Moving Water into the Climate Tech Circle of Competence
It’s odd that a sector with well over $1 trillion in annual capital and operating expenditure that underpins all life on earth is referred to as a “niche.” When we say our mission is to find, fund and support the best entrepreneurs in water globally, that’s what we hear. “Oh, cool niche!”
In the context of climate funding, it is a niche. By our estimates, no more than $1.2 billion of venture funding has gone into water out of the $70 billion or so that went into climate venture in the last 2 years. If you take Gradiant and Source out of the equation, the numbers reduce by 40% to a total of $740 million. Investors haven’t included water in the avalanche of venture dollars going to climate tech.
The claim is that water is too hard. Too heavy, too regulated, too cheap, too long, too hardtech, too fundamental-human-right. It is hard - but so are lots of other verticals (hello energy, space tech, healthcare etc). The difference is that there are far more investors with experience of those other hard fields, that have the esoteria within their circles of competence. There are no water specialists in today’s specialist climate funds (we know, because we get calls from them all the time). If you don’t have a sector in your circle of competence, you’re rightly going to bias your investments to areas that are in that circle - storage, generation, hydrogen, mobility, fusion, CDR. Water goes on the “too hard” pile, because no-one has the time or inclination to move it into the circle. All investing is hard, and water is no different. We just have it right at the center of our circle of competence.
It would be sensible for that to change. I’ll highlight three basic issues, but the list is endless. First, there is a basic mismatch of supply and demand. Globally, a 40% shortfall is projected by 2030, with 5 billion people affected by drought by 2050. Second, urban water demand is expected to increase 80% by 2050, when about 70% of the population will live in cities. This is in the context of sea level rise which will increase the salinity of coastal aquifers upon which 60% of those cities will rely. Third, addressing these issues and others presents a massive economic opportunity.
In the global north, water and wastewater infrastructure has aged out. US upgrades are a $744 billion job by 2032. In much of the global south it needs installing for the first time. This is a global effort for everything from pipes, pumps and sensors, to an entire universe of software (design, control, security, monitoring, efficiency, quality, management, dispatch, emergency response). Everyone on earth needs to do more with less water. Including growing food.
The dynamics are even more pronounced in the context of climate change. Climate change is water change. From floods, to rising sea levels, to droughts, groundwater abstraction - everything points to tailwinds to improved solutions for everything from stormwater management to agricultural irrigation to enabling the energy transition (no water, no mining, semiconductors, or hydrogen).
Water also has impact built in. Even the most voracious capitalist could see the benefit of being able to profit while increasing global society’s resilience. This includes opening up new markets of people who can aim their efforts at more productive things now they don’t have to take care of their water needs each and every morning - or are no longer sick, dying, or dead as a result of inadequate water and sanitation. Unless you’re going all Quantum of Solace and looking to corner water rights, water investment is impact investment.
For us, as water specialists, it’s quite useful being overlooked. We are insulated from VC market whipsaw effects, we don’t participate in exuberance (because there isn’t any - yet). But this is both a huge opportunity and fundamental requirement in the context of climate resilience. If we don’t get water right, nothing else matters. We are not running enough experiments in water to get it right.
This is a $1 trillion market that is going to get relentlessly bigger. There are way more smart people starting companies than informed capital to fund them. You’re insulated from competition in more crowded sectors, and from market cycles. You get to feel good while investing in it. It’s the one commodity literally every human on earth can’t do without. What’s not to like?
*This article was originally published under the title “It’s Time for Serious Capital to Flow to Water” on the ImpactAssets blog available here
