What We Mean When We Say Water
Successful water investing requires focus, the type of knee-deep specialization that can only come with time spent in the trenches and knowing the exact parameters of the space. Our space is water, H2O, the fundamental molecule on which all life is predicated. It is the basic building block of health, development and society, comprising 85% of the human brain and as vital to the production of cement and cobalt as it is to the production of semiconductors. Without water, life wouldn’t exist and society wouldn’t operate.
We invest in water. To us, with well over a century or so of combined experience across the BIV team, it’s clear what we mean. But not so much to many of the people we speak to who are new to the sector. Do we mean just drinking water? Where do oceans fit? Agriculture? What about products in other markets that help save water, however obliquely?
Simply put, BIV invests in the people building companies that ensure water and wastewater services are provided globally at the right quality, quantity, price, place and time. That statement takes a little bit of unpacking. Here’s what we mean.
Quality - the amount of water you have is irrelevant if it’s at the wrong quality. The water and wastewater services you receive have to be at the right grade for their intended purpose.
Quality comes in two parts - understanding what is in the water, and then doing what you need to get it back to the right quality for the water’s destination and intended purpose. The right interplay between quantity and quality is essential because if we can get both right then every molecule of water can be reused over and over again. To get there, we need both the right type of monitoring and transformative treatments. We spent a long time looking for a multivariate sensor company until we landed on 2S Water. Because we need to know what’s in the water, both for process and for discharge reasons, and ideally in real-time.
Once we know what we’re dealing with, we then need to treat the water (both for drinking and process uses). Wastewater treatment alone is a $340bn market, growing rapidly. Aquafortus has a materials science approach to Zero Liquid Discharge that reduces operating costs by up to 60%. ZwitterCo can filter previously unfilterable industrial wastewaters without the membrane degrading. Aclarity is the leader in PFAS destruction, which is only just coming into focus as a gigantic ($400bn without breaking a sweat) contamination issue worldwide. Dealing with water quality is what makes water useful.
Quantity - you need to have enough water for your personal and commercial needs (which also means being as efficient with use as possible), and you need to manage having too much (e.g. floods).
We need water and we need lots of it. When much of the world lives in areas where water is or is becoming scarce, providing enough of it is a challenge. Extreme summer drought in the US, Europe, and China, coupled with contemporaneous mega floods, e.g. in Kentucky, represent the tip of the iceberg. Enhancing access to water independent of the vagaries of the water cycle is crucial. Spout produce pure, clean, alkaline drinking water out of thin air. It’s also crucial for people and businesses to use less so there is more to go around. Irrigreen sprinklers print water to the grass (seriously - it’s awesome), Shower Stream automatically shutoff hotel showers without impacting the user experience, Floodbase are the flood monitoring partner for both the UN and FEMA, helping communities and first responders understand exactly what has happened and where in the event (and now they are providing next-generation insurance to help people rebuild). Aquafortus and ZwitterCo also enable enormous volumes of water reuse, which is critical for the coming decades. There will be no water crisis if we get really, really good at using the same water molecules over and over again in more or less closed processes.
Price - you can have clean water at the right quantity and quality, but if it’s not affordable it’s not accessible to all, and for those who can’t access it it’s useless.
Water and wastewater services need to be accessible to all and that means they need to be provided at the lowest price possible. Customers in the US, if not almost everywhere around the globe, pay for the cost of treating and conveying water, but not for the water itself. And that’s a good thing because downward cost relief means reduced pressure on prices, which means more accessibility. To make that even remotely feasible, operations have to be as efficient as possible.
We need to rip cost out of the system at every level. CivilGrid are building a key efficiency platform for US infrastructure renewal, enabling widespread cost-sharing and reducing the price tag to consumers. SewerAI allows utilities to faster and more accurately target sewer maintenance, reducing costs when sewerage prices are going up far faster than water costs. Simple, fast compliance with regulation is also crucial if we want to keep the system functioning as we need it to - as blockages, fatbergs, breakages, unregulated discharges are all expensive. SwiftComply does exceptional and rapidly expanding work here. Daupler helps cities, water, power, fire, police departments and others respond quickly and accurately when things go wrong. They save the City of Oakland $2.2m a year. They could save Auckland, New Zealand $5m a year. NLine Energy’s Microsteam turbines offset 50-60% of the electrical demand at Hancock Lumber’s Casco, ME sawmill and Robbins Lumber Limington, ME sawmill through steam pressure energy reclamation. All of this relieves the upwards pressure on utility and other municipal service prices and costs.
