Water Foresight Podcast
Examining the future of water through the lens of strategic foresight--anticipating, framing, and shaping your preferred future.
Water Foresight Podcast
The Future of Innovation in Water
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The world of water innovation is experiencing a remarkable evolution, powered by a perfect storm of entrepreneurial talent, technological advancement, and growing recognition of water's fundamental importance. In this fascinating conversation with Tom Ferguson, Managing Partner of Burnt Island Ventures, we explore how venture capital is catalyzing transformative solutions to our most pressing water challenges.
Ferguson shares his journey from running Imagine H2O's accelerator program to founding the first venture capital firm exclusively focused on water. His unique data-driven insight revealed a critical mass of exceptional entrepreneurs entering the water space by 2020, creating the perfect conditions for dedicated seed funding. "We finally had a critical mass of very high quality entrepreneurs within the water sector," Ferguson explains, "and that's really important for a seed fund."
What makes Burnt Island Ventures distinctive is their sector-specialist approach combined with a laser focus on finding extraordinary founders tackling significant problems. Their portfolio spans diverse areas - from utility software and wastewater treatment to atmospheric water generation and financial technology for small utilities. Ferguson emphasizes that the best investments often come from unexpected places, like a solution eliminating the wasteful practice of defrosting food with potable water in commercial kitchens.
The conversation takes a deep dive into water's most significant challenges, particularly the need to replace aging infrastructure in developed countries while building new systems in developing regions. Ferguson highlights how innovations like Aquamembranes' 3D-printed spacers can reduce infrastructure costs by 40%, enabling more efficient use of limited capital. Meanwhile, subsurface desalination technology could slash costs by 6-8 times while minimizing environmental impact.
Perhaps most compelling is Ferguson's candid assessment of water's political challenges. Despite water's essential nature, the sector struggles to secure adequate funding because it hasn't effectively engaged in political advocacy. "The oil and gas sector still benefits to the tune of hundreds of billions of dollars a year of subsidies because they pay for them," Ferguson notes, contrasting this with water's limited political influence.
Whether you're an entrepreneur, investor, or water professional, this episode offers invaluable insights into how innovative thinking and strategic capital are reshaping our relationship with Earth's most precious resource. The future of water depends not just on technology, but on our ability to tell compelling stories that mobilize support for the infrastructure transformation we urgently need.
#water #WaterForesight #strategicforesight #foresight #futures @Aqualaurus
Aqualaris and managing partner of Burnt Island Ventures. Tom, welcome to the Water Foresight Podcast. It is a privilege to have you with us today.
Speaker 2Dr Klein, thank you very much for having me. It's a real pleasure.
Speaker 1Well, I am interested in all things Burnt Island Ventures. I get your information regularly. You are a busy man, many different companies under your tutelage, and I just want to understand for our audience what is Burnt Island Ventures? Sure, burnt Island Ventures is pretty simple.
Speaker 2It's a venture capital firm that focuses exclusively on the water sector. We provide early checks and now actually growth checks to the best businesses that we can find within the water sector to help them grow. Obviously, after we provide the check, we want to be as useful as we can. Obviously, given that we're a sector specialist, we have an array of different you know ways in which you know people can can, an array of different ways in which we can help. But the best way to think about it is that is that, yeah, we are. We're in the business of identifying the best entrepreneurs with the best ideas in responses to the most pressing problems within water to ideally create very large solutions to those problems in order to provide our investors, our limited partners, with spectacular returns. So we're just, yeah, we're an early stage investment firm.
Speaker 1Well, that's great. How did you come to lead this organization? Well, in 2020.
Speaker 2How did you come to lead this organization? Well, in 2020, I used to run the accelerator at Imagine H2O, which is probably still run by the excellent Scott Bryan. Nimesh Modak runs Imagine H2O Asia. I was there for five and a half years and we just had a pretty spectacular time. We did a good job, I think, of really thinking in very kind of tight detail about how to build the basis for strong early stage water companies, but what we had was that no one was something that no one else in the world had, which was the data set that basically told us about you know what was being built and how it was being, how it was being built, the logic with which it was being built. But the key thing for me was that it told us what was happening to the overall quality of founders, which is usually never really factored into the analysis of technology. People just sort of think technology, a priori, is is the thing like what is being invented? Well, like that's always fine, but whether or not an invention actually becomes a company is really predicated to a large extent on the, on the quality of the person who is doing the building of the entire company around that solution. The the entrepreneur is overlooked in the analysis and probably the most important determinant of whether or not there is a, there is an outcome in terms of that intervention becoming a thing. And so our data set told me that we finally, after a long time, we finally had a critical mass of very high quality entrepreneurs within the water sector, and that's really important.
Speaker 2Right For a seed fund, we rely on our denominator. It's very difficult to have a successful early stage fund if you don't have enough truly brilliant founders, because you're not going to make perfect decisions. Because you're not going to make perfect decisions. You're not going to make perfect decisions, so you have to have enough brilliant founders for you to screw up right to. You know, not invest in people. You should have done, uh, and still have a group of people that are going to be uh, phenomenal, and I knew that.
