Clean water drives Oasys funding

Drinking water is displayed at a booth during Singapore International Water Week, a gathering for the global water industry, June 26, 2008.

SAN FRANCISCO (Venture Capital Journal) - In a bid to capitalize on escalating demand for potable water, Boston-based Oasys Water Inc. has raised $10 million to pilot a technology it says could halve the cost of desalination and wastewater treatment.

Oasys Water, a Yale University spinoff, is commercializing a technology it calls engineered osmosis that uses waste heat from power plant smoke stacks to filter water. The funding will be used to scale up a test facility and to pursue licensing and partnership deals with water treatment providers.

"The only real way to significantly reduce the cost is to eliminate the need for lots of electricity," says CEO Aaron Mandell, who is also a managing partner at GreatPoint Ventures, a Boston-based firm that invested an undisclosed amount of seed funding in Oasys.

Mandell estimates it currently costs between $0.90 and $1 to turn one cubic meter (or 264 gallons) of seawater into potable drinking water. He says Oasys's technology can lower the cost to $0.35 to $0.50 for the same quantity.

Investors in Oasys's $10-million funding round include Advanced Technology Ventures, Draper Fisher Jurvetson and Flagship Ventures. Mandell says an additional funding round, expected to total $30-50 million, is needed to commercialize its technology on a broad scale.

The current funding comes amid an active period for venture investment in the water purification sector. Companies that received money in the past six months include WaterHealth International, a producer of contaminated water treatment technology that raised $10 million in January; NanoH20, a developer of membrane materials for water purification, which raised $15 million in September; and Quench, a distributor of water purification coolers that closed a $26 million funding round in August.

According to consulting firm Lux Research, spending on water treatment products and infrastructure is slated to rise sharply, jumping from $522 billion in 2007 to nearly $1 trillion by 2020. Researchers forecast that by 2030, the world will use 40 percent more water than today, and nearly half of the world's population will face severe water stress.

Mandell estimates that the desalination market is at least $30 billion, but that is a fraction of the broader wastewater treatment sector.

That said, given the difficult economic climate, raising venture capital for a water-treatment business was still challenging. "The fund-raising process is much higher now than it was a year ago," Mandell says. "But water was definitely a hot topic for many of the venture capital firms we hit."