Startups in the field have struggled for years to attract enough attention -- but California’s four-year drought is changing that.
(TNS) -- In a tech-obsessed state that’s part desert, creating new technologies to save or clean water should be a no-brainer.
But even though water technology helps preserve the most precious resource on Earth, startups in the field have struggled for years to attract the level of investment and attention showered upon social media, solar power and sharing economy companies.
California’s four-year drought may change that. As water agencies scramble to make deep cuts after another dry winter, water tech may finally get its moment.
“I’ve been running around saying, 'Hey, let’s not waste a drought of this magnitude,’” said Sheeraz Haji, CEO of the Cleantech Group consulting firm, which has tracked and encouraged water-tech investment for years. “We have a unique opportunity here to bring capital to innovation.”
Investors have been slow to dive in. Worldwide venture funding for water startups totaled just under $1.5 billion in the last five years, according to the Cleantech Group’s i3 information service. Companies that help save energy, in contrast, raised $1.6 billion in 2014 alone.
Investors have been scared off by the fragmented nature of the American water market. Water is delivered by a patchwork of small, risk-averse utility companies and public agencies that tend to buy only the equipment they absolutely need. They make every effort to keep water prices low, so big users often don’t have much financial incentive to conserve. Government regulations vary from state to state.
And while the federal government has made a concerted push to encourage other types of clean technology, such as electric cars and renewable power, that hasn’t happened with water.
“For whatever reason, it just hasn’t had the political attention,” Haji said.
Now, Gov. Jerry Brown has ordered a 25 percent overall drop in the state’s urban water use, with mandatory cuts of up to 36 percent for the state’s 400 largest water agencies. Water-tech startups that can help agencies make those cuts suddenly find their products in demand.
“We’re definitely getting a lot more inquiries,” said Robin Gilthorpe, CEO of WaterSmart Software in San Francisco. “We’re cranking pretty hard on the sales side. This (drought) is a very unusual situation, and it turns out we have something that can be part of the solution.”
WaterSmart employs big-data analytics — computer programs that quickly crunch huge amounts of information — to root out water waste. Utilities hire the company to help individual customers track and analyze their water use via computer, tablet or phone.
The system lets people compare their home’s water usage with other households of similar size, turning conservation into a kind of game. And it seems to work. In the four years since WaterSmart began its service, its 6 million users have saved more than 1.4 billion gallons.
WaterSmart boasts that its service can trim water use up to 5 percent in a year. The service can be deployed in 45 days — far faster than a utility can build a reservoir or a water treatment plant.
“Making plans for a new (desalination) plant?” Gilthorpe said. “That’s really nice for 2025, but it’s useless for this summer.”
WaterSmart, which raised $7 million in financing this month, represents a kind of water startup venture capitalists can appreciate. It employs technologies they already tend to understand — software and cloud computing. And unlike water-treatment hardware, it can save water without getting snared in regulations.
“A technology that’s touching drinking water gets a lot more scrutiny than a technology that’s monitoring a utility,”said David Henderson, a managing director at XPV Capital Corp.
Henderson insists there is money in water. His Toronto venture firm invests exclusively in water companies. Since XPV was founded in 2006, the number of large companies acquiring water technology startups has only increased, from about 40 then to around 100 now, Henderson said.
But the water-tech industry doesn’t rely solely on software. It also brims with companies that have developed better, cheaper ways to clean and reuse water.
Nexus eWater has a system that collects the “gray water” from a home’s showers and bathroom sinks, purifies it and sends it to the toilets and sprinklers. The system is designed to be installed during a home’s construction, adding about $5,000 to the overall cost. It also recycles some of the heat from the gray water, cutting electricity bills.
“You should not put drinking water on lawns, especially during a drought,” said Ralph Petroff, chairman of Nexus. “It’s not the sensible thing to do. It’s not the moral thing to do.”
The company was born in Australia, which recently endured more than a decade of drought. Now Nexus eWater has opened a Los Angeles office, raised a $2.1 million funding round this spring, installed its system in two high-tech demo houses with builder KB Home and is preparing for full-scale launch.
Cambrian Innovation, meanwhile, can clean wastewater at an industrial scale. The company’s first targets: wineries and breweries.
Cambrian’s EcoVolt system, installed on-site in a series of shipping containers, uses bacteria to treat wastewater and generate methane gas. The gas then fires a turbine to generate power. The water is clean enough to be reused for washing equipment. It does not, however, end up in the beer or wine.
“You get clean water and clean energy,” said Matthew Silver, co-founder and CEO. “It’s a way for companies to radically cut their carbon footprint, radically cut their water footprint and get a return on their investment.”
Lagunitas Brewing Co. recently installed an EcoVolt system to process the millions of gallons of wastewater the fast-growing Petaluma brewery generates each year. Dealing with that water, until now, has been a headache, said Leon Sharyon, Lagunitas’ chief financial officer.
The water used to hose down brewery tanks ends up high in the nutrients that algae and bacteria love — so high, that many municipal treatment plants can’t handle it. So Lagunitas has had to truck its wastewater to a plant in Oakland, more than 40 miles away. Each trip costs money, burns diesel and adds carbon dioxide to the air, Sharyon said. With 10 truck trips per day, it all adds up.
“Environmentally, it was a disaster,” Sharyon said. “And cost-wise, every time I saw one of those trucks, I thought, 'There goes $500.’”
Neither he nor Cambrian would disclose the cost of the system. But Sharyon figures the brewery will recoup its investment in two years.
“You’ve got a pain point that you’ve got to solve, and the fact that you can do something that’s environmentally beneficial is awesome,” he said.
©2015 the San Francisco Chronicle. Distributed by Tribune Content Agency, LLC