Speaker 2The answer to that in 2020 was that that critical mass was there and really no one else had that data set, and so for any entrepreneurial undertaking, you need a why now, and for me, that was it. Um, and it made no sense to me that there was no seed fund for water. Um, uh, from an impact perspective, we just were not systematically funding the interventions that we were going to need in terms of the overall sustainability of the market and then just from a returns perspective, I mean it felt like there was sort of dollars lying around on the market and then just from a returns perspective, I mean it felt like there was sort of dollars lying around on the floor and one of the most important systemic interventions that we could make is actually prove that you can make a seed fund really work. You know, proper top decile, like mid-20s IRR kind of returns, because that means that other people are going to sit up and take notice because people assume wrongly that Walter is a dog. Yeah, so I, you know I built the argument in 2020, we put ourselves in business at the beginning of 2021.
Speaker 2And you know, here we are, five and a half years later, having put 50 million to work in the sector. It's been a lot of fun hard work, but a lot of fun.
Speaker 1Yeah, great, great innovators, great leaders. Great innovators, great leaders, and they need to be put together with the people that can fund their innovations and ideas and bring those solutions to the marketplace. Is that fair? Precisely.
Finding the Best Water Entrepreneurs
Speaker 2Yeah, I mean, not all entrepreneurs actually need external capital and I have enormous respect for people who do do what they call bootstrapping path, who do do the what they call bootstrapping path. But in general, if you've got something that you want to build quickly, venture capital is very useful rocket fuel for what you're trying to do. It should be handled with care. There are a set of incentive structures that people need to go in with kind of eyes wide open. We have a very specific job to do on behalf of the people who have invested in us, but there are many ways to tread the entrepreneurial path. But venture capital, as long as you have a business that can be a fit, can be a pretty useful addition to that journey for sure.
Speaker 1Yeah, well, originally, what was, or were the challenges that or the solutions that these innovators were developing that really attracted your attention? Were these simply folks in the water world that said you know, we're not doing X, I'm going to build it. Or were these people from outside the world of water who stumbled into it with some sort of idea? It wasn't?
Speaker 2No, it's a good question. It's a mix. It's a mix. I mean.
Speaker 2My first kind of personal check of any size was into Swift, swift, comply with uh. Mick o'dwyer we just actually released a really fantastic episode with him on the fundamental molecule. He's just a proper dyed in the wool entrepreneur to his bones. Some people are just built being entrepreneurs and and he is one of them um, he was a great example of massive founder market fit. So an insider looking at a problem and not just saying, well, I guess that is the way the world is structured and actually saying that's insane and I'm going to go and fix it. Um, john dorpler was also another one of our really early uh checks. They're an absolutely phenomenal uh emergency response uh management system. Just um, really moving up. They're going to be at they're going to be at eight figures in ARR in not too long. They've turned out to be a really phenomenal company.
Speaker 2He was a consulting engineer both inside and outside the utility fence, so on the consulting engineering side as well as within the utility operations. Similarly, he just saw so much stuff that was broken and decided that the emergency response management was the thing that he was going to fix. Yeah, but then you had people like tyler henke at ziptility, um, who actually used a uh, he used to run a co-working space in in indianapolis, but he stumbled onto this idea and actually did a ludicrous amount of work to diagnose exactly what was going on. But the the small utilities, one of the big reasons that they suffer is that they they don't have a digital operating system that allows them to become proactive rather than reactive, and they are now 200 systems deep. Their cash flow break even.
Speaker 2He's just done a fantastic job, but I mean, if you're going to distill it down, what we're looking for is people who fundamentally understand their market, and there are really two routes that you can get there. Firstly, you have what we you know radical founder market fit people who have lived their problem. They are their customer. They couldn't build something that people didn't want if they tried, yeah. But then you have the second group, which is people who have done an astonishingly large amount of work to make sure that there is no gap between perceived reality and actual reality, because it's in that, it's in the gap between perceived and actual reality, that all of pretty much all of venture dollars is evaporated without anything good coming out of it. So we're just looking for people who are treating the world actually as it is, whether or not they came by it just through experience, or whether they went out and strapped on their boots and really did some serious work.
Speaker 1Yeah, Well, you touched on this already, but what are the main water innovations Burn Island Ventures is addressing in your opinion?
Speaker 2I mean. So I'll caveat this in that our job is to find the best companies, and if you take that seriously, your job should not be to look at the areas of potential intervention and go from there. It's to have a prepared mind about everything. So understand pretty much everything in terms of terrestrial water and really wait for the best a priori company, because you know, just on our slate at the moment we have a financial technology company for small utilities, we have a software intervention that is going to be able to rapidly unpick the spaghetti mess that is at the heart of almost all utilities data solutions. We've got a very impressive company that is uh dosing wastewater treatment streams with calcium carbonate to reduce chemical usage within wastewater treatment plants but also provide carbon credits. And then we've got a supply chain software solution an old classmate of mine from grad school actually um, uh that will look at actual kind of water, uh risks within supply chains on behalf of very large companies. And so we the competition between companies is very stiff and our job is to choose the rational destination of the marginal check according to the best potential outcome.
