"I have been involved in several water technology start-ups," says Aquarius Technologies Inc. president and CEO Tom Pokorsky, formerly president of ITT's advanced water treatment division. "I was associated with technologies some of which were more successful while others were less. I learned from experience to identify the drivers that an entrepreneur needs to look at before he begins investing in technology." Pokorsky was the keynote speaker in a forum on water solutions at the Second Israel Innovation Summit held the other week in Haifa, and sponsored by Elron Electronic Industries Ltd. (Nasdaq: ELRN; TASE: ELRN).
"The future drivers are the availability of fresh water and the availability of energy," continues Pokorsky. "Energy requires a lot of water, especially alternative energy. At the same time, a lot of energy is used to purify water. These reciprocal relationships need new solutions. These will be the biggest issues of all in the future in cleantech, so it will be necessary to develop lots of technologies in order to provide solutions. Those who do this will be successful. I already know of one product that reduces the need for energy in waste water purification by 20%," he adds.
"The world demands more and more fresh water, and supplies of such water are already overstretched. So there has been a switch to methods such as desalination. On the other hand, the new sources of water, like desalination, require a lot of energy. Desalination, for example, uses four to five times more energy than is needed to provide fresh water without desalination. Meanwhile, creating alternative energy sources can sometimes require between 10 to 20 times more water for every kilowatt produced, than production from fuel. I believe that the solution will be the invention of many different technologies in this area," says Pokorsky.
Aquarius was established by venture capital fund, L.Capital Partners, on the basis of the acquisition of the technology of an Israeli company Elif-Environmental Engineering Ltd. The company has developed technologies for treating industrial and municipal waste and for purifying water with biological methods that do not create sludge. Pokorsky is a veteran with 30 years experience of water and waste water treatment. He previously served as chairman of the Wastewater Equipment Manufactures Association when he was president of Sanitaire, now part of ITT Corp, and is considered one of the world's leading experts in the field.
It's now 10 months since you began managing Aquarius. What progress have you made to date?
"We've put together a management team for Aquarius, comprising the top experts in this business, many of them with 20-30 years experience in the field. We also hired an additional 20 people.
"We're focusing on the North American market, because it's a very mature market with a lot of potential. We're also placing emphasis on Southern Europe, and the Mediterranean region, in particular Spain and Italy, since these are countries which lag behind European standards. In Spain, for example, there are many small villages that don't have any waste water treatment, unlike the situation in Germany and France, which are advanced in this field. Just because this technology is new, it's very appropriate to start with it in small places.
"In addition we’ve signed agreements with 30 distributors across North America, and we have set up a strong sales network. We've already signed contracts for municipal and industrial projects in North America and Southern Spain. This is a substantial output, since a process like this usually takes two years rather than ten months. I think that the rapid pace results from the quality and number of distribution teams, and the considerable interest that has been shown in the technology.
"We're currently running four pilot schemes simultaneously, for the industrial and municipal sectors. Once the pilots are successful, each one of them will translate into a contract, since we deliberately chose places that have a need for the technology and are suited to it. In addition we're looking at a long list of projects, worth $1.05 million each.
"We're also considering adding technologies to the company, complementary and stand-alone ones alike. To put it differently, instead of buying components outside, we would like to produce these ourselves too, thus improving our technology, and sell them as independent components to other companies."
What sort of water company could interest the corporations?
"A company with a technology that will differentiate its product from that offered by other companies, and which has significant market growth potential. If corporations see a technology that is only just beginning to expand its sales and markets, they will be willing to pay, and pay plenty.
"Another important element is the size of the product's profit margins. This is the difference between venture capital funds and conglomerates like ITT. Companies like ITT don’t want to buy just a technology with a profitability model only, since they need to show their shareholders an immediate return on investment. GE, for example, has just bought a company called Zina, which has lost $40 million, but whose business plans point to 25% growth. Large companies have no interest in companies with sales of less than $40-50 million. When I was at ITT, I would have to argue with my superiors over investments in companies of $20-25 million, because they thought it wasn't worth it."
How do start-ups, which account for most of the industry, overcome this barrier?
"They find companies like L Capital, that is to say, venture capital funds. As this a field that requires markets in the US and Europe, it's difficult to do it alone."
What's the best way to penetrate the various markets?
"In North America - through independent distributors for each region; in Europe - through large companies and conglomerates, and in Asia - through a contact with a local company."
The start-up trap
The inability to raise money is the Achilles heel of Israeli cleantech entrepreneurs. When it comes to cleantech in Israel, there's plenty of willingness to help raise finance, but a genuine fear of any real step towards investment in seed companies. L Capital partner and CFO Oded Weiss, which also invested in Elif, a company that already has sales, says the solution lies with the Chief Scientist at the Ministry of Industry, Trade and Labor.
"There are two solutions in Israel," says Weiss. "One is private investors, angels. The other is technology incubators. The idea is to offer the technology to the first customers at a lower price. The thing is to find the first customer. In the case of Elif, for example, the entrepreneur started the venture as an incubator company to try and sell the technology. He found two customers, one of which was a factory that had been repeatedly fined because it didn't know what to with the sludge and incurred a lot of costs because of this. Elif's technology was a great success there.
"It pays to use technologies in sludge treatment, since the cost of sludge clearance in Israel amounts to 25-50% of the cost of a waste water treatment facility. There's a tremendous saving the moment there's no longer any need to get rid of it, so the investment is offset pretty quickly.
"The entire difference is between those companies that hand over their management to someone who understands the job, as was the case in Elif (Aquarius), and companies where the entrepreneur insists on penetrating the technology himself, which on many occasions is doomed to failure. Ego is usually the Israeli entrepreneur's biggest enemy," says Weiss.
Published by Globes [online], Israel business news - www.globes.co.il - on April