You turn on the faucet, and-voila-you have a drink of water! Those of us who come from western nations tend to take water for granted. However, after a few years in Israel, we appreciate the fact that whatever water we receive is a gift. The media is filled with reports about how the world is running low on crude oil, but not too much attention is paid to the growing water crisis. Water as an Investment
As abundant as it appears to be, only about 20% of the global population has access to running water. Additionally, only one-third of the world’s population has access to clean water. In fact, many estimate that in 40 years, more than four billion people, half the world’s population, will be living in areas that are chronically short of water. Moreover, economic development has placed greater pressure than ever on the supply of fresh water. In 1900, the global annual water use per capita was 350 cubic meters. In 2000, that number had grown to 642 cubic meters. In the United States alone, the demand for water has tripled in the past 30 years, while the population has grown by just 50%. China, Africa and the United States
The need to increase access to clean water around the world has led some to call water the “oil” of this century. As the world becomes more and more developed, wealthy countries will not only be able to afford, but will also have a moral obligation to provide this basic necessity to their citizens. China and India, which are experiencing economic booms right now, are therefore investing hundreds of billions of dollars in improvements to their water infrastructure, while many sub-Saharan African countries that are beginning to show signs of economic growth will soon need to begin to provide basic resources to their population. In all three of these examples, these are huge populations that are in their infancy when it comes to the basic needs of their citizens. They have been steeped in poverty for decades, and they are emerging only now. As such, they need to start from scratch, which means access to water and building roads.
In terms of the United States, the Environmental Protection Agency estimates that up to $1 trillion will have to be spent on upgrading U.S. water infrastructure over the next few years. The country’s aging infrastructure, much of which is more than 100 years old and has long exceeded its useful life, is in a state of utter disrepair. In the United States alone, the network of drinking water pipes extends more than 700,000 miles - more than four times the length of the National Highway System. This all adds up to the need for new reservoirs, better water canals and more efficient irrigation systems. Israel happens to be a global leader in the innovative technology needed for making such repairs. Get Advice
While many experts believe that there will never be substitutes for water, I tend to take a much more optimistic view of things. All kinds of technologies are being created to tackle the issue before it turns into a crisis. If we were to fast-forward 50 years, I am sure that we would be shocked at the technological advances made. Investors should speak with their financial advisers to see what options are available to invest in the water industry.
Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
Written by: Israel Investor Newsletter | July 27, 2008
A couple of months back, a jewel in the Israeli cleantech crown raised some additional funds (some even coming from Sir Richard Branson). GreenRoad Technologies, with development in Or Yehuda, employs a in-vehicle device that improves driver safety and betters fuel consumption for car fleets. Read Cleantech-Israel’s review of the deal as well.
I’m reading the article and it looks great. GreenRoad’s Safety Center, the firm’s flagship product, seems to be getting traction with fleet operators and insurance firms, looking to decrease accidents and improve efficiencies. While GreenRoad is doing wonderful things for Israeli Cleantech and kudos to them, I’m struck with that fact that Pointer Telocation (PNTR), whose Chairman, investor Yossi Ben Shalom, we interviewed a few months ago, is not a player in this space.
Pointer has an interesting business. While providing road-side services in Israel and abroad, Pointer provides a lot of location-based services for the auto industry. Via RF-systems, the firm can locate autos. Via cellular units, the company has essentially combined GPS and GPRS systems with embedded software together in on box. They also have an impressive command and control system that allows for fleet management and stolen vehicle recovery (SVR).
With a install base and global sales, why isn’t Pointer forging ahead beyond SVR and into more value-added service like GreenRoad is providing? Maybe a partnership is in order?
Disclaimer: Author’s fund holds a position in PNTR as of 7/27/2008.
Globes out today with an article about Project Better Place CEO, Shai Agassi’s recent address to the House of Representative’s Select Committee on Energy Independence and Global Warming. Agassi, an Israeli uber-entreprenuer who had sold his software firm to German software giant SAP, had pretty compelling statitics backing his new venture — a venture focused on developing the infrastructure for mass-market electric cars.
Couple of points from Agassi’s presentation
for the cost of 2 months of oil ($100B), the U.S. could put in place electric car infrastructure to end oil dependence
for the price of 1 year worth of oil ($500B), the U.S. could “creat[e] fully renewable electrical generation sufficient to power all of the nation’s vehicles”
Operating costs for electric cars is about $0.06/mile while traditional combustion engines cost $0.16/mile
You can see the entire webcast that took place last week here. It’s an Interesting discussion and we’ve discussed Agassi’s plans previously on this site. We’ve also interviewed one of his initial investors, Israel Cleantech. Shai’s blog is also a good resource for his plans.
Shai and Co. have made a lot of PR success in Israel and it appears that from a partnership perspective, they are putting the pieces together. Large Israeli investors continue to throw money at cleantech and it appears U.S. investors are also getting bulled up on the project.
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Tell me about the genesis of Israel Cleantech Ventures. Why did you focus on Cleantech given your team’s broad experience? Is there specific value you bring given the fact that you and Glen don’t have industrial backgrounds?
