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Practical Magic

Aquapreneurs are thirsty

Companies such as ZwitterCo and Waterplan are creating a ripple effect for water technology startups focused on private-sector applications.

Bottles of wastewater before and after being treated with ZwitterCo's superfiltration membranes.

Bottles of wastewater before and after being treated with ZwitterCo's superfiltration membranes. The jar on the left shows wastewater stream sent through the membranes, the middle jar is the concentrate after treatment, and the right jar shows clean water for reuse. Courtesy of ZwitterCo

In my long experience as a journalist fascinated by startups and entrepreneurism, I’ve noticed one indicator that a tech category is maturing is not just the amount of money flowing into it, it’s how specifically those dollars or euros or pounds or yuan are being allocated.

As we near the end of 2022, I’m watching the rising flows into several tributaries of climate tech that previously only received a trickle of interest. The one on my mind this week: the watertech world, and the "aquapreneurs" capturing very real funding and very real clients. 

Let’s be clear, there have been plenty of past ventures focused on water issues for the public sector and agricultural needs — stormwater abatement, wastewater treatment, pipe maintenance, irrigation. If you peek at the portfolio for watertech incubator Imagine H2O, you’ll find some great examples.

The recent wave of interest, however, has been more obviously centered on the concerns of industry rather than municipalities or utilities. Consider Boston-based ZwitterCo, which disclosed a $33 million Series A funding round in September — billed as the largest early-stage round for a water tech company to date. It makes superfiltration membranes for industrial wastewater, focused on applications where separation of organic compounds such as oils, fats, greases or proteins has been difficult.

Right now, many food processing or biofermentation processing operations pay to have their wastewater hauled away, but ZwitterCo’s technology allows for a higher rate of reuse, according to ZwitterCo co-founder and CEO Alex Rappaport. "There is a fear and now a rapidly growing reality that getting water to a facility is a challenge," he said. ZwitterCo’s system has been ordered by more than a dozen commercial projects, but the company hasn’t yet disclosed details.      

"Water is only going to get more important," said Tom Ferguson, managing partner at Burnt Island Ventures, a firm focused exclusively on water entrepreneurs, and an early investor in ZwitterCo. Ferguson, lead author on the first CDP Water Disclosure Report back in 2010, said water startups are particularly interesting for organizations concerned about adaptation. "Climate change is water change."

While I haven’t found data to support the claim, those investing in water technologies figure that about 1 percent of all venture capital is dedicated to firms in this space. The challenge in the past has been the upfront capital expenditures that can be involved, Ferguson said, but this new generation of aquapreneurs has become far more sophisticated about getting the business model and return on investment argument right.

Another notable example is SHARC International Systems, of Vancouver, British Columbia, which has designed an all-electric hot water system that extracts the thermal energy from wastewater to use for reheating water used in residential buildings. It’s focusing on places such as Vancouver and New York, where it is teamed up with geothermal developer Egg Geo on a project to provide all of the heating, hot water and cooling for a 20-story, 316-unit affordable housing campus in the Bronx.

Equipment for recovering heat from wastewater

Piranha is an all-electric hot water system that extracts the thermal energy from wastewater to use for reheating water used in residential buildings. Courtesy of SHARC

By creating a nexus play that addresses both energy and water concerns, SHARC has created a compelling cost case for processing graywater in a different way: It claims every dollar of energy used to run its Piranha Wet system can generate $4 of output. Lynn Mueller, the company’s chairman and CEO, estimated the payback for the system comes within four to five years, with an accelerated depreciation made possible in the U.S. through the Inflation Reduction Act. "We think the system will be very popular where water will become really expensive," he told me.

That argument is also one of the value propositions for Source Global, which sells "Hydropanels" that use solar energy to generate clean drinking water. As of mid-July, the Scottsdale, Arizona, company had raised $270 million, including a $130 million Series D infusion in mid-July led by funds managed by Breakthrough Energy Ventures and Drawdown Fund. The technology can, in theory, help take a business off the grid for its drinking water needs.  

Not just hard tech

Tools for planning these sorts of investments are invaluable, of course, and that’s where an intriguing early-stage startup, Waterplan, hopes to play a role. Yes, you guessed it — as its name implies, this 2-year-old software firm is developing a dashboard companies can use to gain insights about watersheds and strategize accordingly. The company snagged $7 million in seed funding earlier this year from a group including the Branson family and Leonardo DiCaprio, after participating in a Y Combinator cohort in 2021. It already claims Amazon, Anheuser-Busch InBev, Coca-Cola, Colgate-Palmolive, Danone, Diageo, McCain and Meta as customers.

Jose Ignacio Galindo, co-founder and CEO of Waterplan, said many corporations aren’t responding to the water crisis at the scale and pace required by the problem. His observation is borne out by an analysis published last week by Morningstar, suggesting that just 16.6 percent of the companies followed by Sustainalytics disclosed information about their water withdrawals in the 2020-2021 fiscal year. It’s better than the previous period, in which just 7 percent shared that data, but still an astonishing small number when you consider the issues of scarcity and quality that are capturing headlines around the world.

"Climate change is the problem, but water is the messenger," Galindo said.

Mike Miller, general partner at Liquid 2 Ventures, the early-stage fund he founded with NFL Hall of Famer Joe Montana and former Googler Michael Ma in 2015, also places water tech in the category of adaptation and says it is underrepresented in climate tech. His firm is one of Waterplan’s earliest backers. "There is a lot of power in integrating these data sets," he said, pointing to some information that the software uses. Right now, many companies consider this data far less frequently than they should, he said. "We really need actionable intelligence. Water is one of those things that changes on a month by month, if not a week by week, basis."

Jehanne Fabre, sustainability water director at Paris-based food company Danone, and part of a new water-centric team formed this year, is piloting Waterplan’s technology in two locations. The application is important for "understanding water risks related to specific watersheds; then we can determine if the risk is material,” she told me. The software is helping Danone assess potential adaptation or mitigation strategies and weigh the cost of action versus inaction, Fabre said. She noted that more sustainability teams, such as her own, are creating water-centric roles.

"As we professionalize this role, we need to show how it makes sense for the business to make interventions," she said.

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