You may be familiar with the term FANG stocks, a term coined by Jim Cramer on CNBC’s Mad Money to describe the four biggest tech giants in terms of stock valuations: Facebook, Amazon, Netflix and Google. At BlueTech we took this concept, applied it to water, and flipped it around, asking: which are the ‘big four’ investors in water tech? Well, based on what we would say are the four mostly commonly-mentioned and visible water investors, they would be True North Venture Partners, Emerald Technology Ventures, XPV Water Partners and Skion – the TEXS group.
However, as ever within the water sector in general, the picture is more complex and fragmented than it appears to be at first glance. Our data reveals that in the time period studied, 158 individual investors were involved in 320 deals in water – and of those 320 investments, only 34 involved a member of the TEXS group, or around 10%. In other words, in nine times out of 10, water technology companies were likely to receive investment from groups other than those top four!
There are many investors out there who choose to make one or two investments in water. In fact in many cases, they are simply investing in good businesses that are local to their offices.
As part of the clean tech wave, the period from 2007 to 2014, we saw a lot of the big VC houses such as Vantage Point, Kleiner Perkins, Khosla Ventures and DFJ all make one, in some cases two, investments in water. Vantage Point invested into Ostara, DFJ in Oasys Water and Water Smart, Kleiner Perkins into APT Water and Khosla in Calera. The only link between these investments was that they all had something to do with water and no successful exits. As a result we saw a lot of bigger groups back away from the water sector.
In the meantime, those that have stayed in water have learned and adapted. When Charles Darwin was beginning to form his theory of evolution in the Galapagos Islands, he noticed the finches on each of the small islands were slightly different from one another in a variety of ways – some hard sharp beaks, others had long beaks, and so on. Like the finches, the TEXS group have diverged from one another over the years and have all found their own niche.As Darwin said: “It is not the strongest of the species that survives, not the most intelligent that survives. It is the one that is the most adaptable to change”. The True North strategy for example, is to keep its chicks in the nest for as long as possible until they’ve fully grown. In fact, the “chicks” may never leave the nest or exit, but that doesn’t matter because they’ve grown to be big and profitable entities. An example would be True North’s investment in ceramic membrane specialist Nanostone in 2012, which is very much a longer-term disruptive technology play.
Emerald Technology Ventures, meanwhile, has had three successful water exits in the last seven years, which is a very good track record. The last two have been in digital or smart water (Pure Technologies and Optimatics) and they seem to be leaning into this area, which has been quite effective for them.
XPV is now much more of a growth equity fund, whereas in its first fund, established in 2010, they were more of a pure technology VC investor. This is particularly evident with XPV’s purpose-built nutrient platform called Nexom for example, which combined Blue Water Technologies and Nelson Environmental within the last two years. XPV has similar stables of companies clustered around other themes like digital/ IOT and decentralised treatment.
German investor Skion tends to buy and hold onto quite large companies. Perhaps due to owner Suzanne Klatten’s BMW heritage, the company has built a portfolio of companies which are solid, reliable and continually innovating, such as Paques, and adds in different technology companies in a complementary fashion. Skion’s involvement with Ovivo and Paques certainly ticks those boxes.
So, who are the investors behind the other 90% of non-TEXS deals? The majority includes strategic corporate investors such as Suez ventures, Dow ventures, Saudi Aramco Energy Ventures, Asahi Kasei and Kurita Water Industries. Just in the last two years we have seen Dow and Saudi Aramco Energy Ventures invest into Oxymem, Kurita invest into Apana and Fracta Inc and Asahi Kasei invest into UV-LED company Crystal IS and Axine Water Technologies. Suez Ventures (formerly Blue Orange), invested into Optimatics, and subsequently acquired them and many other companies including biogas upgrading specialist PRODEVAL in 2016.
In addition to those larger corporate investors, there are myriads of others. Some will be local funds in a particular country or state which are looking for a good investment rather than having a conscious strategy to invest in water. The other lesser known type are family-run firms which are generally less visible and don’t advertise widely. One example would be Apsara Capital, a UK-based investment firm with a focus on water with investments made into Puralytics, Valor Water Smart and AquaSpy.
The key message here for early stage start-up companies, then seems to be: broaden your horizons, and be aware that many of your potential investors may not be who you first expect; it may include corporates, family offices or other investors you may not be familiar with.
Again as with the Darwin’s finches, the success of investors in water is linked not to being the biggest or strongest out there, but to focussing their efforts on their own particular niche in the investment ecosystem.
For more information surrounding investment opportunities, key research highlights, and opportunities to watch in 2019, register for our End of Year Water Almanac webinar today.