The Hype Around Water Tech

Can you find unicorns in water? There is a hype around water tech startups. Climate is changing, and some countries, such as Turkey, where I currently reside, could face severe water shortages. The recent documentary by Sir David Attenborough spurred more enthusiasm for investing in water startups. I am all for Sir Attenborough’s art and insights. But art is one thing, and investments are another. The only possible unicorn in a water business would resemble Water and Power Corporation from the 90s Tank Girl movie.

Why so? Water is so crucial to our lives and many industries. The demand is there, and it will only grow! There are so many new industries using water - AI, robotics, and vertical farming! Yeah, sure. In a recent FT cites a paper, in which researchers estimate that AI water consumption could reach 6,6 billion m3 by 2027! That’s a lot, isn’t it? Well, it sounds like a lot, but compared to the current US total consumption of 444,4 billion m3 per year, it’s peanuts. And if we dig into the report, we’ll find that 3/4 of that AI water consumption happens off-site - either in chip manufacturing or in power generation. We already know how to solve that last bit.

And what about robotics and vertical farming? Forget about it. Robotics has been developing for the last 70+ years. They are not even a blip on water consumption. Vertical farming is a waste of time, as you can only grow greens there, which have the lowest calorific density, so not overly useful for feeding people. At the same time, agriculture uses extreme amounts of water, so some innovation might be needed there.

What is special about water is that it is a public good. This means that all people are entitled to access to water, state-run monopolies provide water, and water prices are regulated. Yes, you can still buy bottled water all you want, but you are not likely to use it to shower or wash your clothes. So, which markets are those startups targeting? The only free market is the bottled water market, others are regulated.

Now, say a startup develops a novel way of desalination or purification. Would it be able to expand its customer base quickly? Would it be able to charge premium prices? No, and no. Under normal conditions, who would need it, when state-run utilities provide you with cheap water? And in times of water crisis, do you really think that governments of any country would allow a private startup to profit from the crisis by selling water? If you do, then think again.

How is it that I am so sure about it? Well, I happened to spend the beginning of my career, the first 13 years, advising municipal water utilities on investments, reading water regulations, and studying the experience of water utilities all over the world. Water issues are taken very seriously by national and local governments. Water underpins the health, safety, and economic development of any nation. No sane government will let private startups and some VCs determine who gets water, when, and at what price.

Sources and opposite views:

Article by Yoann Berno on watertech: https://climateinsiders.substack.com/p/water-tech-the-most-undervalued-climate?r=14vtgc&utm_campaign=post&utm_medium=web&showWelcomeOnShare=false

FT article with link to research paper: https://www.forbes.com/sites/cindygordon/2024/02/25/ai-is-accelerating-the-loss-of-our-scarcest-natural-resource-water/

Water usage data: https://ourworldindata.org/water-use-stress