Meir Ukeles: It’s important to start with pointing out that our investment team is composed of seven professionals – three full time general partners: myself, Glen and Jack. [Ed. Glen Schwaber is a experienced venture capitalist with Jerusalem Venture Partners, one of Israel’s largest VCs. Jack Levy was previously General Counsel of Register.com where he played a central role in the company’s IPO]. Our four venture partners have an average of 20+ years each as business leaders of Israel’s standout energy, water and environmental technology companies (including Luz, Ormat, IDE, Netafim & AqWise).
Jack Levy and I launched this effort in the fall of 2005 having identified what we saw as promising initial signs of Israel’s potential to emerge as a leader in the cleantech market, coupled with a clear sense (via interactions with Glen and other friends and colleagues who were GPs at established funds) that this opportunity was not on the radar of Israel’s many generalist VC funds.
However after meeting a good number of the companies in the market two years ago, it became clear that this opportunity required a very focused approach which combines traditional early stage investment skills, substantial experience on the exit side of the equation, along with sector specific experience, networks and understanding. So, we put together this team which we believe brings a unique mix of these capabilities, track records and relationships to the cleantech opportunity.
What types of investors are investing in your fund?
MU: Our investor base began with investors who had had exposure to previous generations of Israeli venture funds, and saw cleantech as a differentiated play on Israeli innovation. Over time, as cleantech has emerged as a mainstream VC focus, our Limited Partners have shifted to fund of funds and other investors with a broad cleantech focus, who see Israel as a uniquely differentiated stream of cleantech dealflow. We also have some key investments from corporations (in chemicals, natural gas, recycling) which exposes us and our portfolio companies to those entities’ networks and experience.
What’s the growth model for your investments?
MU: The model for these companies is more of a function of the specific business dynamics in the market they serve than it is a function of ‘cleantech’ versus ‘high-tech’ – in other words, we will be investing in some companies that are very similar to established models of Israel technology companies in that they are developing software or semiconductor-based products, which are addressing customers or markets that are driven by demand for resource efficiency or clean energy/water etc. On the other hand, we are investing in companies which have a potentially longer development cycle, either because they are targeting ‘core’ opportunities in water, energy etc. in which the barrier to acceptance and implementation of new technologies is quite high.
What’s the exit for these types of companies, IPO or M&A?
MU: With respect to the M&A versus IPO path, the presence of major industrial companies in these markets is a positive in that they have very active M&A practices which target both scale (buying larger businesses) as well as innovation (buying R&D capability or IP). However many industrial M&A transactions carry lower multiples or purchase prices than technology investors expect, which means that a venture investor looking to these acquirers to provide an exit needs to be very disciplined about the valuations paid at inception and amounts of capital deployed along the way. We do expect that successful Israeli cleantech companies will emerge that have the option to seek liquidity for investors via public offerings, either via the NASDAQ, AIM or even TASE. The key in the end is to back strong teams targeting large growing markets – and there’s no question that we’re seeing some very strong teams, and cleantech clearly touches large growing markets.
Does Israel have an advantage in developing cleantech?
MU: In water, Israel’s experience with overcoming substantial resource constraints to meet the needs of a growing population has fueled both successful industrial entities (Netafim, IDE) and enormous depth in academic institutions’ focus on all aspects of the water market (Ben Gurion, Technion, Weizmann, etc).
In energy, Israel has spawned world leaders in large scale solar (Luz, Solel), geothermal (Ormat) and other niches. In the end, it is Israel’s pool of proven entrepreneurs, and those entrepreneurs’ ability to identify a market opportunity and rapidly develop & field an innovative solution that is working in Israel’s favor.
How does the regulatory environment in Israel affect your investments? MU:The regulatory environment [in Israel] can be more or less supportive of innovation, but in the end is not what really drives company formation or entrepreneurial activity. In these critical categories Israel looks poised to emerge as a genuine cleantech leader, particularly in a number of niches.
And, it should be noted, that in a number of respects, Israel’s regulatory environment is getting increasingly friendly and supportive, whether via Mekorot’s WaTech programs, the Ministry of National Infrastructure’s Startergy grant program or a number of other regulatory and policy tools that are being rolled out.
Tell me about Shai Agassi’s Project Better Start. Why is the former Board Member at SAP’s project so compelling?
MU: First, the combination of entrepreneurial talent, industrial heft (via Renault and Israel Corp), and a substantial amount of capital is a unique story. Second, one of the key challenges in substantially impacting the energy, water or transportation markets is the scale of the markets. As distinct from a specific technology that a company is trying to get out into the risk-averse automotive end-market, Better is pursuing a visionary strategy designed to achieve large-scale deployments of electric vehicles.
This strategy is based on a capital deployment model which will enable consumers to overcome the greater up-front costs of existing battery systems by leveraging the lower life-cycle costs of EVs versus internal combustion engine vehicles – this can only be done in a big way, which is how Shai is doing it. We’re obviously a very small part, but we see Better as being at the nexus of an extraordinary number of technology niches, many of which have direct relevance to our focus on backing Israeli cleantech leaders.
It sounds like you’re segmenting the market with CleanStart, your JV with Greylock focused on seed-level investments. How does CleanStart fit into CleanTech Ventures’ model?
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A couple of months back, a jewel in the Israeli cleantech crown 
uber-entreprenuer who had sold his software firm to German software giant SAP, had pretty compelling statitics backing his new venture — a venture focused on developing the infrastructure for mass-market electric cars.