Speaker 2So we've invested all over the show, from countertop deep countertop atmospheric water generation. I will. I find it so funny. Chris christopher gasson. I wish I loved anything as much as christopher gasson hates atmospheric water generation, but we were quite early to the party. There are specific reasons why we went to the but specific reason why we went to the countertop. Ruben is about to deliver his first 1,000 units, this week actually, which is really great. All the way to utility software a lot of treatment, but if you were to sort of say broad strokes, you've got a number of interventions in wastewater treatment. You've got a number of interventions in utility software, but generalized software in particular, but it tends to be for the water utility.
Speaker 1Yeah. So it's kind of you could have 15 companies exclusively addressing issues, challenges in the wastewater sector. It's not because that's your focus, it's because those are the most viable, most forward-looking companies. You're not trying to say we don't care about drinking water or oceans or what have you. You have to look at it through the purpose of your company, right?
Speaker 2Yeah, our job on behalf of our limited partners is to invest in the best companies that we can find. It's not to invest in drinking water, it's not to invest in wastewater treatment. It's not to invest in insurance tailwind business models. We've just got to find the best companies. That is inherently unpredictable, and so it actually also ends up with some pretty weird stuff. We've just invested and we can't wait to announce it because it's a really, really amazing entrepreneur. But this is a company that has noticed that you know, when you defrost things in commercial kitchens, you are required by the FDA to run potable water over it for four and a half hours, and the reason people need to get into kitchens at five o'clock in the morning is to start defrosting things by running potable water over it for four and a half hours. This is more than the accumulated potable water usage of Dallas every year. It is totally insane and they have an intervention that is going to be able to delete that. Essentially Like you couldn't underwrite that from a desk if you tried. There is no way, absolutely no way.
Speaker 2So one of the things that is so exciting about this business is that we get to wait until something shows up where it's almost like the kind of the tumblers of a lock falling into place. It may be in something that you is unbelievably unexpected, but all of the intellectual architecture of what makes a good company lines up all the way down and the fireworks go off and you know it very, very early. Um, and the fact that it is often unexpected is just it's what keeps it really interesting. It's kind of um, it's the, it's the irregular rewards. You know, it's the actual, it's what makes something kind of addictive. Um, and it's really fun and we just can't wait to see what's going to be wandering through the door next. But when you look across our 32 investments 29 of which are businesses we've had two exits, one zero. That's why they cover such a wide swathe of the market and also obviously helps with portfolio construction construction.
Diverse Water Innovation Investments
Speaker 1Well, with that being said, and thanks for the teaser on the forthcoming announcement, and we'll look for that but is there in your mind, setting aside the viability of these companies, is there a particular water challenge, whether it be today or in the future, that, frankly, is not being addressed, that maybe you'd love to see come in the door at burnt island adventure? Uh, burnt island ventures uh, yeah.
Speaker 2So I mean it's very interesting that we were kind of appraising a financial technology company now at the moment, because I've been waiting one for, waiting for one for years. Um, water utilities all over the world process billions of dollars every day, week, month, and they do it without any real help. Um, the software solutions are disaggregated. They are unhelpful. I mean, obviously we had the fathom example. That was a big hole in the ground. A lot of utilities got quite badly hurt during that.
Speaker 2Um, we obviously have respect for that overall um story, but it's just been crying out. Nobody builds anything for the CFOs or for the people who are demanded to do the books, and we think we found something really very interesting that is going to be an intervention within that. But if I had to choose anything, I would say probably desalination, legacy. Desalination is unbelievably dumb. It is totally unnecessarily expensive. It's totally unnecessarily deleterious for the environments that it works in. It is almost impossible to permit and, as a result, it's almost impossible. It's ridiculously expensive and we are on the edge, I think, of seeing interventions that are going to be able to provide fresh water made out of seawater, but in a way that is a massive step change, uh, and that's by doing under the surface of the sea. So it hasn't been solved yet, um, and there are a few people going after it, um, but you know, we obviously love all of our investments and we think they're absolutely amazing, but it's the one that really does, because I think it also resonates with people kind of beyond water, like I think there are so many amazing interventions within utility software and like electrocoagulation I think is awesome, because I think the dosing of chemicals is like everybody hates it and we should you, for to a large extent be using electrons instead. You know, for example, but that's kind of esoteric and people are going to kind of look at you as if you've grown another head if you start talking to them about it at parties. But people always expect us to be investing all day, every day of the week and twice on Sundays, in desalination and we have got exposure to the desalination tech stack in a variety of different areas.
