On the water frontOne VC's view: "Water is the next oil"

Published 11 April 2008

VC hopes to capitalize on an increasingly scarce resource

Readers of the Daily Wire will know that we have been saying for a while that water — the production, treatment, and distribution of water for human consumption and irrigation — is the next technological and investment frontier. We use the word “next” to position water in relationwhip to the current jusitifed preoccupation of investors and engineers — energy. We are gratified to note that Technology Review’s Kevin Bullis agrees. In a short article titled “Water Is the Next Oil,” he writes that oil dominates world economics and politics, but that it is conceivable that some day alternative fuels and other clean technologies, combined with the rising costs of extracting oil, could diminish petroleum’s influence. “By that time, another scarce commodity — water — could come to dominate geopolitics, and venture capitalists are starting to take note,” he writes.

Savvy venture capitalists also agree. The thinking goes like this: Biofuels are enormous consumers of water, says Jim Matheson, a general partner at Flagship Ventures, a venture capital firm in Cambridge, Massachusetts. Water is not always abundant where it is most needed. “So, increasingly you’re going to see water as a scarce resource,” Matheson says. “I think it’s going to drive not just economics but also a lot of geopolitical dynamics. So, we’re trying to find technologies that can allow us to plug into this enormous value chain.” Matheson is interested, for example, in membranes and other water-treatment technologies that will allow biofuel-makers and others to reuse water. He says, however, that there is a big challenge to making these new technologies successful. There has to be a way to scale them up to bring down costs. “The problem is that water is like the Internet. People love it and they use it all the time, but they don’t want to pay for it,” he says. “So the question is, how do you come up with a business model that actually works?”

One option, Matheson says, is to develop technologies that can both clean up wastewater and extract energy from the waste, effectively adding value to the water. Matheson spoke as part of a panel on “green technology” investment at the Venture Summit East conference in Boston the other day.