth-stage technology companies with innovations that address water quality and quantity risks associated with climate adaptation. This fund is not focused on mitigation of planetary warming (ie: NetZero, Carbon-neutral, etc), but rather innovations enabling industry and society to adapt to a changed climate, which is mostly a water story

How are you supporting diversity when investing?
Mazarine is keen to support founders with diverse backgrounds. One of our next events is on the 8th of March, International Women's Day, and will spotlight 10 women founders running early-stage companies with innovations that address water-related risks.