Speaker 2But Flotion from Norway really does represent something that is going to be a massive step change in a massive and very fast growing and really increasingly indispensable area of water where the incumbent solution is just crap all the way down and there is not enough conversation about actually quite how crap it is, and that you've got something that can really turn the whole thing, I mean quite literally, upside down by putting it. 500 meters under the surface of the sea is a you know it's. It's really exciting Not before time because it's the need for it is is pretty spectacular, but yeah, if I have to choose anything, it is pretty spectacular. But yeah, if I had to choose anything, it would be that.
Speaker 1Yeah, I mean, we continue to see droughts, we continue to see water supply challenges all around the world, and desalinization continues to be discussed. However, as you allude to this being a challenging technology, you have a lot of energy needs with desalinization. And then what do you do with the salts, right?
Speaker 2yeah, exactly, you're fragile yeah, fragile surface water ecosystems. But the thing that I think is most insulting is is to the people who are going to be asked to pay for this. Um, there are two examples uh, one in hawaii, one in australia. Uh, flotions estimation that the people of hawaii are paying six times as much as would be necessary if it went subsurface. And the people of us, uh, I think it's, I think it's, uh, I think it's melbourne um, I'd have to double check for you, but the uh estimation is it's eight times yeah, eight times as much as you'd have to pay for subsurface. And so what you're going to get is that, like, not only are they paying for this, is that in the, in the, in the Australian case, that will be the case in Hawaii is that the way in which they're going to pay for it is by not spending money on other projects that would otherwise happen within the, within the system, and so, in the end, it's the people who need the water that are getting screwed, and we need water to remain cheap and freely available.
Speaker 2This is a regressive tax. It's a flat tax on everybody. Uh, you know, if you increase rates by 10, um, that 10 hits the poorest much more than it does the richest right like. We have a responsibility to do all of these things at the lowest possible cost, and at the moment, you know the legacy um desalination approaches just cost an absolute bomb, and they don't need to. And that's even before you get to the coastal ecosystem impact which, if you just look at the Red Sea, for example, are material and slightly heartbreaking. And it's also enormously unnecessary and I can't wait for it to be deleted.
Speaker 1Well, what do you think are the biggest challenges when you look out into the future and you see yourself maybe retiring someday? What are the biggest challenges going to be over the next 20 years? Is it software innovations? Is it going to be the innovators themselves running out of ideas, or maybe funding? What are some of the issues that you see over the next 20 years that may you know, that you're going to have to address to see this kind of innovation culture flourish? So, over the next 20 years.
Speaker 2The job that is in front of us is twofold In the global north, so the West, whatever you want to call it, developed economies. The job is essentially to replace existing water infrastructure. If you just look at the US, basically the whole lot was built for a 40-year useful life. It's anywhere between 40 and 50. But if you look at the averages, if you look at the averages across everything from levees, dams, drinking water, wastewater essentially like at the, at the average, you know they are now they've aged out. We stopped spending on water, water infrastructure at the end of the 70s. It is only just started to recover in, actually in 2020. But we need to replace US water infrastructure like, and you know, multiply that by all the rest of the, the developed economies.
Speaker 2In the global south, the job is to build the infrastructure that hasn't been built yet, infrastructure that hasn't been built yet. And you know, you hear in, you know the worry about people kind of as they, you know, as they move into a different economic bracket, that they're going to want to eat more meat and all this kind of stuff, and we're worried about kind of, you know, emissions from, like, poor production or whatever the hell it is. No, what they want is to not have to worry about water first, and they want kind of you know to you know, the two billion people that don't have access to adequate sanitation want access to adequate sanitation. I mean, in 20 years. It is an absolutely monster undertaking and so if you move it backwards from that, you're going to need a transformation in political recognition of the problem, political will as well as the incentivization of action. But one of the things that I think we've now got one of our best working on it is going to be the a transformation in access to capital through the bond market.
Revolutionizing Desalination Technology
Speaker 2Um kate lamb is the business um. I don't know whether you've met her. She ran cdb water disclosure for a very long time. She is now working with the un as well as a bunch of other things, but she's got her bit between the teeth in terms of like transformation, of access to very large scale capital, affordable very large scale capital, which is going to be the principal building block as to whether or not we're going to get the numbers wrong, but the financing gap in the US went from 134 billion or something to 268 billion by 2025 or 2024. That was just 2019. So we've been spending, but we are now 100 billion even further behind what the capital allocation gap is going to be. This is a monster problem, so that will be the biggest challenge. But yeah, kate is awesome and I'm very glad she's working on it.
Speaker 1Yeah, well, let me ask you about some technologies I'll call them technologies that I'm not sure that the water world has really started to embrace in some fashion, maybe so you can let us in on any secrets that you might have. But we hear a lot about blockchain. We hear a lot about quantum computing. Over the next 20 years, will these terms become front and center in the world of water? Will we see presentations on how these technologies are being deployed in drinking water systems or wastewater systems, and how is your organization going to be hopefully driving this?
