Desalination provides an apt analogy for the opportunity awaiting corporate venturing groups investing in capital intensive innovation at present.
Since the financial crisis of 2008, many venture capital firms are said to have got cold feet about more capital intensive investment. Many in the venture ecosystem are looking at corporate venturing groups as a source of capital to help fill any funding gap in sectors like clean-technology and bio-technology, and also to de-risk investments with their operational support.
Driving water-tech investing are fears of impending drinking-water shortage in many parts of the world and the hopes some place in desalination to protect mankind from the worst of drought – for corporations that are hevy users of clean water or potential polluters of fresh water investing in technology that can limit the damage or provide renewable sources (beyond the 36 trillion gallons that falls from the clouds each day) potentially helps avoid reputational damage to a brand from the public.But clean-water projects are long-term, high risk and usually capital intensive.
Thus it was pleasing to see France-based energy group Total’s corporate venturing unit, Total Energy Ventures, and Germany-based chemicals group BASF’s corporate venturing unit, BASF Venture Capital, last week co-leading the $40m equity round raised by NanoH20, a US-based desalination company, as new investors. They appear to be the first corporates to enter the deal. The pair joined fellow co-lead Keytone Ventures and top-flight Silicon Valley firms Khosla Ventures and Oak Investment Partners in the syndicate, as well as the world’s largest pension fund CalPERS’ Clean Energy & Technology Fund. The company has previously raised between $65m and $90m in funding, according to Global Corporate Venturing analysis.
Arguably it is a sign of the times in venture capital, and of corporate venturing’s general resurgence, that two corporates came into this interesting deal, with a product in the market, alongside some of the deepest pockets in Silicon Valley, which have already invested heavily.
The deal is Total’s first investment in water innovation, although it expects to do more. Véronique Hervouet, senior vice president of investments at Total Energy Ventures, said: "Water and energy are closely interlinked. You need water to produce energy and you need energy to produce water. We are looking for other water investments. Those investments should make sense vis-a-vis our own industrial activities."
Hervouet added: "Some of the applications NanoH2O will develop, could be directly relevant for the oil and gas industry. Desalination is a significant topic in several of our operations today, be it in hydrocarbons or chemical production, desalination is one dimension getting more important and more energy efficient.
Michael-Jean Nettersheim, an investment manager at BASF, said: "When BASF Venture Capital invests there is always something of relevance to BASF. This is an interesting technology and we think we can add some value in the company’s plan to expand its production."
Nettersheim added: "The technology creates customer value through higher energy savings and it needs to purify less water to achieve the same water quality. As you know from reading newspapers shortage of water supply, and especially drinking water, is a big problem. That makes us feel it as an attractive market and as BASF is in the water business, this is something we feel we can assess the potential of."
A trend to watch for in much of this year will be corporates coming in to lead rounds for exciting new technologies of a capital intensive nature. Whether this will be enough to sate such companies’ capital thirst is of course in question. Yet for contrarian corporates getting in, while others are pulling back, the opportunity is promising.