International Water Week (Part 2)
In our previous post on International Water Week we summarised the talk from the Chair of the American Water Works Association International Council, Mr John Batten.
If that session implied opportunity in the US water sector, the very next talk by David Henderson, Managing Director of XPV Capital Corporation, went a long way to confirming it. Billed as a discussion of “trends in water investments”, David’s talk was effectively a dissection of the “perfect storm” scenario for investors that he sees occurring in the water industry right now.
Insightfully comparing it to a previous hyper-growth example, the telecoms boom of the 1990s, he opened by explaining that the traditional view of water investments (that the industry is too heavily regulated, suppliers can’t charge enough for water, and long sales cycles strangle growth) are outdated. The telecoms industry, prior to its explosive growth, saw external factors affecting it that many “industry elders” were unaware of at the time, but that led to huge upheaval and a revolution in the sector. David sees a similar trend now in the water industry.
First of all, water consumption as an environmental issue is entering the public consciousness unlike ever before. The US television show “Oprah” featured a whole segment on water recently, and David light-heartedly cited his own wife’s subsequent conversion into a “water conservation Nazi” as an indication of a “tipping point” in public opinion.
Secondly, the shift from a compliance-driven to an economics-driven model is creating a more viable landscape for profitable investment. David described the evolution from a 1990s landscape full of “mid-market” companies, to today’s environment more dominated by both large players and innovative startups, a structure favourable to venture capital investment, and one that he expects to be maintained and expanded in the coming decade. David says that this evolution is evidenced by his own company’s research: he and his colleagues have scoured the internet to track the career paths of the founders of previous mid-market companies, and found that many are now based in small, dynamic startups aiming to create the next big thing.
That led nicely to his next point – that a new generation of people are about to shape the industry. A generation of tech-savy engineers, ready to embrace technology to solve existing problems. Joined by the “second time innovators” mentioned above, and the entrepreneurs from other industries whom he has started to witness entering the sector, that trend implies big changes to come.
Finally, David highlighted a quiet but compelling phenomenon: the movement of new entrants into the market. IBM is entering the water industry to provide data analytics solutions. GE has a dominant presence. Newer initiatives such as The City of Scottsdale Water Campus and the Imagine H2O prize indicate an increasing focus on innovation. There’s also a host of VC backed companies with the potential to disrupt. And renowned investors are joining them too. Vinod Khosla has a handful of water investments. Google is taking an interest. David is in little doubt that a quiet revolution is occurring.