Speaker 2yeah, well, I mean like hopefully we can get quantum computing. I mean they say I was just reading a piece yesterday that it looks like they've um been able to kind of figure out a uh, a really important part of it, so I think they can get it going by 2030. But we'll, we'll see what happens. And then, you know, blockchain is actually, you know, is becoming more and more ubiquitous in the financial system in particular. I mean, I'll sort of start this in saying I'm a big believer that nobody cares what's in the box, they just care what the box does. And so, with blockchain and quantum computing, blockchain is about verifiable ownership of electronic assets and that is obviously applicable to water in everything from, you know, billing to water rights. Right, there are definitely, there are definitely things that can be done.
Speaker 2There's some interesting applications of um, uh, applications of um within financial technology. Uh of, I mean crypto as separate from kind of currently understood like big bag of nonsense, but there are some quite interesting implications for financing that I think could be out there. And then the best way of thinking about quantum computing is just really high capacity computing, like it doesn't really matter, it's like the job to be done for the utilities doesn't change, it'll just be you'll be able to do more complicated things faster, and so, yeah, I mean I think there are going to be applications of it. The last thing I would say is that, like it, just the technology is never the thing. Right, it's what the technology does and what it enables in response to sometimes it's about value creation, but more often than not, it's in water. It's about. It's about the deletion of pain. Right, it's the eradication of a pain point. So these things can only ever be a means to an end.
Speaker 2Last thing is blockchain, quantum computing, I would, I think, earth observation and transform a transformation of telecommunications via, well, low Earth orbit satellites, but also very low Earth orbit satellites, and the competition that's going to be going on in space. That, I think, is really transformational. And then the biggest transformation is going to be humans, just having people who are supercharged with technology. God knows what is happening in the ai market at the moment. They they appear to keep on making these models worse. Uh, weirdly, um, but the but the tools for entrepreneurs have never been more accessible. Entrepreneurs have never had access to the information that you need to make better decisions at the margin in order to build companies that can solve the problem that you are going after, and that is reason for huge optimism.
Speaker 1And it seems that that ties back to some comments you made earlier. Where in the West, if we are going to have to spend billions, perhaps trillions, to replace our aging infrastructure whether it be plants or pipes you mentioned dams and then other parts of the world are starting to build these water and wastewater systems, will they have a better shot at more cost-effective solutions Because of these innovations, when they're starting to just build things from scratch? They're not looking to spend hundreds of millions or billions of dollars on what we consider to be traditional water and wastewater systems. They're going to be deploying the innovations that you're helping drive. Is that fair? Yeah, bloody hope so.
Speaker 2Yeah, and it's really important, right. Take aqua membranes, for example, for example. So, rather than having a spacer within the reverse osmosis element but, frankly, any element what you have is 3D printed spacers. That essentially increases the surface area of the membranes within that element by 20%. There are a variety of other benefits that come from that. What you're looking at is about a 25% to 30% increase in efficiency. Really, in the base case, it could be up to 40%. That means that anything that is currently built around a reverse osmosis array, for example, is currently 40% overbuilt. You've spent 40% too much CapEx and you're spending 40% too much OpEx on it. Like rough numbers. I'm sure Craig is freaking out if he hears this, but that's basically it right. The existence of a fundamental step change in the capacity of the reverse osmosis module means that for the same amount and quality of output, you can build a 40% smaller plant. Wow, that is huge. Wow, that is absolutely enormous.
Speaker 2And this is the benefit of you know, building now. I mean it's the classic technology archetype. I mean this is the story of the German army before the Second World War. Right, the benefit of having their previous, having their previous stockpile of arms destroyed and having to build it from the beginning meant that they had a technical, a massive technical lead in terms of their armaments over over the allies, who were still using stuff that they had basically taken out of storage from the first world war because they hadn't had their stockpiles destroyed. Like it's really the, the leapfrog that's going to happen is going to be fascinating to watch. I mean, I think it's fairly clear that we'll have massive decentralization, um, whether it's at the community or at the building level, the intervention of telecommunications, the interventions in design, obviously the fundamental technologies that are going to allow the same or much more output per unit of dollar spent. I mean it's going to be seriously interesting to watch it develop.
Speaker 1Yeah. Well, what do you think is the most significant limiting factor to your vision of the future of this innovation that we're seeing today? What's going to, what do you think might hamper it in the world of water? Is it, is it lack of of innovation, innovators, or is it some other, some other barrier? What's going to be the biggest limiting factor to seeing a success in the next 20 years?
The Future of Water Infrastructure
Speaker 2It will not be a lack of innovators Increasingly. I think people kind of understand that water is a great place to build a career because it is at its core, it's fundamentally meaningful. You know there are big challenges, it affects everybody, it's a secret hiding in plain sight and when you see it it rewards you, I think, psychologically, forever. And there's a reason why water people tend to not leave water and partially it's obviously inertia, but it's partially because there are very serious core things about working in this industry that will become increasingly attractive to smart people. And even in the last 18 months, I mean, I thought the explosion in 2020 was big, but the people that we are saying no to are so good. Right, it's just we've got tough decisions to make, so we are not going to be hampered by entrepreneurial talent, no matter what's going on in the rest of the world, people who we want to be starting companies in water will be starting companies in water.
