Sink or swim

In California

While economists, policymakers and media spent much of 2009 discussing the United Nations Climate Change Conference in Copenhagen, a different delegation was discussing a threat just as severe to the economy, the environment and human health: water shortages.

The world is on the verge of water bankruptcy, according to the World Economic Forum, which made water the subject of discussion at its 2009 meeting in Davos, Switzerland. Using excessive water to fuel economic growth has created unsustainable regional “water bubbles,” which will bring serious political and economic repercussions when they burst, according to the Geneva-based nonprofit.

By 2030, more than one-third of the world’s population will live in severely water-scarce areas if current consumption patterns persist, revealed a 2009 report by McKinsey & Company. But as the threat of water scarcity intensifies, so will the stream of capital flowing to markets and technologies taking on the water challenge—global water sector revenues will total almost $1 trillion by 2020, according to Lux Research.

Utilities, governments and businesses increasingly will need to reduce their water consumption, and in order to do so, they must start measuring their water use. Meeting the world’s future water management needs presents a big opportunity for new and established companies that can help public and private entities do just that.

Skimming the surface
In 2008, water startups received  less than 2 percent of total venture funds poured into the cleantech sector, according to research from Cleantech Group. And in 2009, $117 million out of a total of $5.6 billion directed to cleantech companies overall in venture capital was directed to water companies.

Why such low interest in water-saving technologies? One reason is the water sector hasn’t typically rewarded investors, Steve Vassallo, a principal at Menlo Park, Calif.–based Foundation Capital, told Sustainable Industries in mid-2009. This is in part because entrepreneurs with good ideas and business plans often face regulatory hurdles, while the water’s artificially low price dampens investors’ incentive to back water plays.