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Welcome to the 63rd edition of Deep Tech Catalyst, the channel by The Scenarionist where science meets venture!
In this episode, we dive into water technology, a critical but often overlooked sector with immense opportunities for innovation.
Joining us is Tom Ferguson, Managing Partner at Burnt Island Ventures, one of the few venture funds exclusively focused on water-related technologies.
We’ll dive into the current state of water scarcity, the challenges in scaling new solutions, and what investors look for in water tech startups, with a keen focus on desalination technologies!
Whether you're a startup founder, investor, or operator in the Deep Tech ecosystem, this episode addresses critical questions that are shaping the future of water technology and innovation, including:
Why is water efficiency important for AI growth?
What are the challenges with current desalination methods?
What innovations are being developed in desalination technology?
How are water infrastructure budgets typically allocated?
What strategies can help water startups secure their first B2B customers?
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KEY INSIGHTS FROM THE EPISODE
💧Water Is Not a Niche Problem—It’s a $1.4 Trillion Market
Many people think of water technology as a niche sector, but water is foundational to everything we do. From data centers to industrial cooling, agriculture to urban development, water is a $1.4 trillion industry growing at 7% per year. Some alarming statistics highlight why water tech innovation is more urgent than ever:
🌍 750 million people worldwide lack access to clean drinking water.
🚽 1.4 billion people live without proper sanitation.
🏭 Water scarcity is intensifying due to urbanization, and growing industrial demand.
The Overlooked Role of Water in AI & Industrial Growth
The AI revolution is accelerating, but most people focus only on power consumption. In reality, water is the primary limiting factor for AI infrastructure:
Tech giants are investing in 650+ new data centers globally, all of which require massive water cooling systems.
Water scarcity could limit AI growth just as much as energy constraints.
This is why improving water efficiency, desalination, and industrial water solutions is becoming increasingly important.
🧂Desalination: Challenges & Breakthrough Innovations
As coastal cities and arid regions face increasing water shortages, desalination is becoming a crucial technology. However, current methods are outdated and inefficient. Let's briefly explore why they are still used today.
Reverse osmosis, the dominant desalination method, was invented in the 1950s and has seen minimal innovation.
Energy consumption is a major barrier—traditional desalination plants require membranes and high-pressure pumps, consuming more energy than theoretically necessary and having significant environmental downsides.
Most new desalination projects still rely on legacy technology, not cutting-edge solutions.
High CapEx & OpEx costs make desalination prohibitively expensive for many regions.
Adoption Barriers: Water utilities and industrial buyers prefer proven, low-risk solutions over innovation.
Innovation Areas in Desalination
Despite these challenges, there are promising innovations on the horizon that could transform the industry:
💡 Next-generation membranes – Companies revolutionizing membrane technology, improving efficiency and lifespan.
💡 Subsea desalination – Developing desalination units at 500m depth, reducing energy use by 40% and minimizing environmental impact.
💡 AI-driven optimization – Smart monitoring and predictive maintenance extend membrane life and reduce operational costs.
📈 Scaling Opportunities and Budget Allocation
Why Does Scale Matter?
Unit economics: The cost per unit of water goes down when you build larger plants.
Permitting difficulties: In the U.S., it’s extremely hard to get desalination plants permitted, so when you do, it has to be at a scale that justifies the investment.
High water consumption demand: Large populations and industries rely on desalination. For example, Carlsbad, California, is still the benchmark desalination plant in the U.S., yet it only supplies 10% of San Diego’s water needs.
Core Insight: Most desalination projects today are built on legacy technology. The real innovation isn’t just new tech—it’s getting adoption at scale.
How Water Infrastructure Budgets Are Allocated
One of the biggest challenges in water innovation is that infrastructure investment is heavily skewed toward legacy systems.
45% of project budgets go to planning & regulatory approvals.
45% is spent on civil engineering (pipes, pumps, and construction).
Only 10% is allocated for actual water treatment technology.
Why This Makes Innovation Difficult
This budget allocation creates a massive barrier to adoption for startups with new materials, sensors, or filtration systems because introducing new technology means betting billions on a tiny percentage of the total project cost.
Most of the cost is sunk into infrastructure, not technology.
Risk-averse decision-making—few will take a chance on new tech when the bulk of the budget is allocated elsewhere.
To introduce a new technology, you’re asking developers to take a risk on the smallest part of their budget—while the other 90% remains unchanged.