Speaker 2I mean I already mentioned the financing thing, but then you go like, ok, well, what's going to be the fundamental unlock for the financing thing? And I would say I mean this. You know not to be too hand wavy about it but, like I, my biggest concern is that? Are we going to be able to the best way of saying it is tell our story. We going to be able to communicate with the public in a way that mobilizes large-scale support for the resources that the sector needs in order to perform the overhaul that is required and in front of us.
Speaker 2But even more than that, are we going to actually like get off the sidelines and get in the game, in terms of actually playing the game on the field, and by that I mean, are we going to go and meaningfully participate in the, for example, in the political process in the US? Like, are we going to go and become a meaningful source of election capital for people who are going to be making decisions on the apportionment of capital to our sector? Because this is how this works. The oil and gas sector still benefits to the tune of hundreds of billions of dollars a year of subsidies, because they pay for them. They pay people to make sure those subsidies are in place. There is a reason why we didn't get anything in the IRA or 12 billion, whatever it was out of 1.4 trillion.4 trillion I think.
Speaker 1I think, if I'm correct, didn't amtrak, the train system, get more money than water?
Speaker 2yeah, I think yeah, and it's because we didn't meaningfully participate in the yeah in the, we didn't like, we didn't make the argument in the way that the argument needs to be made, and so, yeah, I mean I if there's anything that worries me is that are we going to be able to not only, like, build a narrative and a voice for water out there in the broader public, but also take a big, hard-nosed look at the way in which the decisions are made in terms of really the only likely sources of where that capital is apportioned, which is from bond markets and governments, alongside, obviously, the ratepayers, the customers of water systems themselves. And you know it's our key weakness. It really is. There are some people who are really, really good at it, but it's yeah, it's something that we need to get a lot better at, and get a lot better at fast.
Speaker 1Well, with that, and let's not forget about our transportation friends, they get a lot of money too, don't they?
Speaker 2Yes, roads and bridges, but yeah, it helps that they're visible.
Speaker 1That's true. No, what's the saying? There's no ribbon cutting for a piece of infrastructure that's four feet under the ground, right? That nobody sees? Yeah, exactly that bloody should be. Yeah, but you put up a traffic light or a new bridge that everybody sees. The mayor will be there for a ribbon cutting. What is your overall sense of where this world of water innovation will be over the next 20 years? Is it going to be same thing, just different kinds of innovations? Or are you going to see transformation? Maybe there's a funding change, or maybe we have a new young crowd of legislators, people in not-for-profits that just are fully engaged on water in a different way? Where's this going to be in your mind in the next 20 years? I mean, if you look back to be in your mind in the next 20 years, I mean if you look back.
Speaker 2So if you look back in the last 20 years, I mean I've been focusing on early stage water since 2015. I'm 10 years into just working with water startups, 15 years in water, so you know not as long in the tooth as a lot of people within water, but I think it's kind of a reasonable vantage point, because I wrote the first water disclosure report for the Carbon Disclosure Project. That was my introduction into this and I think if you cast it back you know really what you see over the last 15 years is a gradual uptick in everything from the improvement in the caliber of entrepreneurship within the sector to the attitudes of utility leadership, to the provision of financing, to uh, the um, uh, to the salience of this as a as a political issue. Like if there was going to be a lightning strike, you would have thought that flint would have been it, or jackson, missouri or val, or obviously what just happened in Texas. Like there is unlikely to be an inflection point. But if I had to predict what's going to happen in terms of the eyes of the world, I think what we see in the numbers that you see in places like Google Trends would suggest that a slow motion inflection point is actually happening now For all of the proxies of attention, mainly digital, but there are sort of other sources for this as well.
Speaker 2You know, as you see, the acceleration of climate change and climate change is water change. The ramifications of climate change really are to a large majority. At least 70, if not 75% of the impact of climate change will be felt through the medium of water and as that is happening which is just objectively the case from 2019, the number of more than one standard deviation drought and flood events has essentially gone up at a 45 degree angle. You're seeing kind of a real increase in attention and what that is going to yield, given the attention, really is the the kind of currency of everything. Really, what you're going to see is is positive from our perspective, but it's based, obviously, on negative impacts, but positive from our perspective, but it's based, obviously, on negative impacts but positive from our perspective, feedback loops emerging out of that, and so I think what you will see is an uptick in good things happening.
