Water sector investment opportunities: a venture capital perspective
What opportunities does the water sector present to investors, and how can technology companies best tap into their interest? Nityen Lal of Icos Capital provides an insight.
As an established investor in water-related technology companies, Nityen Lal, General Partner and CEO at Netherlands-based investment company Icos Capital, is able to demonstrate a commitment to the sector. Companies backed by Icos Capital include Dutch Rainmaker, Metal Membranes and BiAqua. "We are one of the largest investors in the water early stage venture area," he notes.
That involvement in fact follows on from the broader strategy of the company, which invests across the cleantech spectrum. "The biggest driver in the market is the environment and human well-being," says Lal. Water scarcity forms part of this, but so too do the key areas of energy efficiency and carbon footprint reduction, which are not unique to the water sector, he explains.
Lal is also able to see the water sector in a wider context as far as the hopes and expectations of the investors whose capital he manages are concerned. "When we go to raise money for our funds, we are competing also with the bigger IT funds or biotech funds, which are making a lot of money," he says. This context shapes his goals for any water sector investment. "We are looking for companies with aggressive growth possibilities," he adds.
Clearly Lal believes that the water sector can offer such opportunities, but he does not expect these to come from companies focused only on the water utility market. Such end users tend to be risk averse and often each want to run their own trials that may extend over a number of years, he explains. Lal points instead to the water technology interests of industries such as chemicals, oil & gas, and food. These can each present opportunties for filtration and separation technologies, for example. "Technology that becomes applicable in many different sectors is more interesting to us because then you have a bigger market opportunity," he says, adding: "My message would be to go for multi-sector application technologies and focus on a quicker time to market, rather than waiting five to ten years before you actually have the revenue."
"The second thing is that if you really want to hit the market then you have to have a customised opportunity for Asian markets," adds Lal. "They have their own unique issues," he says, pointing for example to the potential of decentralised technologies because of the lack of infrastructure across the region. Lal notes for example the technology of Dutch Rainmaker, which extracts water from air. He describes this as "very interesting, very disruptive" and explains that, while there is limited potential for this in Europe or the US where infrastructure is in place, the lack of such infrastructure in Asia and indeed Africa means there are substantial long term prospects. "We see that over time we can make good returns," he says.
Lal also points to the potential for water technology companies to capitalise on data-based developments, including opportunities in the water utility market. "Big data and water is another area which can enable better results, better customer services, and perhaps more ways to make money for these companies," he says.