Upwell Water’s $1 billion specialty platform will include mechanisms that will allow funds to monetize water assets upfront, said its chief executive.
The firm plans to apply leverage to capital raised from financial backers to deploy $1 billion in support of water-focused investments that include treatment plants, equipment, pipelines and water rights, targeted at a range of water-dependent stakeholders.
“We didn’t imagine Upwell Water and then try to push it on potential partners,” Upwell Water founder and chief executive Tamin Pechet told Agri Investor. “Potential partners kept coming to our team and saying: ‘We need capital to do X’, or ‘Is there a way to monetize our water-related assets to free up money to do Y?’ Each of the solutions we’ve discussed is in response to something that stakeholders asked for.”
Upwell Water is headquartered in San Francisco and was established in 2014 by Upwell LLC, a holding company that invests in and creates purpose-driven businesses. Upwell Water company received an investment of an undisclosed size from the 2040 Foundation’s 2040 Fund in late 2019, as well as from its founder, the former audio video industry executive Jay Faison.
And in July this year, New York-headquartered Crestview Partners made an investment into Upwell Water. Pechet, whose previous experience includes time with Goldman Sachs’ special situations unit and several water-focused ventures, declined to detail the mid-market private equity firm’s investment beyond identifying it as a “multi-hundred million dollar” transaction.
For companies in the food and beverage industry, Pechet said, Upwell Water’s plans include financing new water-related assets and provision of agreements modeled on power purchasing contracts used in electricity markets. This will allow customers to effectively pay for water or wastewater treatment as a service without having to own equipment directly.
For large-scale agricultural producers, Upwell Water plans to finance the purchase, leasing and structured financing of physical water and contractual water rights, water wells and irrigation-related equipment, said Pechet. The firm also expects to support the purchase of water wells in exchange for agreements to charge existing owners volumetrically for the water that is withdrawn and offer mechanisms that will allow investment funds to monetize owned water assets upfront.
The deployment of sensors and controllers to increase efficiency, as well as metering and monitoring equipment to enable regulatory compliance, are also among potential investment types Upwell Water will finance, he added. Pechet said it will also consider supporting the waste side of agricultural processes through loans for anaerobic digesters and approaches to managing groundwater run-off.
The firm plans to pursue a global strategy that Pechet said could include investments in Australia, South America or other markets in addition to the US. State-level regulation, said Pechet, is often a key driver for increased focus on efficiency and changes in behavior by water rights users.
“Within the US, we do see more dealflow from states that have, and expect to experience, greater degrees of water stress, which tend to look like the Sun Belt. Specifically, states like California, Colorado, Arizona, Texas and Florida.”
The solar industry provides a model, according to Pechet, for how water financing could evolve during the years ahead, when he expects pressure on resources will require an intensive effort by capital markets to facilitate increased efficiency. That development, he said, will likely influence the slate of investors active in water-focused strategies.
“Over the course of [the past] decade or so, as the financial markets better understood the asset class, more large, long-term orientated investors found ways to participate as they realized that the system worked and the risk was more tolerable than they would have thought a decade prior,” Pechet said of the solar industry. “I would expect that same pattern to emerge in water.”