Welcome back to Deep Tech Catalyst, the channel by
where science meets venture!Today, we're thrilled to welcome Peter Ullrich, COO at EverBlue Ventures, the venture capital fund collaborating with the HydroDAO network!
Understanding the journey from lab to market in water tech is crucial for founders to deliver impactful innovation in the water industry.
Navigating this complex industry often means overcoming challenges like regulatory hurdles, scaling from pilot phases to market adoption, and exploring diverse investment landscapes.
This episode aims to give you the essentials for connecting effectively with the sector.
In detail, you will learn:
💧 Framing the Water Industry
🎯 Investment and Market Validation in Water Tech
📈 Challenges of Scaling in Watertech
🌊 Regulatory Impact on Water Tech
🚀 Startup Case Studies in Water Tech
🎧 Prefer to Listen?
KEY INSIGHTS FROM THE EPISODE
💧Framing the Water Industry
There are different definitions of the water industry. Some investors keep it narrow, focusing only on utilities, wastewater, and drinking water, while others expand it to include peripheral fields like agriculture, energy, and other industries.
Investment Categories in Water Tech
Within these broad definitions, many watertech startups or investments typically fall into similar categories, and investors examine how a watertech project can positively impact a customer's bottom line, prioritizing enhancements that improve efficiency and reduce risks. Let's overview the main areas schematically:
Water Processing Stages
Measurement: Identifying water contaminants like lead, E. coli, bacteria, and viruses.
Removal: Utilizing technologies such as improved membranes or granulated carbon to absorb contaminants.
Destruction and Transportation: Handling and transporting contaminants, often to landfills.
Creation of New Water Sources
Desalination: a process that removes mineral components from saline water.
Atmospheric Water Generation: Extracting water from the atmosphere, similar to rainmaking.
Software and Machine Learning
Efficiency Enhancement: Employing AI to optimize water use and maintenance processes, and to predict and prevent failures.
🎯 Market Validation in Water Tech
There are complex dynamics between initial innovation, pilot testing, scaling, and financial planning within the water tech industry. Classic indicators are:
Customer Base: The breadth and loyalty of the customer base.
Feedback: Quality and quantity of customer feedback, which guides iterative improvements.
Revenue Streams: Stability and growth of revenue streams.
Pilot Programs: Frequency and outcomes of pilot studies, which demonstrate product efficacy and market readiness.
“Piloted to Death”
In the water sector, securing multiple customers in various parts of the world or within a country is crucial. However, the path to achieving this can vary significantly due to the heterogeneous technologies in water tech.
Many water purification or contaminant companies face high capital expenditures initially, such as producing a shipping container with their product, which could cost several million dollars just to create a full-scale pilot. Meanwhile, software companies, like those offering SaaS as part of utilities' software programs, can scale up much quicker without having to produce hardware.
Regardless, there's a classic issue where companies are "piloted to death."
Many companies secure pilot studies through a university, utility, or company, demonstrating that their product is effective and works better than the currently used systems.
They may secure several pilots, possibly spanning several years, yet, especially in water and utilities, there is often a significant cost difference in what they're offering. It might be highly effective, but utilities often have limited budgets, and even large industry users are reluctant to pay much extra for something not mandated by regulations.
So, many companies struggle to transition from having numerous pilots to securing partnerships and customers where they have multi-year deals.
5 Tips to Overcome the 'Pilot Trap'
Long-Term Partnerships: Establishing multi-year domestic and international collaborations for sustained growth and success.
Tech Advancement and Cost Management: Balancing technological innovation with competitive pricing to drive widespread adoption.
Market Alignment: Matching costs with market expectations, particularly in environments with static regulatory frameworks.
Strategic Planning and Scaling: Securing capital or strategic partnerships early on, planning investment rounds carefully, and transitioning from the pilot phase to full market launch at the optimal time.
Attractive Investment Structures: Designing pilot agreements with clauses for partnership transitions based on successful outcomes, making investments more appealing with clear paths to ROI.
🌊 Regulatory Considerations in the Water Industry
Regulations prevent poisoning consumers, which is fundamental. However, there’s also the fear of losing customers if products fail to meet safety standards, particularly in consumer-facing water solutions.
This caution slows down innovation adoption by utilities due to the critical nature of water management.
Utilities rely on user consumption for revenue, despite the low cost of water in the US. This dependency underscores their cautious approach to adopting new technologies. Any misstep can result in reduced consumer trust and usage, impacting their financial viability.
Impact of Regulatory Changes: A Case Study
Regulatory changes, such as potentially stricter limits on PFAS (Per- and polyfluoroalkyl substances), can significantly alter market dynamics.
Current regulations often allow cheaper disposal methods like landfilling. Stricter rules could drive demand for technologies that remove or destroy contaminants, creating new market opportunities.
Keeping abreast of regulatory changes is crucial for investors and advocates alike. Tighter regulations not only enhance environmental and health outcomes but also present financial opportunities by driving demand for compliant technologies.
To sum up, here are 2 concepts to keep in mind:
Timing Considerations: Regulations typically precede pilot tests in the water industry. Companies must anticipate and adapt to evolving regulatory landscapes to align their innovations with future compliance requirements. For instance, anticipating changes in PFAS regulations can influence technology development timelines.
Cost Implications: Compliance with new regulations often entails significant costs. For instance, developing and implementing technologies for PFAS removal can involve substantial capital investments. Understanding these cost dynamics early in the innovation process is crucial for strategic planning and investor engagement.
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