Why do so many new water technology companies struggle?

I was at an American Membrane Technology Association (AMTA) workshop last December focused on the use of membranes in the oil & gas and mining industries and in a discussion with a professor who had done a lot of research on forward osmosis (FO) applications I learned of the demise of Oasys Water in the past 12 months. Oasys was one of the water tech shooting stars a few years ago, promising great new applications for forward osmosis for seawater desalination and oil and gas produced water treatment. The professor I was speaking to was a big proponent of forward osmosis ten or so years ago and his group at the Colorado School of Mines had done a lot of work looking at the use of FO for produced water treatment applications.

Over that time he said the producers of the FO membranes have failed to deliver a robust product with issues such as contaminant leakage, fouling and membrane integrity not being solved. I believe another FO company called Hydration Technologies (HTI) has been restructured and refocussed. I don’t want to get into the technical issues of FO but rather why did these start-ups with a lot of investor backing and seemingly great technology fail?

Here are a few of my thoughts as to why I think many water tech start-ups struggle:

Technology is brought to market too soon

In the excitement over the great potential for a technology, it is brought to market too soon without enough testing in real world applications to iron out technical flaws and while product development is still underway. I suspect executives are too impatient to sort out these details and want to get the product to market ASAP and assume the technical flaws can be worked out on field trials for commercial opportunities. I agree that you don’t want to delay launching a product until every minor technical detail is finalized but word travels fast in the water industry and a failed pilot study can be a critical set back to a new technology. There is a delicate balance between getting a product to market ASAP to capture an opportunity and start bringing in some revenue and continuing costly product development until the technology is perfect. I assume that in some cases start-ups are pressured by investors to commercialize a product too soon, so they can start getting a return on their investment.

Once brought to market, all product development stops

I have experience working for a company where once the new technology was commercialized, all efforts were put into field demonstration testing to get some sales while research and product development efforts were put on hold. Even when there was feedback from the field testing that some product improvements were needed to eliminate some issues, there were no resources available to work on these issues. I can see how in the urgency to demonstrate market acceptance and make investors happy after years of sinking money into product development there would be pressure to focus solely on making sales, but inevitably the field testing will find some product flaws and there must be resources allocated to further product development to keep the product competitive. Also, customer needs change and companies must adapt to keep meeting these needs. At the AMTA workshop one presenter explained how fracking chemistry has been improved to allow high salinity produced water to be reused in fracking whereas several years ago it was necessary to desalinate this water for reuse. That pretty much killed a key market Oasys Water, HTI and other forward osmosis companies were targeting!

Poor understanding of market

The municipal water treatment market is a conservative industry. If that is the target for a new technology the startup must be very patient and prepared for a very long sales cycle starting with small installations and very slowly building up to larger systems. Even if the technology is amazing and appears to have little competition, end users will be wary of buying an important piece of process equipment from a company that is new to the market without a track record and evidence that the company will still be around in several years to provide the customer with the technical support, parts/consumables necessary to keep the equipment operating in the future. Process equipment is typically a large capital investment and very few if any water utilities want to be the first to adopt it, even if it is widely used overseas. Industrial customers can be a bit more open to new technology and are often a good proving ground before entering the municipal market. But I still have seen companies with technologies proven overseas enter the US market expecting to hit the ground running and start selling to larger systems and end up very disappointed by the lukewarm reception from engineers and end users.

Other Start-ups to Watch

There are a few water tech startups I am watching with interest to see how they hold up in the next few years.

Nanostone Water, a ceramic membrane manufacturer, has been around for over 5 years now and in the last 1-2 years has been more aggressively pursuing commercial installations. In the early days its activities focused on pilot studies to prove the technology and also finish product development without racing to get sales, which I think was very prudent and showed great patience by the company’s investors. In recent years it seems like the development phase is mostly finished and the expectations are to start getting some sales, primarily in the drinking water market. I am not sure why the conservative drinking market has been initially targeted unless it is considered that the technology is ready for that market so that immediate sales can be pursued while development continues on more challenging applications. I would think for relatively non-challenging drinking water treatment in general it will be very difficult for a ceramic membrane to economically compete with a polymeric membrane. Especially considering that there are some very good polymeric membranes on the market that have minimal integrity issues on drinking water, where superior integrity is the main benefit offered by ceramic membranes. There could still be some legacy Memcor and Zenon systems out there that have to pin a lot of membranes, but polymeric membranes have come a long way since the late 90s/early 2000s and these systems should not be used as the standard for polymeric membranes.

There are some niche challenging potable applications such as backwash water recovery that Nanostone has done a good job in getting some early retrofits as mentioned in my previous post, but I don’t think they are ready for competing against polymeric membranes for mainstream filtration applications. Another big advantage of ceramic membranes is the significantly higher flux possible compared to polymeric membranes. I would therefore look at the wastewater reuse market where organics result in reduced fluxes for polymeric systems, more cleaning and therefore more chance of irreversible fouling and a shorter membrane life – all issues that ceramic membranes claim not to have. It seems too obvious be me, so there must be some issue with wastewater filtration using ceramic membranes that I am not aware of. I do know the Parker Water & Sanitation District's (Colorado) Metawater ceramic membrane system has had some fouling issues and the feedwater has a wastewater input so perhaps the characteristics of these organics are not favorable.

PolyCera has been a more recent entrant to the market after being spun off by Water Planet in 2017 to sell its membranes developed from a unique material. The main product is an organic polymeric UF membrane with similar properties to inorganic ceramic membranes which allow the membrane to have similar fouling resistance to ceramic membranes as well as being able to tolerate more aggressive cleaning regimes than conventional polymeric membranes. I saw a presentation from PolyCera a few years ago on a produced water treatment application in California where a full-scale system has been installed and this seemed like a very good market for PolyCera’s membrane. The thing is, I haven’t seen anything new presented since then other than a few pilot studies. It may be that PolyCera's membranes have applications in industries that I don't work in.

I do not know the strategies of any of the companies mentioned in this post and have just thrown a few theories out there based on my own experience on why some of these companies may be struggling. I am excited by the innovations out there in the water treatment market and really hope that they can be successfully brought to market when they can offer real benefits to end users.

The opinions expressed in my posts are mine and not those of my employer.