Artemis Water Strategy

Water resilience for a thirsty future

The Innovation Imperative–Transforming operations to match new technology

Clay ChristensenInnovation guru Clay Christensen lays out a compelling argument for innovative operations when disruptive technology gains wide scale adoption.

In a recent New York Times article, he presents steam powered engines and online education as models for industry disruption. If the best of advanced water tech is going to recast water management, how will things look when it gets going?

“Nascent technologies always underserve their customers. As they mature, the opposite happens: they overserve, with bells and whistles customers are less willing to pay for.” Only then do a few leaders emerge with a “just right” technology offering that replaces a dominant industry.

“The lessons from any number of industries teach us that those that truly innovate — fundamentally transforming the model, instead of just incorporating the technology into established methods of operation — will have the final say.”

Water innovation is clearly at the nascent stage of underserving.  I am convinced that the big winners from the crop of emerging growth companies today will be “overserving” and evolve into “just right.”  That means product engineering, with a strong understanding of how to provide a total solution, is critical for success.

Profiles in Utility Leadership: Who will drive the next wave of start-up success?

 

Water Energy Nexus Image- bulb_water-300x241Our research of the Artemis Top 50 shows that the biggest utilities leading the industry in research and pilots have not been the best customers for water tech solutions. For start-ups strapped for cash and driven to building a wide scale customer base, the biggest utilities can be quicksand in the march through the “valley of death” on the way to market.

The leaders in cutting edge research are the biggest utilities in the US. They have ambitious teams of researchers and large budgets for piloting. Unfortunately, purchasing new technologies often falls under a different team focused upon day-to-day operations. Budget for application of new technology is measured in years. Not a few of the most promising start-ups have proven their technologies, only to die waiting for these big utilities to buy product.

Many of the early leaders that we are seeing graduate from the Artemis Top 50 to scale revenues to $10M, $20M and beyond started with projects with small clients. Identifying the utilities and industry water users that are ready to act is a critical challenge.

At WEFTEC in October, and in a series of forums with its advisors, Artemis is defining the profile of first mover utilities.
-What is driving these utilities to adopt new solutions? Regulation? Infrastructure breakdown? Water scarcity?
-Who are the leaders within the community of mid-sized utilities that are prepared to act first within their region?

Please send us your feedback to help define the leading edge in utility management
.

Unbinding Water Innovation

America is falling behind in the race to build the “high tech” water economy that will drive economic growth in the next decade, according to Mike Dimitriou of Water Remediation Technologies. “We stifle innovation with too many roadblocks,” Dimitriou noted earlier today at the marquee conference for the water industry, ACE 13.

Dimitriou noted that the new wave of advanced water tech ”is coming at the right time because we face unprecedented challenges in preserving water quality, finding enough water for all our needs, reducing costs, dealing with aging infrastructure, and meeting the demands of a smaller and younger work force, as well as growing public concern and involvement.”

What are the watershed events that will be the tipping point for water tech?

Disaster scenarios have driven new tech into the US water industry, but there are other drivers simmering below the surface.

Most important, there will be the first great tech start-up success.  I saw the impact of the first runaway tech successes in Israel in the 1990s.   The inventor of the software firewall, Checkpoint, stands out as the start-up that lit fierce competition in the nascent Israeli software community. A year after it was founded, Checkpoint closed its first strategic partnership in 1994 .  Two years later, it was worth $3.5 B at its IPO.  Rather than champagne and great patriot pride, the mercurial success of Checkpoint’s uncorked the wrath of programming nerds in Tel Aviv.  The general response was “If those clowns at Checkpoint could sell $50 M a year, then my company can do twice as well.”

Once the bounty of a great start-up was concrete, fierce competition bloomed in the desert of Israel.  It wasn’t just the smug faces of the Checkpoint staff emerging from their shiny offices, or the fancy cars they drove away, it was meeting them at family weddings, or at a coffee house. Israeli men serve in their old units on reserve duty several weeks a year, so the men who wanted to compete with the founders of Checkpoint had to suffer the pain of working side-by-side with them for weeks. Programmers coveted the success of the founders of Checkpoint.

During the 1990s, dozens of Israeli start-ups broke through the “glass ceiling” that had held back Israeli tech companies for decades.

In 2012, The Artemis Top 50 charted over 100 high potential start-ups.  We are waiting to see the first Checkpoint of water tech spark a new age of leadership in water.

Two questions that tell us when the time has come for high-tech water

Water technology is destined to be one of the great tech investment opportunities of the next decade. With a limited amount of water on earth, the population continues to grow while businesses develop.  Investing in water is emerging as one of the most promising real assets for investment.

But early-stage investments in water technology start-ups to date have not reflected that promise.  Recent analysis by Bessemer Venture Partners showed that of 183 firms that had invested in water, all but 31 did not make an additional investment, and only seven made more than two investments.  Historically, water has accounted for only 2-5% of overall cleantech investments. The few water tech investments that have been made have yet to yield venture quality returns.

