Article originally posted on World Bank Water Blog As the global population hurtles towards 9.7 billion people by 2050, it has never been more important to produce more with less. As the water supply and sanitation (WSS) sector continues to face increasing pressures, especially due to the impacts of climate change, governments in the developing […]
The Post-COVID 19 Outlook for Water Startups
The Coronavirus fallout economy is going to be hard, but water is core to our ability to respond to the virus, and to underpinning the long-term resilience of society. Well-positioned companies in water hold real advantages in the short, medium and long term.
From February 19th to March 18th, the S&P 500 fell 32.4%. In the smoking crater of the longest bull market in history, it would be tempting to say water startups are difficult enough to begin with, and that in 2020’s reset economy entrepreneurs should pack up and go (stay?) home. It would be tempting, but wrong.
It’s obviously going to be a challenging time for all early stage companies regardless of sector: investors just had almost a third of their invested wealth vaporize; customers have significantly reduced purchasing power causing severe downward pressure on revenue streams; companies are under huge pressure to cut costs; sheltering in place means all spending decisions are being deferred; we really have no idea what the recovery will look like. The list is long and depressing. However, well-positioned companies in water hold real advantages in the short, medium and long term.
In the short-term…
Utilities are in a state of emergency — the pressure to do more with less just materially intensified. Any business that can save utilities real money with no/minimal capex will feel like a godsend. These are entities with large but constrained annual budgets, and the price for inaccuracy is steep.
Say a utility manager is investing $75m in stormwater infrastructure, and has incomplete data about where best to target those upgrades. Mistargeting just 10% of that means wasting $7.5m of their scarce budget, and flooding isn’t going to put itself on pause just because the stock market hit a rough patch. Wait until owners and operators realize how much water, energy, chemicals and money they’re wasting in their traditional Reverse Osmosis plants. These customers should be pulling the arm off of companies that can help them save real money. Examples of similar dynamics are endless.
The world also just got appreciably more conscious of hygiene. A spring of washing our hands every ten minutes has made us even more grateful for our water supply, and companies focusing on the detection, treatment and delivery of verifiably clean water are playing a vital role. This is the time for those companies to (tactfully, yes) highlight their role in keeping the public safe.
Moving to the medium term…
Recovery will be underpinned by gigantic stimulus packages from governments globally to get economies moving again and put people back to work. Water is in a strong position to benefit. It will get a smaller slice than visible infrastructure because it always does (the initial floated figure in Rd 4 of the US stimulus is $25.4bn), but you can expect to see significant increases in state and national support. Voices calling for this are already remarkably diverse. As this comes through, there will be a real increase in the deployment opportunities for novel solutions.
Utility leaders (and everyone else who can borrow) will have some of the cheapest money in history available to them for the foreseeable future. Utilities like IH2O Beta Partner Moulton Niguel Water District that have kept their financial houses pristine (and yes, that have appreciable, stable ratepayer bases) will be able to finance long-term investment projects at highly favorable fixed rates. There will be real rewards for those who fixed their roofs while the sun shone. Even those who didn’t will be able to strengthen their position with access to state revolving funds which are highly likely to be expanded. More money means more upgrades, and more technology deployment.
On the people side, companies pursuing something genuinely meaningful will become even more of a destination for talent and money. We are seeing what happens when we experience a major, months-long disruption to our systems. This pandemic has illustrated the potential disruption to our society from climate change. Climate organizations, companies and causes will receive galvanized financial support, and a renewed influx of talent (alongside epidemiology of course). Water is integral to that project, because climate change is water change — #climatechangeiswaterchange.
In the long-term…
The water sector must ensure elected leaders understand its pivotal role in our society’s resilience to receive the support it needs. In the US, hoarding bottled water has become a joke because it is unnecessary for the vast majority of people, and usually worse quality than tap. One can only imagine how much worse this crisis would have been without water to underpin our day-to-day hygiene. Indeed, this is a principal source of worry for countries coming up the COVID curve.
The fallout from the Coronavirus is uncertain, but it is likely to become the defining economic and social event of a generation. And through it all, people will need water at the right quality, at the right quantity, in the right place, at the right time. Reliable access to safe and affordable water will be central to any nation’s ability to govern. Anything that can help deliver these services more effectively is well-positioned.
A final note to any potential water entrepreneurs reading this:
If you have a bright idea for a water startup, now is the time. Funding is likely to be difficult for the next 6–9 months, possibly longer (though honestly this is the best time to be investing if you have conviction on the sector). But it’s never been terribly easy to raise money for a water startup anyway, certainly not at the kind of inflated valuations that are shrinking now. Regardless, good entrepreneurial practice comes from enforced discipline. You have time to really understand your market before you try to raise, because there’s no point in rushing out into the market. You will be forced to develop an absolute scorcher of an argument about why your idea is compelling to a user. You have a powerful incentive to create something that you can build without needing outside investment. You can build the basis of something great and take advantage of the upswing when it comes. The list of reasons answering the question “Why now?” is extensive. Great ideas are great regardless of the market conditions. Our water challenges cannot wait for the dust to settle, innovation must continue apace, and Imagine H2O is here to support new ideas in this time of uncertainty. The only thing to do is begin.