BOSTON—Investment in Research and development of water treatment and conservation technologies has reached $3.1 billion over the last five years, according to a new report.
Boston-based Lux Research says financing for water technology innovations is bouncing back as firms seek opportunities from a projected 40 per cent increase in global water use by 2030.
The firm says investors are showing an increased willingness to provide capital for companies to scale up operations, resulting in the growth of the average size of late-stage deals to $12 million in 2011 from $4.5 million in 2007.
“Innovations in the water sector still are not commensurate with the size of this enormous $600 billion market, especially when compared to younger cleantech sectors such as smart grid or bio-based materials and chemicals,” said Daniel Choi, Lux Research analyst and the lead author of the report.
Lux Research studied each sector of water with different timelines for venture funding, growth equity and exit windows, identifying opportunities for investors and buyers.
Among the findings:
• Venture capital infusions in water technologies have declined from a 2008 peak of $448 million to $133 million in 2011, thanks to the lack of IPO success. Private deals are on the rise, having replaced venture capital as the major source of funding
• Water technology companies are adapting for shale gas, hoping for lucrative applications in treating “frack” water.
• Investments into water technologies for oil and gas have grown to $62 million in 2011, from $37 million in 2008.
Investments in the first four months of 2012 have reached $34.2 million.
• The Chinese IPO frenzy is over. Between 2009 and 2011, Chinese water companies went on an IPO spree, with 10 exits valued at $1.6 billion. Poor post-IPO performances have shifted the focus to M&A.