Venture capital investment activity in companies that are providing innovative water solutions to the oil and gas and mining industries is increasing according to a report released by the London Environmental Investment Forum.
The report, ‘Water Innovation in Extractive Industries’, identifies 25 private early and growth stage companies operating in the sector. According to publicly available data, 18 have successfully raised funds over the past five years, with several completing multiple rounds, and three are currently seeking funding*.
According to the report there has been an increase in investment activity in the sector over the past five years – 18 companies have raised more than USD400 million in equity and debt. The majority of activity has taken place in North America.
A handful of venture capital funds have focused on this area and taken early positions: Energy Ventures, XPV Capital, Meidelinger Partners, Enertech Capital, while several corporate venture funds and corporate development units of large corporations have taken strategic positions: Teck Resources, Cenovus Energy, BASF Venture Capital, Total Energy Ventures.
Water companies currently serving the municipal and other industry sectors are now applying or looking to apply their technology and services to the resources markets.
LEIF Chairman, Tom Whitehouse, says: “Some investors are cottoning on to a very significant change in extractive industries: water innovation is not a luxury item to decorate your CSR report, but a means of gaining competitive advantage.
“It is too early to talk of an investment boom, but there is enough evidence to suggest that attention will continue and grow.
“Most of the innovation and investment is taking place in the US and Canada, but UK and Europe-based companies are also active and the markets are global.
“We expect the number of water technology and services companies seeking finance to continue to rise, at least in the short to medium term. But consolidation is inevitable. The large water service providers are building up their technology portfolios in an effort to become ‘one stop shops’. So a trade sale to a strategic buyer is the most likely exit for investors.
“Many venture capital investors have previously been wary of water, at least of municipal water. The inherent conservatism of the municipal water industry and the capital intensity of most water projects has dragged many companies down and proved a big investor turn off. This is changing as investors switch on to the water needs of the oil, gas and mining sectors, where water problems stand in the way of profits and water regulators are more of a spur to innovation than an inhibitor."
