I tried to do a search of the venture capital (VC) investments in the water industry, and based on findings from Greentech Media, put together a chart of the level of VC investment over the last six years.
I couldn't find any data on 2007 -- apparently different sources have wildly different opinions on the level of VC funding for that year -- so that's been left blank. In general, the level of VC funding has fluctuated from year to year, and I think it might be slightly premature to conclude any real trend. But if 2010 continues to grow at the same rate as in Q1, it may indeed look like the VCs are finally showing interest in water.
The water industry has traditionally been accused of having a relatively low level of VC funding. With the water industry estimated at over US$400bil, VC funding works out to about 0.03%. According to Wikipedia, VC funding for the dot com industry was about 0.06% in 1994, rising to 1.09% in 2000, before crashing to 0.16% in 2003. I suppose the water industry is nowhere on that scale yet, but neither have I seen anything about the IT industry's level of VC funding being the optimal level.
Indeed, I couldn't find much information on what an optimum level of VC funding for any industry should be. I guess the criticism is in comparison to our alternative energy sisters -- solar energy itself saw US$1.4bil of VC funding in 2009 despite a market size of far less than US$100bil. But the estimated growth rate of the solar PV industry is staggering. CAGR estimates range from the high 20s up to 40%! The global water industry, on the other hand, is looking at a more conservative 7%.
Anyway, assuming the "experts" are right about VC funding being low for the water industry, a google search threw out these possible reasons:
No "game changing" solutions
Low returns and long gestation periods
Water problems can be solved by legislation without the need for technology
Poor understanding of the water industry
Water is too cheap -- it is not seen as a profitable industry
Competition from other cleantech industries seen as more promising and exciting
All the reasons cited are somewhat related. The fact that water is so cheap and that it is considered a human right by some, means that it is unlikely to ever be very profitable. And as long as it is not seen as very profitable, it will be difficult to attract much interest and understanding of the industry. With less interest and competition in the industry, there is a lower likelihood of "game changing" solutions being developed, and there would be no impetus to shorten the long gestation periods. At the end of the day, it seems easier to legislate water restrictions than to develop new and cheaper water sources.
As many people have pointed out, water needs to be priced more attractively to pique investors' interest. Then again, water is an important resource in many industries and allowing the price of water to rise may inflate the prices of many other goods and services. Perhaps governments should take on the responsibility of rewarding innovation in this industry. After all, they are the ones who have to ensure an adequate supply of water at an affordable cost.
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