Despite water’s trillion dollar, universally vital industry, investments only represent 1 per cent of climate tech total. It’s time to get water’s story out there, writes investor Tom Ferguson.
Good water companies are getting funded
Water is useful to investors in that it tends to be insulated from the vagaries of the funding market elsewhere. For example, there was about $100 million in water deals closed in Q1, according to GWI.
Given this is about 1% of the climate tech total as it was in 2022, it’s not surprising to us that things appear to be holding up reasonably well.
Water is only getting more obvious, and good companies are getting funded.
However, Q1 of 2023 has not been kind to the venture market. Previously in rude health, early stage climate tech investment space has retrenched in the same way all other venture has, taking in $11.2 billion in volume, on track for 2023 to be about 50% of 2022 volumes.
In the past months from our portfolio alone, Irrigreen successfully raised a $7 million Series A, Beagle Services raised a $4.25 million Seed, Aquafortus completed a $17 million Series A, and Civilgrid Completed its Seed raise.
“Why the hell doesn’t the gallon get the same support as the kWh?”
The later stage funding market is distinctly unfriendly. Series B rounds were down 30 per cent in 2022, and Series C down 45 percent by number of deals. Valuations are being cut proportionately.
As we say, in water the best time to raise a Series B is when you don't need it. It's a very wise idea to get to the first dollar of free cash flow before looking for major growth funding. But the main job for water founders doesn't change: focus on building good companies with good unit economics solving real customer pain points and good things will happen.
Making water’ story obvious
The question on our minds is around increasing the volume of capital that’s available to water entrepreneurs. We have to make sure that the water story globally is unbelievably obvious. Those of us inside it know that water is a trillion dollar, universally vital, and unidirectionally growing industry. But that message isn't filtering into the broader funding markets.
Government signals are vital. We're paying attention to government action, with the fundamental question of “why the hell doesn't the gallon get the same support as the kWh?” The sad truth is that there isn't the political appetite to do anything major. At the recent UN Water Week in New York, there was a large and justified frustration at the lack of political participation.
It’s not great that the people with ability to change the economics of water, and thereby the economics and velocity of climate adaptation, were absent from the event. But there were positives, not least the number and range of people there, an $11 billion innovation investment commitment, and that after 40 years it was happening at all under the auspices of the UN.
We have to start somewhere, and maybe, just maybe, this might be the start of a global mass movement around water in the same way we have seen in the mass mobilization around climate in the past decade.
Tom Ferguson is the founder of Burnt Island Ventures.