Transformational Technologies and Challenges Ahead
Speaker 2So people just strengthening, strengthening the water sector, doing the work that needs to be happening, but it is going to feel gradual, I think, because I'm more than willing to be disagreed with. But I think, if you look, if there was going to be an inflection point, some kind of like crazy explosion, it would have happened, because bad enough stuff has already happened and it hasn't manifested in. You know, the equivalent of the IRA for water. So, yeah, I think it's going to be a gradual change, but there is no shortage of problems, there is no shortage of antiquated business models, there are no shortage of barriers within the water sector that need to be solved and, as the sector moves on over time, the nature of those changes will will continue to evolve. We think we've got multiple decades ahead of us in terms of our own business, in terms of investing in companies that are going to make a real difference to the problems that are faced by people who manage terrestrial water.
Speaker 1This is a bad question to ask, I'm sure, but what's the one thing that might really kill water innovation over the next 20 years? What's the one thing you don't want to see happen? That could really stunt some of the optimism that you are portraying.
Speaker 2I don't think there's going to be one. I mean, I think the implication of your question is there probably isn't one. So come on, tom, identify one. I think the least helpful thing I think the least helpful thing in terms of the funding of early stage water experiments is people doing it really wrong.
Speaker 2So in venture in water, one of the principal barriers is that everybody assumes that the market is a dog, that they think it's too heavy capital. They think not only do I not really know anything about water, I totally assume that it is crap, uh, and so they don't do it. You know, they always have a water droplet on slide seven of their pitch deck, if they're a generalist climate investor or whatever it is, um, but then they never do anything about it because they assume it's a. They assume it's a dog and it's also not within their circle of competence as an investor. But they also have no incentive to bring it into their circle of competence because they assume it's a dog, right. As a result, there is a kind of a fundamental structural limitation of external capital coming in to fund all of these smart people. It's getting better over time, but it is still definitely the prevailing narrative and, I think the most dangerous thing is anything that perpetuates the narrative about water being crap, and the big one is very large amounts of money going to companies that don't make sense, hoover up a lot of capital and fall apart because the people who provided that capital internally will say I told you so water's too hard.
Speaker 2And they will talk to their friends who are like, oh, I'm sorry about that blow up and they say, yeah, I'm never going anywhere near the water sector again.
Speaker 2It's just impossible and terrible and crap and like nobody's nobody. Nobody blames their underwriting process, nobody blames their acumen as an investor for putting a very large amount of money into something that is nonsense, right, yeah, and this has happened before with very large. I don't want to name many names, but you know, in terms of very, very large, very highly respected venture firms, they've put lots of money into things that tend to end up going sideways and what suffers is water's reputation, not the reputation of that investor, because they've done very well in other markets. They just, you know, blew up on on this one, and so I think that you know high. If I had to choose anything, it would be high visibility failures from people who told a good story to credulous people with very, very deep pockets who gave them a very large amount of money. And then there was a massive hole in the ground and, yeah, this unfair and incorrect reputation of water as a destination for capital is perpetuated.
Speaker 1Yeah, We've seen that in other disciplines within the world of money, finance and investing, where people threw a lot of money at a company and, as they say, the emperor had no clothes. You're kind of, I guess, paralleling that to water. Could that really stunt the interest in providing funding for water ventures? Will people pick up and take their money elsewhere? That could be a huge scenario in the future. Is that a fair summary? You can?
Speaker 2be quite vulnerable to people with a great, with great storytellers, with a great story coming to you and it's a pitch that you want to believe because you don't know where the bodies are buried. You end up believing it and kind of committing behind it and, yeah, it just turns out for the for some esoteric reason, that this was not a good idea and like, yes, this happens. Like if I was to go and be like an AI investor or a fintech investor or even an ag investor, right, like I'm sure I would stand on a whole bunch of landmines that somebody, some person who'd been investing in AI and ag and fintech or whatever for years, would not go and stand on. It doesn't mean that, like, fintech's a garbage place to invest. It's just that I made a bad decision because I didn't understand what I was doing, but like it's a good point.
Speaker 1That's not how people look at it yeah, you have to have smart innovators who know what they're doing, but on the other side, you have to have smart people who understand the water space and the particular application that's being developed, so they can ask the right questions about what's being developed, so they make a wise choice when it comes to their investment.
Speaker 2Yeah, no, for sure they do, and there's. There's something kind of interesting going on in venture at the moment, especially with with ai, which, um, I saw a very interesting tweet from a really highly respected venture capitalist, which, who said that it is increasingly obvious that ai companies have no modes, which I agree with it.
Speaker 2In terms of the large llm companies, that's definitely true, but in terms of the small language models which people are finally cottoning onto and we made our first small language model uh investment in doppler in 2021, which is um answer, or ai actually uh, we've've been onto the small language model uh thing for a while, which I feel good about but the uh, yeah, the, the, the sort of behavior of generalist investors and what the venture market has sort of become, especially with the emergence of mega funds.
Speaker 2Um, so people who have raised multi-billion dollar funds there are, you know, in terms of kind of trend following, when you, you are in the hot market, it's really tricky because people don't think twice about writing, you know, $10 million seed checks at $50 million valuations and it just in terms of the implied promises, the value that's going to need to be created within a very given and limited timeframe. Yeah, yeah, I mean, it's tricky in almost all markets, not just in water. But my business is built on the difference between your entry price and your exit price, and the exit price does not have to be $10 billion for it to make an abundant amount of sense for your overall investors' position, our limited partners' investors' positions. Anyway, I probably waded a bit too far into the weeds there.
