Corporate Finance Division
Water Company Venture Capital
The water industry provides drinking water and wastewater services (including sewage treatment) to residential, commercial, and industrial sectors of the economy. The water industry does not include manufacturers and suppliers of bottled water, which is part of the beverage production and belongs to the food sector.
Water scarcity is a global theme that combines demographics and climate change. There is no substitute for water. As the world’s population continues to grow and becomes wealthier, demand for water is rising fast. According to the UN, by 2025, 1.8 billion people will be living in countries or regions with absolute water scarcity, and two-thirds of the world population could be under water stress. From human consumption to industrial and agricultural use, global demand for water and water services are expected to outpace current supply. The International Food Policy Research Institute suggests that there will be a 40% gap between water demand and supply over the next 15 years. Agriculture is the largest user of water (70%), followed by industry (20%) and individuals (10%). Every person drinks 2-4 liters of water a day and eats 2,000-5,000 liters of virtual water in the food they consume.
There are opportunities to invest in water scarcity in both emerging markets and the U.S. In China, 80% of rivers are too toxic for fish, let alone human consumption. In its twelfth - Five Year Plan, the Chinese government allocated about $110 billion per year to environmental protection and pollution control, including wastewater and solid waste treatment. A similar or higher amount will be needed in the next five-year plan to address continued water scarcity issues.
The U.S. will also require significant investment in water treatment and transportation in the near future. For example, the poor infrastructure that caused lead poisoning in Flint, Michigan is not an anomaly. In California, governments are spending about $20 billion annually on their water supply, a number that is also expected to increase. Investments are needed along the entire water-value chain, and global water-infrastructure projects alone are expected to see annual growth of 5%-8% according to Bank of America Merrill Lynch.
Fostering Growth without Diluting Equity:
For Water companies at critical stages of development, debt can serve as a key financing option to foster growth, with minimal dilution of equity ownership. At Synergy Capital Markets, not only do we understand the industries of our portfolio Water companies, but we also understand the growth process - and occasionally the growing pains - they undergo.
When venture debt is used appropriately, we believe entrepreneurs gain the following benefits:
Able to raise capital in a way that benefits the team and the business as a result of the greater flexibility offered by venture debt than traditional forms of debt financing
Have more time between equity rounds to build the business and achieve critical milestones, which creates potential for greater valuation
Retain a larger ownership stake in the company prior to an IPO or other liquidity event
Achieving milestones quickly in many cases also means reaching the IPO stage more rapidly