The best venture investments were made when technology markets have looked as water does today.  Water services are highly regulated.  The business of water is dominated by a few behemoths.  Major customers choose the most well proven solutions and work with the same service firms that they have worked with for decades.

Similarly, twenty years ago telephony meant a landline, not a diverse industry of wide-ranging options, from cellular and Voice Over IP to satellite.  Before the communications revolution, “messaging” was done by fax or the US Postal Service.

The trick for early-stage investors is to identify the moment in which technology can bring about a new era of water management.

In five years, venture capital history will tell of a few visionary investors who identified the right technology at the right time in the market.  The best investors are asking two questions to define whether now is the time for the future water tech leaders to emerge, and where the critical opportunities lie to drive start-up success.

1)    What recent scientific or engineering breakthroughs have redefined how well a technology solution can tackle critical problems?

Some examples are new polymers for selective absorption of pathogens, hydro fracturing, which has made significant domestic shale gas reserves economical for drilling, new chemical/pathogen detection capabilities that are driving to new regulation.

 

2) What market forces are changing to raise the value of a tech solution?

In the past few months, water scarcity, pollution and infrastructure breakdown have been forcing the most conservative water users to seek out innovative approaches.

Even Texas is limiting the amount of water for drilling for oil, or “Texas Tea” so that it provide water for its citizens.

 

A pioneer’s view of the frontier

Each year since 2009, the Artemis Water Tech Top 50 Review has identified 50 companies that show the promise of water tech.  Quite of few of them have already emerged from product launch to raise capital, close partnerships and install at their first customers.  The Artemis Review looks at a worldwide pool companies that are selling their first products, with the eye of an early stage investor.  We apply an evaluation process that has evolved since 2009 to identify the early signs of winning solutions in terms of their value when applied in the field as well as the team standing behind it.

This year, 800 companies from 20 countries applied for the Artemis Review, and 125 were selected for full examination.

Through this analysis, we get an early view of the tech companies that will emerge in the next few years.  The Artemis Review has not missed any of the companies that have emerged in water tech.  Several of the most promising companies have won major projects with influential municipal and industrial customers and have been generating results for months or even years.  Over the next few months, we expect that the 2012 companies will be publicizing successes that will position them as the early leaders in water tech.

Here is a view of the market that is just emerging from under the radar.

What we are seeing
Let’s start with what we are not seeing.  During the 2012 Artemis Top 50, we didn’t see membranes or nanotechnology, with the exception of one of the shining stars of water tech, NanoH2O.  Innovation in these areas seems to require so much research and development that only the large corporations can support them.

Emerging Trends
Waste water mining:  In this first wave of IP-intensive solutions from independent companies, start-ups offering resource recovery solutions take the forefront.

It’s becoming more expensive to dispose of the “garbage” of water treatment.  Many places, like China or Switzerland, are down to a small amount of precious space to dispose of waste. Harvesting useful products from waste cuts the cost of disposal, generates valuable materials, and makes water treatment cheaper. The early leaders are extracting phosphorus, energy, lithium and hydrochloric acid (HCl).  (See a future post for more detail.)

 

These technologies are valuable for a diverse group of industries.  The Artemis Review shows the value of deep understanding of different industries. If the leading water executives on the Artemis jury look at one of these solutions in depth, they often identify situations where they can provide dramatic benefits.

Alternatives to filtering and chemicals
Today, filtering and chemical treatment are the dominant approaches to water treatment around the world.  Rather than making small improvements to these processes, some of the most promising start-ups have developed approaches that replace or complement filtering and chemicals.

 

For example,

  • New Sky Energy’s selective ion recovery system isolates and solidifies the salts in water treatment waste streams to harvest useful chemicals and simplify water treatment.
  • Atlantis’ capacitive deionization removes salts and minerals by applying an electric field between two electrodes.
  • Saltworks—concentrates the salts in waste water and uses their chemistry to drive an electrochemical device to treat the water

Energy Efficiency
Saving energy is another sweet spot for innovation.  Water treatment accounts for a large chunk of industrial operations.  As saving energy has gained focus, big water users are looking to new, but proven approaches to change the picture.

 

Some sweet spots are

  • Desalination: Desalitech– a continuous, closed-circuit desalination process that operates on the basis of relatively low average feed pressures
  • Water treatment facilities: Derceto in optimizing the overall management of water treatment plants

Smart Grid
As our centralized water system breaks down, making the system smarter with sensors and network management tools provides dramatic benefits:

  • Takadu—predicting pipe break down to drive pipe and pump repair
  • Hydropoint—water use management in the built environment
  • Aquacue–wirelessly linked cloud-based information management of water throughout the delivery system

The Artemis Top 50 Review goes beyond looking at technologies to gauge the potential for the start-up companies behind them.  The structure of each market segment is also critical for the success of a young water company.

The tech trends above reflect the future of the water business.  Watch for these companies, and the rest on the 2012 Artemis Top 50, to emerge as the leaders in a new wave of tech success stories.

CONTACT

info@theartemisproject.com
+1-415-751-0100
1016 Lincoln Blvd., The Presidio,
San Francisco, California 94129

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