Silicon Valley is suffering through the drought along with the rest of California, but it has not been a big player in funding solutions. That's partly because water innovations are slow to mature and heavily regulated. Instead, government and universities often provide support to startups.
|Written byMatt Weiser||Published on Mar. 4, 2016||Read time Approx. 6 minutes|
When it comes to game-changing innovation, the world of water is a complicated place. You can’t simply write some code and revolutionize how people use water the way Silicon Valley brought the internet into our lives. With water, there are tangible barriers to innovation that software can’t solve, from the immutable laws of chemistry to endangered species in the water supply.
The internet is a kind of public utility, just like water. But the similarities end there.
In one world, a small company can roll out a new “product” – a shopping website, social media platform or smartphone app – in a matter of months and then watch as the money rolls in. With a water innovation – say, a new pollution-treatment process – it must be verified through testing, then manufactured, then approved by regulators. Finally, water agencies must be persuaded to use it.
Most investment in water these days isn’t coming from Silicon Valley, according to several experts interviewed by Water Deeply. Instead, it comes from government and universities, often through grants from agencies like the U.S. Department of Agriculture and the Environmental Protection Agency, or research at college laboratories.
Water often requires hardware-focused solutions that take years rather than months to develop. The path to profitability for a water-related startup is much longer. As a result, the wealthy venture capital firms that make headlines in technology are small participants in the water world.
“None of these guys are really experienced in water, and if they are, they’ve been burned by it as well,” said John Pujol, founder and CEO of SimpleWater, a Berkeley-based company developing new water treatment technologies. “I think there should be more investment in this space. But they have to come at it in a very different way.”
There are several reasons water-related innovations move slowly, including:
- The work involves an industry heavily regulated by government, which means a new product or process often must endure a long testing and approval process.
- Innovations usually require old-school engineering solutions, like high-efficiency pumps, filters or treatment methods. So inventors need specialized lab space to test and refine their products, which is expensive.
- Once a successful product is developed, it has to be manufactured, then kept in inventory to satisfy orders, both of which require substantial investment before the first sale.
“Science is hard,” said Joseph Steig, CFO at Long River Ventures, an “early stage” venture capital firm based in Amherst, Mass. “This isn’t like tweaking your software over a weekend. This is really hard stuff. So a lot of venture capital has really failed in this sector.”
Steig is also a senior advisor to Village Capital, another “early stage” (translation: small) venture investing firm based in Washington, D.C. It is one of the few that specializes in water innovation.
Village Capital funds entrepreneurs using a unique peer-ranking system. Several times each year, a dozen small firms compete for funding, then rank each other on key criteria to choose two that will share $100,000 in seed funding.
At one recent such event in Albuquerque, N.M., 12 water entrepreneurs spent several days pitching their products and reviewing each others’ work. The sessions included extensive coaching by experts to hone their businesses, financing and marketing.
“We’re finding that solutions in water aren’t actually coming from Silicon Valley,” said Ross Baird, Village Capital’s executive director, explaining why these competitions are held in places like Albuquerque and Fort Collins rather than San Jose or San Francisco.
“I think there are hundreds of investable opportunities,” Baird said. “What we’re hoping to do is change the narrative. We want people in the investment world to take water seriously.”
Baird said hundreds of entrepreneurs applied to join the Albuquerque event before the final 12 were chosen. Even after that, he heard from 40 more hoping to get added on.
Another limitation is that most water in America is delivered by government agencies. They tend to be wary of new practices and slow to adopt innovations.
“Government is the consumer of most of our products,” Pujol said. “The people who are my customers are not allowed to make a profit, which makes it hard for me to make a profit as well. I think that’s part of the problem.”
Pujol’s company, SimpleWater, received a grant from the U.S. Environmental Protection Agency to test its new method to remove arsenic from drinking water wells. The system uses an electrified plate immersed in the drinking water flow. With a certain voltage applied to the plate, the iron begins to rust and the eroding particles bond with the arsenic, safely settling it out of the water supply.
Pujol’s goal is to help water agencies reactivate wells that don’t meet federal arsenic standards, thereby boosting water supplies. It’s expected to be much cheaper than drilling new wells or buying water elsewhere.
SimpleWater plans to operate a pilot project at a water system in Grimes, Calif., this year. It resolved to pay for the pilot itself — at an estimated cost of $400,000 — because such experiments are considered too risky by many small water agencies.
“This isn’t the next mobile app or the company that’s going to put the next popup ad on your phone,” Baird said. “These are real problems being explored by real companies.”
Tom Shapland, CEO of Tule Technologies, developed a groundbreaking system to track water consumption on farms. It uses a unique package of sensors and software accurately to measure water use over an entire field, helping farmers save water by applying only what their crop needs, which had never been achieved before.
Although Shapland won funding several years ago in a Village Capital competition, most of his early research and development occurred at U.C. Davis, where he was a Ph.D. candidate, and the university became a partner in the San Francisco-based company.
“Private companies tend not to invest in fundamental science,” Shapland said, “because most often one cannot delineate a clear roadmap to a return on investment on such investigations.”
So, what are the solutions? How can investors help transform water the way they used the internet to revolutionize communication and consumer behavior?
One way, says Deepak Garg, is to start with low-hanging fruit – relatively easy projects that resonate with consumers.
Garg is CEO and chairman of Smart Utility Systems, which developed – yes – a smartphone app that allows the public to report water waste anywhere in California.
Called Smart H20, the free app works in partnership with the state and water utilities so the public can report water waste anywhere in California. Previously, this was difficult because the witness had to know which water agency served that location. The new app relieves the witness of this burden by using a smartphone’s location technology to pinpoint the location and the responsible water agency.
“While mega-projects such as new reservoirs and desalination plants are an important part of the solution, the industry needs to be looking at projects that are leaner, less complex and less costly to implement, but can also have a significant impact,” Garg said. “One challenge is building awareness and educating utilities about new technologies, and the new ways in which consumers want to communicate and interact.”
It’s also important for investors and entrepreneurs simply to learn about water – where it comes from, how it gets delivered, treated and then reused. Just like other water customers, for years they have taken for granted that water will simply arrive when they need it, clean and safe and in ample supply.
Dorene D’Adamo, a member of California’s State Water Resources Control Board, recently cajoled Silicon Valley leaders to start learning about agriculture, which consumes an estimated 80 percent of the state’s water supplies.
“Get out on the farm, get your hands dirty,” D’Adamo said in a recent interview with the BBC. “Go out and meet with farmers; learn from them directly as to the challenges they face. What we’re looking for is assistance with monitoring …groundwater, contaminants and also monitoring (water) use. This area is ripe for investment.”
Matt Weiser is a contributing editor at Water Deeply. He can be reached via email at email@example.com or via Twitter at @matt_weiser.
Top image: Susan Amrose, chief science officer at SimpleWater, works on arsenic remediation technology in her lab. The company uses a technology partly developed at U.C. Berkeley and received a grant from the U.S. Environmental Protection Agency to pay for testing. (Noah Berger, UC Berkeley)