Speaker 1No, no, no. One final question. If you were to pick, what do you think is going to be the most successful company that Burnt Island Ventures will ever work with? Now, this is like who's your?
Speaker 2favorite child. Right, that is a tough doodle maybe pick three.
Speaker 1How's that? Pick one, pick three?
Building Water's Political Voice
Speaker 2so, look, I think that I think that we've got a couple. I'll just pick three that are doing really well, okay, um, so the water energy nexus. The water energy nexus, you have N-Line Energy, which is a retrofit onto industrial boilers. They basically replace the pressure step down unit, run a turbine backwards and now Penn State Hospital, for example, is 60 percent off grid by harnessing the link between water and energy. They just had their tax credits confirmed for the next decade. That is an absolutely monster deal for them. They will be I mean, really well into eight figures in. They're already well into eight figures in revenue, but they'll be well into, even more well into eight figures in revenue, but they'll be well into, even more well into eight figures in revenue this year.
Speaker 2Tremendously interesting company. I've mentioned Aquamembranes, I've mentioned Daupler, and then I just want to call out Irrigreen. Irrigreen are certified by UC Fresno to reduce outdoor irrigation by 50, which is something that all cities need. Um, there is no way that the incumbent, uh irrigation companies would be able to get anywhere close to what they're doing. In terms of the robotics sprinkler head, they just released version three yesterday. Uh, they are just pushing up to that 8 million in revenue.
Speaker 2Mark Shane is an absolutely phenomenal entrepreneur, but structurally within that business, I think that because you're not just going to stop at residential, you're going to move to commercial and then they will move to agriculture, and the implications of that in terms of the depth of that market, as well as the margin of safety that they have in terms of their technical capabilities, of what they've built and the quality of the team around it, out of which will come the company that they are building around it, I think is going to be a really unignorable success. I'm so glad that in our growth fund our first three positions are Aquamembrane, storpler and Irrigreen, because we think each of them is going to be a pretty massive Irrigreen may save the Ogallala aquifer.
Speaker 2I mean, here is hoping, here is hoping they're going to make a massive difference to a whole load of particularly urban efficiency. But yeah, it's going to get really exciting when they get to the ag market.
Speaker 1Interesting, interesting. Well, tom, I want to thank you for being a guest today on the Water Foresight Podcast. So much to think about, so much to consider when we think about where we're going to be in 20 years with innovations in the water space, and I want to thank you for being a leader in that space and we look forward to wonderful things from Burnt Island Ventures. And, tom, let our listeners know where they can connect with you and find out more about Burnt Island Ventures.
Speaker 2Yeah, sure, absolutely. We are enormously contactable through our website. I encourage you to sign up for our monthly updates. We put them out through LinkedIn, but you can just sign up on the website to get that newsletter directly to your inbox. You can track all of the work of our companies. Most importantly, we are nothing without them and we're tremendously grateful to all of the burnt islanders who have led us on to their cap tables.
Speaker 2And then, I mean, I feel feels wrong to be plugging another podcast on a podcast, as especially one that's as good as this matthew, but the um, uh, we also I, I host a show that comes out every two weeks called the fundamental molecule. Um, it's about water, but it's about entrepreneurship in water and it's really actually about the science of entrepreneurship itself. The reason we started it was that we didn't think that there was a, that there was a repository of the wisdom of the best people who have built companies in water before. Not everyone is an entrepreneur. We have entrepreneurs and really phenomenal company leaders and various other leaders from in and around the sector, but what we're really looking at is is how do you build really solid companies within it?
Speaker 2Ideally, entrepreneurs could come along and just listen to every episode of the fundamental molecule and be able to avoid 95 of all of the bad stuff. Um, that will, uh, impair their company, impair their growth, impair their ability to build the company that they want to. So so that's what, that's why we do it. It's a, it's a, it's an entrepreneurship show. It just happens that every, all of the entrepreneurs, uh, are in water. So, yeah, I encourage everybody, everybody, to check it out, because I think it's, I think it's fun, I think it's good, it is yeah. Well, that's why I would say but yeah, we're embarrassingly easy to find, so please do be in touch.
Speaker 1Well, thank you and again, Tom, thank you so much for being a guest today on the Water Foresight Podcast and we thank you, our listeners, for joining us today, and we ask that you join us next time on the Waterforesight Podcast.
Speaker 2Have a wonderful day. Thank you so much, matthew. Really appreciate it, and congratulations on what you're building. It's such a great show. Thank you.
Speaker 1Thank you for listening to the Waterforesight Podcast powered by the Aqualaris Group. For more information, please visit us at Aqualariscom or follow us on LinkedIn and Twitter.
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