Like Water for VC

Here are two great insights on VC generally and Water specifically.

First from Lux Research’s Heather Landis from their Lux Populi blog:

“Fifteen years ago, if you asked Asit Biswas if he believed there was a global water crisis, he would have answered “Yes.” Now, however, the Stockholm Prize winning water researcher says he believes the water crisis is indeed a myth. Biswas made his statement in a lecture at the 2009 Nobel Conference held at Gustavus Adolphus College last October.

While there are notable books on the subject of global water scarcity, including those authored by fellow speaker Peter Gleick, Asit pointed out that he doesn’t see a world water crisis caused by physical water scarcity, but by water management – or rather, a lack of water management.

Asit believes that there is indeed enough water to go around as long as people manage their water better. In his talk he highlighted the fact that 70% of the world’s water is used for agriculture - therefore, inefficiencies in the food chain are also a major drain on water resources. According to Asit, food waste is extremely high, with the USDA reporting that 27% of food in the U.S. goes to waste, while in India 50% of fruits and vegetables and 33% of all cereal grains never make it to the consumer. Asit noted getting food to the people and minimizing waste is one way to increase food availability without the need for additional water. His idea extends to the domestic side as well, where water leaking from distribution pipes is commonplace around the world.

Water efficiency and management is a cornerstone to many of Lux Research’s water reports, most notably the recent reports published on agriculture and water IT. In the Lux Research report entitled “Malthus Returns: Solving the Unsustainable Agricultural Water Demand Conundrum” (client registration required), we highlight the fact that it’s impossible to recapture an appreciable amount of water evaporating from agricultural regions. The only option left to agriculture is to increase water efficiency through technologies such as drip irrigation provided by Netafim and John Deere Irrigation; smart irrigation systems provided by Hydropoint and PureSense; and practices such as increasing crop yields and reducing the volume of water needed.

Improving water efficiency on the domestic side is addressed in the Lux Research report “Ranking Water Information Technologies on the Lux Innovation Grid” (client registration required). In the report, we highlight the fact that utilities, industries, consumers, and governments need to manage water more efficiently, and a basic solution to the water management problem is obtaining better information about water usage through information technologies provided by companies such as Derceto and Itron to minimize unaccounted-for water, reduce water consumption, minimize water pollution, and reduce energy consumption.

There are no fundamental issues that contribute solely to the water crisis. Water is indeed scarce in certain areas of the world where the population density is high, and it’s true that water efficiency and management are in dire need of improvement, as is the aging infrastructure. Improving water efficiency is an integral component to solving the water crisis, but there is also a need for increased funding of public water supplies as well as more investments in the hydrocosm to continue development of innovative water and energy-efficient treatment technologies. Finally, there’s a need for change in the mindset of how water is used and consumed. Not until all of these criteria are met will we truly see an end to the water crisis.

Now on VC:

The heyday for nanotech venture capital (VC) likely saw its peak in 2008, when overall investment reached $1.4 billion. Last year, the sector raised only $792 million, signifying a 42% decline from 2008. But while overall nano VC backing is down, it's not out, according to a new report from Lux Research. Investment in nano-driven healthcare and life sciences increased last year at the same rate that overall nanotech VC dropped -- 42%. These two segments attracted $404 million last year, and are likely to lead VC investments in nano for the near future.

Titled "2009 Nanotech Venture Capital: Healthcare and Life Sciences Provide Life Support," the report will help VCs, large corporations and start-ups understand what developments will drive VC investments in nanotech over the next few years, and where future funding will likely turn.

"Life sciences had been a big sector for nanotech VC early on, but energy and environmental deals grabbed the lead during the past several years," said Jurron Bradley, a senior analyst at Lux Research, and the report's lead author. "As deals in energy and environment dropped 69% last year, the life sciences and healthcare segments are back on top."

Drawing on its proprietary database comprising primary interviews with 1,000 start-ups and corporate players, Lux Research also spoke to 15 of the top VC firms that have invested in nanotech. The firm asked VCs whether funding would go up or down, and where the most activity would be. Among its key observations:

-- Reflecting global VC trends, nanotech funding fell 42% to $792 million in 2009. Despite the drop in overall value, the number of deals in 2009 actually increased slightly to 92, as VCs distributed the wealth more broadly. Specifically, they bid farewell to mega deals, slicing average deal size by 41% to $8.6 million.

-- Series D or later investments plunged 73% to $235 million. After a year of triple-digit investments in single companies, the Series D party ended in 2009. In contrast, Series B rounds surged 49% to $339 million and almost reached parity with Series C and later rounds, which collected $376 million. As in 2008, Series A walked away with the smallest portion at 7% or $56 million.

-- Most VCs expect near term funding to decrease or remain flat. Some 53% of VCs interviewed said they expected their peers would likely maintain existing portfolios rather than pursue new deals. Less than half of those interviewed predicted their investments would increase over the next two to three years.
Despite the gloomy outlook, nanotech will survive. While VCs play a crucial role in providing investments for early-stage companies and guiding them to exits, VC backing is only a small piece of the funding puzzle.

"Unlike corporate or government investors, VCs tend to accept more risk and fund early stage companies," said Bradley. "That helps explain their increased interest in nano-enabled healthcare. Although the long cycles imposed by clinical trials increase the risk of funding these start-ups, healthcare is a premium-based sector where margins are high."

"2009 Nanotech Venture Capital: Healthcare and Life Sciences Provide Life Support" is part of the Lux Nanomaterials Intelligence service. Clients subscribing to this service receive ongoing research on market and technology trends, continuous technology scouting reports and proprietary data points in the weekly Lux Research Nanomaterials Journal, and on-demand inquiry with Lux Research analysts.