VentureBeat

Seven Bay Area recycled water projects could pave the way for a wave of new investments in the growing sector if the Consolidated Natural Resources Act of 2008 is ratified by the president. The measure authorizes the U.S. Bureau of Reclamation to defray up to 25% of the projects’ construction costs.

The extra government push could be just what the staid water sector has been looking for: An opportunity for local startups to dive right in and begin reaping the rewards of a cleantech field with a lot of room to grow. Two projects in Santa Clara County, which would provide recycled water for landscape irrigation and industrial use, would each receive an estimated $15.25 million.

Other areas that would benefit from the government’s largesse include Redwood City, Palo Alto, Mountain View and several others. The projects will make around 12,205 acre-feet of water available annually in the short term, and up to 37,600 acre-feet in the long term. With water supplies growing tight, these reservoirs, whose water will not be at the mercy of the weather or changing climate, will allow 17 Bay Area cities to free up large volumes of potable water for other, more lucrative uses.

Unbeknownst to most, water is a critical resource — not only for drinking, but also for the manufacture of everything from chemicals and construction materials to light bulbs. This is what’s known as embedded, or virtual, water — the amount that is used up during all aspects of a product’s life cycle. And while most companies still take it for granted, the quantity of embedded water — in projects and products of all sizes and shapes — is only expected to grow larger, and more expensive, over time.

Possible government policies to reduce water consumption, such as marginal pricing, would be especially painful for the heavily water dependent construction industry. Companies that design systems to manage and optimize water use throughout a product’s lifecycle — for the both consumer and industrial use — would certainly gain some traction in this market.

Because water is still relatively cheap, there is an opportunity for an ambitious startup or two to capitalize on the coming shortages by developing cheaper, more effective water recycling technologies. The Palo Alto Research Center (which Dean Takahashi visited a few days ago), for example, is working on particle manipulation technologies that could be scaled up for applications like desalination and membrane-free filtration. Other technology categories that could see some growth are: energy efficiency of treatment and distribution systems, waste minimization/recycling and better identification/capture of new sources.

Miox and Purfresh are two firms that have seen their fortunes rise with the increased global demand for purification equipment and services. Having already racked up a large volume of sales in the U.S., both are aggressively expanding their operations overseas, particularly in developing countries which lack advanced water treatment infrastructure.

With a recent EPA report highlighting the need to recognize and address the threats posed by global climate change on dwindling water resources, it seems likely that the federal government will continue to provide the necessary financial incentives for companies to innovate, and profit, in this sector.

The convergence of several global trends — rising populations, increased food production and declining water stocks — has helped turn the once dull water sector into a cleantech darling. Startups that specialize in filtration, purification and treatment technologies have popped up in recent years, with more likely to come as worldwide demand for for clean water grows.

Miox, an Albuquerque, New Mexico, company that sells water purification equipment, has greatly benefited from these trends — having already expanded its presence overseas to over 40 countries. The company has received over $30 million in venture capital funding, including a $14.5 million second round in January 2007; its lead investors include Flywheel Ventures and Sierra Ventures.

Originally developed for the military to provide a low-cost water, chemical-free purification method, MIOX’s purifiers are now used in a variety of industrial water treatment applications. When untreated water is added to the purifiers, it is mixed with salt and zapped with the simple push of a button; through a process known as electrolysis, the electric current separates the salt into its components — sodium and chloride.

The result, a mixed oxidant (a combination of chlorine and chlor-oxygen compounds) solution, can destroy all pathogenic microorganisms within the span of a few hours. Each purifier is able to process large volumes of water with only a little salt and simple camera batteries.

Mountain Safety Gear (MSR), a company that caters to outdoor enthusiasts, uses Miox’s technology in its handheld purifiers. The technology has also been incorporated into large industrial machines, which are used in factories and municipalities worldwide. The $1.5 billion City of Dreams casino in Macau, which will open in late 2008, will install eight of its industrial water purifiers, and the company recently announced a partnership with distributor DUPUY SAS to install its water treatment systems in France.

It also plans on opening a regional office in Hong Kong to manage sales in Asian markets. It used a chunk of the seed money it raised in 2007 to aggressively expand into Colombia, Mexico and other Latin American markets.

CEO Carlos Perea expects demand in developing countries, which lack advanced water-treatment infrastructure, to remain strong. Eastern European countries, which are struggling to modernize their infrastructure in time to enter the European Union, could be the company’s next target; Romania was the first to purchase an industrial purifier last year to treat water in the River Bega. International sales accounted for 31% of Miox’s total sales in 2007, and the company is on track to increase sales by 100% this year, according to Perea.

Purfresh, a Livermore, California, company that provides purification services to the food industry, has also seen its business surge over the last few years — spurred by large investments from corporate giants like Coca Cola and PepsiCo. In addition to its proprietary water purification systems, which use ozone to disinfect untreated water, it sells sunshields for increased crop yield and Intellipur, an informatics system which helps track food in storage or transit.

According to recent statistics, more than 1 billion people in the world currently lack access to clean water — a figure that is likely to worsen over the next 2 decades as the average supply of water per capita drops by a third. Companies like Miox and Purfresh will be well positioned to take advantage of this global trend.

Purfresh is the new name of Novazone, a Livermore, Calif., company that disinfects and protects water and fresh produce, and which is expanding to cover more aspects of the food business.

Purfresh offers one of a number of companies rushing to find new, efficient ways to clean pathogens from food supplies. People and businesses are becoming less tolerant of harsh chemical cleansers that have been used for such purposes, in part because of sensitivity about the environment.

Demand has turned Purfresh’s business into a rocket ship. The company has existed since the mid-1990s, but over the past few years, it has picked up more than 300 corporate customers including giants like Coca Cola, PepsiCo and Procter & Gamble.

The company changed its name to reflect its growing product line, which now also includes water purification systems, sunshields for increased crop yield, and an informatics system called Intellipur which helps track food in storage or transit.

Those new businesses are where much of the investment is going. CEO David Cope told us that the company “could be profitable tomorrow afternoon,” if it stuck with its developed ozone equipment business, but that it will instead be focusing on developing its newer product lines. At its current rate, Cope expects the company to hit profitability in about a year.

Purfresh has a proprietary technology for using ozone, but other startups have their own angles. Ioteq, for example, an Australian company we recently wrote about, uses a unique iodine-based technology to purify water better than chlorine.

The $25 million Purfresh funding was led by Chilton Investment Co. Previous investors Chrysalix Energy, Grauer Capital and Foundation Capital also participated, alongside one unnamed strategic investor. Purfresh has raised $42 million to date.