Is Water the Next Big VC Opportunity?

If you look at some of the recent comings and goings by the VC community in Silicon Valley, there’s a new investment darling in town: alternative energy.

While not to suggest the VCs will abandon the wonderful world of Web 2.0, it is a sign that alternative energy has become a lot more interesting from an investment perspective amid growing interest in the environment and climate change (aka global warming). Even Google is jumping into the alternative energy game with an aggressive R&D and investment strategy.

So, you can expect to hear a lot more news about solar, geothermal and wind power in the coming months. (For an in-depth look at what’s happening in this market, check out Tyler Hamilton’s blog)

If Web 2.0 is kind of passe, and alternative energy is the flavor of the day, let’s look into crystal balls and see what’s next in terms of the next, big technology investment opportunity.

I’ll argue that water will – or should – emerge as the next hot idea.

The lack of water in many areas around the world, including many areas in the southern U.S., is becoming a bigger concern. The water levels in major lakes are declining in alarming ways, rivers are dwindling from a roar to a trickle, and wells are drying up. According to the World Health Organization, one billion people around the world lack access to clean, safe water.

You can point fingers at climate change, booming population growth, aging infrastructure and a lack of conservation efforts but the bottom line is we’re facing a water crisis in many places around the world.

One solution is tapping places that have a lot of water – many U.S. status already have their eyes on Canada’s abundant water supplies. But this doesn’t really address the problem. We need to look at real solutions such as water purification/desaltification, remediation, water conservation, infrastructure, billing/metering, etc.

This is where technology and, hopefully, VC investments could come into play.

More: I stumbled upon this great quote from a 2005 San Jose Mercury News story on investments in water. “Water is the oil of the 21st century,” said Ira Ehrenpreis, an investor with Technology Partners, who is also eager to invest in water start-ups. “There is such a huge demand, and finite supply.” As well, check out this Cleantech blog post called “The Trouble with Water”.

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  • Duncan

    Hi Mark,

    Not to rain on your parade (pun intended) but I want to challenge you a bit on calling water the next hot idea.

    As you know, I work with Deloitte and helped out on their Green15 initiative in Canada…plus I have a column on Green investing for CBC radio.

    I 100% agree that VCs are chasing Clean Tech — and that water investing will (in various forms) be a big part of their strategy. As will emission and carbon-reducing investments, as will cleaning up soil and so forth. All of those markets are important and will attract significant dollars/euros.

    But (and I’m not saying this is a good thing) Western society does put a lot of ECONOMIC value in front of clean water, clean air, clean soil. Think about some common cliches: “free as the air”, “spend like water” and “cheap as dirt.”

    On the other hand, ENERGY is a huge market – making it, storing it, transporting it, using it, conserving it. The global energy economy is measured in the tens of trillions of dollars per year, and solutions that address that market are much more attractive to VCs than the intriguing but smaller air/earth/water markets.

    Early VC data supports that idea — last quarter global investing in cleantech was about $1.7 billion, of which 70% went to energy. That pattern isn’t likely to change soon.

    Water will matter — global warming and melting glaciers say so. It needs investment and it will receive it…and Canada (home of former water purification star companies like Trojan and Zenon) is likely to be a global leader in innovation as well as a global leader in fresh water supplies.

    But it looks unlikely to be the biggest clean tech niche.