This is an extract from the LEIF Brief on Water Innovation in Oil and Gas, in association with Global Corporate Venturing, which will be presented on October 15th at a round table event in London, and published soon thereafter by Global Corporate Venturing. Click here to download an executive summary of the LEIF Brief, which is sponsored by Veolia.
If you’re an innovator or an investor in this area and you’d like to contribute to the LEIF Brief, sponsor it and /or attend the round-table, please contact firstname.lastname@example.org
Will we ever see a billion dollar water-tech start-up? In the ICT sector, they’re all the rage. Corporate venture capitalists and policy-makers drool and fret over how to find and cultivate the next Airbnb, Pinterest and Waze.
But in water, the billion dollar start-up will be harder to come by. Patience is required. That’s because you can’t download water-tech. Notwithstanding brilliant innovation in software-enabled smart water grids, water remains, like energy, a stubbornly non-digital and capital-intensive business.
In comparison to ICT, growth in new water-tech businesses is inevitably slower, much slower. Many of the water-tech ‘start-ups’ in this report have been established for over a decade. In water-tech you’re still a start-up aged ten. In ICT, you’re ancient.
The water-tech company which has come closest to the billion dollar mark over the last decade is Zenon, a Canadian advanced membrane business sold to GE in 2006 for $656m. Established in 1980, it took 26 years to reach annual revenues of more than $200m; slow, but impressive growth.
At the time of writing, the best water-tech exit in 2014 is NanoH2O, a high efficiency desalination business which began life in 2005 as a humble Standford University spin-out. The venture unit of French energy giant Total invested in the company in its development and growth stages and was among the happy shareholders when it was sold to the South Korean conglomerate LG in the spring of 2014 for $200m. Veolia was an early partner to NanoH2O, qualifying its membranes by means of pilot plants in the Middle East, the Mediterranean and Australia.
Oil and gas is one of the fastest growing markets for high efficiency desalination businesses like NanoH2O. So its impressive exit only increases water-tech’s focus on the oil and gas industry, which is seen as a high growth market compensating for the doldrums of municipal water.
The water technology needs of the oil and gas majors are certainly growing as they move into more water scarce regions, expand into unconventional resources such as shale gas, oil sands, coal-to-X (which are much more water-intensive), and as new regulations are introduced on their treatment of waste water.
The cost of finding water for use in extraction and for treating waste waters after extraction is increasingly determining the profitability of established oil and gas fields and the feasibility of new ones. Moreover, water is highly political. It has become the new stick with which non-governmental organisations and campaigners will try to hit the oil and gas industry.
“I can see that the oil and gas industry is going to be a lot more creative in the way in which it handles water in future, compared to the way it has in the past”, says Christopher Gasson, publisher of GWI.
He adds: “Produced water volumes are rising, but the logistics of disposal are not becoming easier. The potential to increase production through altering the chemistry of the water used for flood is becoming more apparent. Growing water scarcity, together with the improved efficiency of water technologies, is making it more economic to consider beneficial uses of produced water. It seems inevitable that the creativity required in the oil and gas industry, together with the money available as a result of high energy prices, means that produced water is going to attract the best technology and talent from across the water sector in the coming years.”
But how will this translate into water-tech growth? Which of the water-tech companies listed in the transaction report below are the next Zenon or NanoH2O? Which could become the first billion dollar water-tech start-up?