The Abrams Clean Tech Report

 

Technology incubator devoted solely to water gets privatized…

Wednesday, February 8th, 2006
Israeli VC meets clean tech
Israeli venture capital will raise $300 million for water technologies
Merav Ankori    6 Feb 06   13:30

Very interesting article.

Sources inform ”Globes” that a few months ago, six venture capital funds began to raise over $300 million to be channeled for water solutions. One of these funds is veteran Millennium Material Technologies Fund, which has launched its third fund. MMT Fund III will invest in clean technology. It will raise $100 million, of which 20-25% will be channeled to water solution

The other venture capital funds are new. Italian-Israeli Terra Venture Partners has been in the set-up stage for six months, and already has $10 million in pledges. The fund predicts that it will raise $50 million by year-end. The other funds will raise $60-70 million each.

Israelis normally associate venture capital with semiconductors, wireless, Internet and biotechnology. Alternative energy is also on the map. But water? Israelis usually think about water for farming only. But there is now a major drive designed to “turn Israel into a water solutions powerhouse,” as Mekorot National Water Company chairman Baruch (Booky) Oren told “Globes”.

In addition to venture capital, another source for this drive is a five-year plan submitted to the cabinet for investing NIS 750 million in the lake planning, designed to position Israel as the global water industry leader. A technology incubator devoted solely to water is also being privatized, Kinarot The Jordan Valley Technological Incubator, and Waterfront, a new Israeli water organization has been founded to energetically promote the development of a water solutions industry in Israel. What is behind this sudden change in perception?

Oren was appointed chairman of Mekorot almost two years ago, after serving ten years in industry, during which he accumulated experience in various sectors, including publishing, air conditioning, and plastics. Oren decided that the future was in water and established Mekorot WaTech, a program supporting the expansion of Mekorot’s water technology solutions. WaTech has received 160 applications for projects to date, and approved almost a third of them.

Projects Mekorot is already collaborating with include a project for using ultraviolet radiation to purify water with Atlantium Ltd.; technology for treating organic waste in water with Aqwise – Wise Water Technologies Ltd; software for securing water developed by EMZ; and the use of eucalyptus oil in technology for improving water quality and blocking contaminants developed by Botanocap Ltd.

Oren says, “I realized there was opportunity in water not addressed by any business model. When I arrived at Mekorot, I decided to establish a water industry in Israel. My goal is make Israel a global leader in water solutions.”

Oren says, “Israel is still unaware about the water issue, but it is already a strong issue around the world.” He says giants such as Siemens (NYSE: SI; XETRA: SIE) and General Electric (NYSE:GE) had invested over $4 billion in acquiring water technologies in recent months. He says the water market is one of the world’s five largest markets, amounting to $400 billion, and growing by 7% annually. In comparison, the $600 billion energy market is growing 1% a year. The semiconductor market is considered sexy, but is only half the size of the water market.

A matter of time

Oren goals are ambitious. He wants to reach $1 billion in sales in 2007, and $2 billion in 2010, with 10,000 employees in the industry. He predicts that he will reach $10 billion in sales and 50,000 employees by 2020.

Oren talks about an absurdity in which the world uses less than 1% of the earth’s water, and he predicts a shortfall of 32% of the amount of fresh water needed within 15 years. He says 47% of the US suffers from drought, and severe droughts also strike Australia, India and China.

To use existing water supplies, technology for purification, desalination, improved exploitation of rainwater are needed, and this in only a partial list of the ways to make fresh water. “We’re now at the transition between two eras, from the era of water gathering and allocation to the era of making water. Ten years ago, desalination cost $1.10 per cubic meter. It now costs $0.60, and the price will continue to fall as demand grows and technology improves. We’re now number one in the world in desalination, using reverse osmosis technology (invented in Israel – M.A.). The Ashkelon desalination facility is the world’s largest, desalinating 100 million cubic meters of water a year,” says Oren.

The potential of the water market is immense. China’s goal is to produce 5.5 billion cubic meters of desalinated water a year 55 times the capacity of the Ashkelon facility. China is due to invest $18.6 billion a year in water desalination by 2020.

Oren says timing is the key. “We mustn’t miss the boat. Companies are looking at the global water market and see opportunities. I want to be there when they look. I want them to buy me, or rather Israel’s water industry.”

Oren asserts that Israel has obvious advantages in water technologies. Tiny Israel’s climate is representative of half the world’s climates. It has a tradition of entrepreneurship and a strong academic infrastructure, a developed venture capital industry, and an internationally known water brand: drip irrigation leader Netafim Ltd.

Oren adds Mekorot to the list, which he says is one of the top 1,000 of the world’s 20,000 water utilities. “Mekorot has the widest range of activities among the world’s top water companies. Israel has 31 desalination facilities and 1,200 wells. We recycle 75% of water. The second largest water recycler is Spain, with 12% recycling.

Another booster of Israel’s water industry is Waterfront chairman Uri Yogev, formerly budget director at the Ministry of Finance. Yogev predicts that by 2010 Israel will have water technology worth $5 billion. As a government company, Mekorot cannot invest in start-ups, but is can help them with cash equivalents. “Mekorot has decided to define what the market lacks, in order to markets services and technologies to meet existing needs,” says Oren. “We provide start-ups with testing facilities, and we’ll be their first customer. We’re not doing this for water, but for profit. We will open the water market doors to, and find investors for, a company that can present itself as a provider of services for Mekorot. In future, I will want a lower price for installations at Mekorot, options on the sale of these companies, and royalties on sales.”

“Globes”: As a government company, are you allowed to collect royalties from other companies?

Oren: “We will provide aid in the form of cash equivalents, and we will want money in exchange. High-tech took 25 years to reach a peak, but we don’t have that kind of time. I’m missing opportunities with Siemens and GE now. I therefore need to manage the industry as customer-oriented from the start. In the US, they’re already raising venture capital for clean technologies, especially energy and water. Clean technology reportedly accounts for 3% of venture capital in the US, and is rising. Israeli venture capital has had not any clean technology investments until now. Israeli venture capital funds don’t understand the field and are afraid to enter it. Mekorot has changed this. It entered the market and said, ‘We have wonderful technologies in the field, and we’re available to any fund.’ Vertex Venture Capital and Pitango Venture Capital, for example, have decided to work in the field in Israel. I provide them information about start-ups that contact me.”

How did the financing rounds by the six funds begin?

“Last month, six entities approached me with the aim of raising money for investment in water. Millennium is the only veteran fund. The others are ventures by researchers and businesspeople who realized the potential and opportunities, and decided to enter the field. I predict that other entities will enter it. I assume that the financing will be closed within 12-18 months.

“These are either longstanding venture capitalists who are entering the market, or people with a technology or financial background. Mekorot’s willingness to sign information-sharing agreements with them that will help them raise money is worth money to them. We provide information and advice, because it is in our interest to set up a venture capital industry that will invest in water solutions in Israel. Time and ignorance are my enemies. We must move fast.”

Published by Globes [online], Israel business news – www.globes.co.il – on February 6, 2006

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