California is US capital of water VC – report

California, locked in a drought that will cost it an estimated $2.74 billion this year, is the top US destination for water-management venture capital, according to a report by California non-profit group, Next 10.

Last year saw the largest-ever venture capital investment in water companies. Californian enterprises received $97 million in venture capital funding in 2014, 38 percent of the total for the entire US.

“Necessity is the mother of invention and we have some very big challenges here when it comes to water,” Next 10 founder’s Noel Perry told Agri Investor. “I think for an entrepreneur in California there’s great promise in innovations that allow farmers to grow more crops per gallon of water or acre-foot of water.”

Investments in California’s water crisis today could eventually spread globally. According to the report, reducing municipal water leakage and improving irrigation techniques represent a combined $282 billion market opportunity worldwide over the next 15 years.

California has led the US in water venture capital investment for the last five years. The state also leads the US in patents for water technology, more than doubling the number filed in drought-stricken Texas.

Much of the progress has been achieved in urban areas, but the percentage of California farms using low volume irrigation methods has doubled to 38 percent, since 1991.

“A lot of this innovation is about moving from broad irrigation to more precise irrigation systems,” chief executive of Collaborative Economics, Doug Henton, told Agri Investor.

Perry said that financial returns will be a key to maintaining and growing investor interest in California water tech. He likens the current interest in water tech to the emergence of clean tech as a venture capital favourite a decade ago.

“At the beginning of the cleantech craze, you saw a ton of venture capital racing to get into cleantech, and they wound up finding that it was going to take more than ten years before they saw a return, or it required more money than developing software in a garage,” he said. “A lot of them did not make money.”

Among California’s venture capital success stories in water management is high-efficiency desalination company, Nano H20, which reportedly brought good returns to investors like Total Energy Ventures and BASF Venture Capital when it sold to South Korean conglomerate LG last year for $200 million.