Silicon Valley’s Water Conservation Conundrum

­“Silicon Valley has been talking about water technology since they started talking about clean tech, but there are no new big ideas,” said Joel Makower, the chairman and executive editor of the GreenBiz Group.

Menlo Park, Calif. — Silicon Valley has a richly deserved reputation as the world’s engine of technology innovation, with a track record that includes developing integrated circuits, microprocessors, personal computers and smartphones. This is a culture of confidence and bravado. Ask a bunch of tech leaders about their goals, and it’s a good bet that many of them will utter the words, “To change the world.”

Now would seem a ripe opportunity to find some groundbreaking answers, with California facing such a severe drought that Gov. Jerry Brown has imposed water restrictions.

But the wizardry of the Valley’s innovation has its limits, at least for now.

Here on Sand Hill Road, home of the region’s venture capital firms, there was a brief love affair with “clean tech” at the beginning of the last decade, but it fizzled and is now considered an ill-advised rush to invest in a range of sustainable energy startup firms. The Valley’s investors learned a hard lesson — that energy technologies often required larger investments and had longer development cycles than they would have liked. And when the market for solar panels was flooded by low-cost Chinese competitors, the “change the world” mantra of the venture capital community moved on to focus on social networking, software and other Internet investments.

The water crisis simply may be a poor match for the Valley’s skill set.

“Not sure I have much to say on the water crisis that is enlightening,” said Vinod Khosla, one of Silicon Valley’s pre-eminent venture investors who has made significant clean-tech investments, when asked about the drought last week.

The challenge of the water crisis has complications that give investors pause, too: The solutions may have more to do with changing policy than technology breakthroughs at this stage.

“Water is not a rational market today,” said Brook Porter, a partner in Kleiner Perkins Caulfield and Byers Green Growth Fund. The problems, he said, include inefficient or nonexistent pricing mechanisms, and regulatory bodies that may be resistant to change.

“It is daunting for a startup to navigate,” he added. “The problem is more market-based than technology-based.”

The lack of interest by Valley investors in water can be seen in the drastic decline in new investments in water and wastewater startups last year, even in the face of a worsening drought. New investments declined 39 percent last year to $358 million, and the number of deals fell by 42 percent to the lowest level since 2009, according to the i3 research group of the Cleantech Group based in San Francisco.

Where the region shines is in “disrupting” existing markets. The Valley’s idealized image is of two partners toiling in a garage, developing a technology with the promise of delivering accelerating returns.

The two Steves — Jobs and Wozniak — still embody this Silicon Valley ideal. One was an inventor who built a computer as a hobby to share with members of the Homebrew Computer Club (with no intention of creating a business or a product), and the other had the foresight to see a new commercial market.

But that model is a poor fit for the water conservation conundrum in California, where roughly 80 percent of the state’s water is consumed by agriculture. Water is still inexpensive, as well, which serves as another barrier to innovation.

“Silicon Valley has been talking about water technology since they started talking about clean tech, but there are no new big ideas,” said Joel Makower, the chairman and executive editor of the GreenBiz Group, based in Oakland, Calif. “It all comes down to the price of water. When it’s cheap, efficiency doesn’t pay.”

To date, technology innovations around water conservation have largely come from Israel, home to an entrepreneurial culture that mirrors Silicon Valley’s, plus more flexible policies and market incentives. Indeed, the sensor-based irrigation innovations that might have been expected to come from the Valley have largely come from Israeli entrepreneurs, as well as more traditional businesses like the wine industry and farming equipment, said Michael Kleeman, a sustainability specialist and a senior fellow at the University of California at San Diego.

He argues that the Valley has excelled in creating new markets rather than satisfying crying needs in existing ones. Much of the excitement in Silicon Valley today revolves around ideas like Elon Musk’s Hyperloop transportation system or colonizing Mars.

There are exceptions. One example of a classic Silicon Valley startup that is growing quickly is WaterSmart, a San Francisco-based startup that marries the social networking reach of the Internet to the conservation needs of water utilities to change consumer behavior and to detect leaks. Earlier this month, the company announced a $7 million investment round.

One of the company’s early investors was Steve Westly, a politically savvy venture investor who was an early executive at eBay. He acknowledges the Valley’s lack of interest in the water problem, but says that has played to his advantage.

“We believe this space is booming and a lot of the other firms left at precisely the wrong time,” he said, noting that WaterSmart is rapidly picking up speed in signing on water utilities for its software. “The point is that our water system is in such disrepair. There are people with water conservation issues all over the country. It’s not just a California issue. It’s a global issue.”

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