"Basically, you need to bet 90% of these (often billion-dollar) projects on 10% of the cost. So you want to risk 90% of all of this on something new within that 10% for an improvement in operating budgets [...] To give you an idea of the split between CapEx and OpEx, it's about $1,000 to $2,500 per meter cubed per day on the CapEx side. And for OpEx, it's about 50 cents to $1.50 per meter cubed.”
🚀 Go-To-Market Strategies for Water Startups
3 Adoption Barriers in Desalination
When it comes to bringing innovative water technologies to market, startups face some unique challenges, especially in the desalination space. Let's dive into the key barriers and how to overcome them.
Preference for Proven Solutions: Utilities and system integrators often stick with tried-and-true solutions. When dealing with critical infrastructure, nobody wants to take risks with unproven tech.
Risk-Averse Public Tenders: Public tenders frequently prioritize avoiding risks over improving efficiency. This means promising innovations can get sidelined.
Slow and Expensive Regulatory Processes: Navigating regulatory processes can be “a nightmare”. It's time-consuming and costly, and startups often lack the resources to manage it effectively.
3 Tips to Land Your First B2B Customer
Target High-Pain Regions: Focus on cities or industries that are running out of water. Think data centers, mining, or manufacturing, where water efficiency is becoming critical.
Sell Directly to Decision-Makers: Approach those with the authority and urgency to act. Industries where water scarcity directly impacts operations, or local governments with more autonomy than national agencies, make ideal first customers.
Start with Small-Scale Deployments: Prove your tech with low-risk pilot projects before scaling up to larger contracts. It's a way to build trust and validate your solution in the field.
Core Insight: The biggest mistake founders make is assuming that utilities will take risks. If your tech doesn’t fit into existing workflows, adoption will be “painfully slow”.
Case Study
Let's take a look at how one innovative startup managed to secure its first customers with a smart approach: the company launched a water project offshore from a retirement community in Northern Florida.
✅ Solved a Major Problem: The project provided sustainable water access without depending on existing infrastructure. This was a game-changer for the community.
✅ Compelling Sustainability Narrative: The initiative created a strong sustainability story that developers could use to market the property, making it more attractive to environmentally conscious buyers.
✅ Avoided Bureaucratic Delays: By focusing on a small, contained community instead of a municipal utility, the startup sidestepped the usual bureaucratic hurdles and delays.
In Conclusion
Start where adoption is easiest—target smaller, high-need communities rather than large, slow-moving institutions. Craft a compelling sustainability story that makes your project appealing beyond just water savings. This approach not only helps you gain traction quickly but also builds a strong foundation for future growth.
Core Insight: Your first deployment doesn’t have to be massive—it just has to prove the value in a way that resonates with decision-makers.
🧐 What Do VCs Look for?
Despite these challenges, investors are actively seeking disruptive startups in water tech. In particular, VCs tend to favor startups that minimize operational risks, making cost savings a crucial factor.
The key criteria?
✅ Real, verifiable market demand – Can you prove that your solution solves a pain point utilities or industries actually care about?
✅ One-to-one technology replacement – Can your product seamlessly integrate into existing infrastructure without requiring massive redesigns?
✅ Long-term cost savings – Does your solution significantly reduce energy, labor, or maintenance costs?
Alternative Funding Strategies
Unlike energy startups, which can secure non-dilutive funding for up to 50% of project costs, water startups navigate a more challenging funding landscape. While government grants are available in Canada and Europe, they are less common in the U.S. However, corporate partnerships and joint ventures can support initial deployments.
🎯 3 Advice to Prove a B2B Market Demand
The most successful teams recognize the need rather than assuming demand. They engaged directly with industrial users to validate their solutions. This proactive approach ensured market fit before scaling, thereby reducing risks for both investors and customers.
Here are 3 take-home messages:
Firstly, direct industry experience is invaluable; having worked in the field (or having someone on the team who has) provides a deep understanding of its challenges.
Secondly, engaging in early conversations with potential customers helps verify that the problem they aim to solve is real and pressing.
Additionally, forming strategic partnerships with key stakeholders early on can validate the demand and pave the way for market entry.
Core Insight: Engaging customers early helps identify adoption barriers before developing a solution. Even groundbreaking technology is useless if it doesn’t align with existing workflows and market needs. By focusing on these principles, founders can better demonstrate the viability of their innovations to potential investors.
