A surge in larger deals, marked by average late-stage deal size rising from $4.5 million to $12 million in 2011, is helping commercialization of key technologies, says Lux Research
Boston, MA – June 5, 2012 — Driven by an increasing number of growth equity transactions, financing for water technology innovations is bouncing back after last year’s dropoff, as firms seek to tap new opportunities arising from a projected 40% increase in global water use by 2030, according to Lux Research.
Water treatment and conservation technologies have been funded by $3.1 billion in private investments since 2007, and investors are showing an increased willingness to provide capital for companies to scale up their operations. As a result, average late-stage deal size increased from $4.5 million in 2007 to $12 million in 2011.
“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 titled, “Big Cleantech: Investing in Water Innovations.” “However, in absolute numbers, innovations abound and start-up activity is plentiful in the water sector,” he added.
Lux Research studied each sector of water with different timelines for venture funding, growth equity, and exit windows, identifying opportunities for investors and buyers in active regions of the hydrocosm. Among their findings:
- VCs are losing interest in the sector. Venture capital infusions in water technologies have steadily declined from a 2008 peak of $448 million to $133 million in 2011, thanks to the lack of IPO success. In contrast, growth and private deals are on the rise, having replaced venture capital as the major source of funding since 2010.
- Many are riding on the wave of the shale gas boom. Many water technology companies adapted their technologies for shale gas, hoping for lucrative applications in treating frack water. They include Miox, AbTech Industries, BioTeq Environmental, and Latitude Solutions. From only $37 million in 2008, investments into water technologies for oil and gas have grown to $62 million in 2011, and $34.2 million in the first four months of this year.
- Chinese IPO frenzy ends. Between 2009 and 2011, Chinese water companies went on an IPO spree, with 10 exits valued at $1.6 billion. However, poor post-IPO performances have had an adverse impact, shifting the focus to M&A.
The report, titled “Big Cleantech: Investing in Water Innovations,” is part of the Lux Research Water Intelligence service.