Place - water and wastewater services have to be where you need them (or exist at all) for them to be useful.
Walking 2 miles to fetch potable water. Not having access to a toilet in the home or even in the community. Water and wastewater services are necessarily place-based, because they are usually predicated on the interaction with the physical water molecule (more on digital later). Beagle Services are so compelling because they recognise the importance of the last mile - it’s all very well building water pipe monitors and shutoff valves, but without the plumbers to actually install them on behalf of the homeowner (and insurer), a vast section of the value proposition remains unrealized. Ziptility is becoming the operating system of small utilities, partially because they understand the service needs to be provided in the field, not at the desktop. Floodbase understands that on-the-ground appraisal of flood risk and flood impacts in the insurance process is a waste of time and money in the age of rapidly expanding ground and space data, and the age of parametric insurance could and should be here. Spout provides reliably clean water where you need it (your kitchen). Place matters.
Time - there is a constant temporal aspect to water as well. We don’t need it while we sleep, but we do for our morning shower. We need it when we’re making semiconductors, not when the line is idle. It matters when these services are available.
Providing me with a glass of clean drinking water 96 hours after I need it means that I’m dead. If I need to go, and a toilet is 40 mins away, I’m not making it. When I turn the tap on, I need to wash my hands, fill the kettle, do the washing up, boil pasta now. This is why reliability and redundancy are core aspects of water service provision. Most individuals and companies have to wait 2 weeks for water tests to come back. Water utilities usually have to wait 48 hours. It’s literally a giant waste of time and makes effective management impossible (2S Water solves this). To avoid the damage, cost and operational headache of leaks, you need to know exactly when they start, not just when their symptoms emerge. That’s the beauty of LAIIER.
The Thesis, the Edge Cases, and the Prepared Mind
Water is going to get increasingly important in the coming years and decades and the companies we fund will benefit from that. But in an odd way we don’t over-obsess about our thesis. We deal with edge cases as they arise (“We are looking at water as one of our initial target markets!” “We are producing Hydrogen from Water!”), but we need to keep a margin of safety of a given solution being truly pertinent to water management. We need to stay within our own circle of competence - just because a new material dye will save large amounts of water, it doesn’t mean we know anywhere near enough about the textile industry to judge whether or not it has a chance of being integrated at scale. We’re very grateful there are far smarter people than us working on the oceans issue, for example, because it doesn’t fall fully within our circle of competence - yet. We have a prepared mind for a whole load of different potential avenues for the application of technology in the sector, but technology is not enough.
We’re waiting for the right people, who have the right industry knowledge, who understand the pain points upside down and back to front, and where those people are focusing their efforts is inherently unpredictable. You would never have been able to pick the problem Daupler is solving from sitting at a desk and doing a top-down market analysis, generalist (or even climate) VC-style. It took someone like John walking through the door and explaining it to us. That’s what we’re looking for.
Just because it’s Water, it doesn’t mean we’ll Jump
We work in water but we are investors first. Competition, margin compression, buyer decisions, margin of safety on performance, technical competence, pricing - all of our rather long appraisal checklist matters. We have big areas that we know, understand, but have not (yet) invested in because we haven’t found the right deal, or we’re nervous about elements of the market. Examples are network leak detection, supply chain risk platforms, home leak detection, multivariate real-time monitoring (other than 2S) and others. It took us about 18 months to identify an AWG investment. We would be interested in exposure to Aquaculture and more broadly in Agriculture, but our experience helps us understand the challenges of those markets in some depth.
The deal also matters. We have passed on valuations that we don’t think adequately reflect the risks involved in the building of the company, even if we love the product and the founder. Margin of safety applies as much to valuation as it does to everything else we do. A great deal can quickly become a good deal by virtue of price, and it’s our job to do great deals.
This post is partially to help people understand what we do at BIV, but we hope it also helps people see some of the nuance in water. Stuff that looks obvious in water is usually rather tricky, and it’s the “obvious” stuff that often gets funded by outsiders. It’s always tough when generalist or climate funds fund one water investment that doesn’t go well and then swear off the sector forever - because if we’re going to survive whatever climate impacts we have already baked into our future, we need to run a lot of experiments in water. There is a ton of nuanced opportunity out there that is easy to put on the “too hard” pile unless you’re a specialist. The good news is that we are really very open indeed. We had 140+ conversations with funders getting to know the space in the last 18 months. We hope BIV can play a role in helping our fellow investors support the best founders providing exceptional water and wastewater services at the right quality, quantity, price, place and time.