Over the past few months, we’ve taken our best shot at mapping the contours of the water tech landscape – from the hard tech innovations reshaping water quality testing and treatment, to digital and AI-driven tools giving operators more control over their systems. For my final contribution to this blog series, I’ve decided to shift gears and bring in direct, unfiltered perspectives from the investors funding this work. Here, they’ll share what they see on the horizon – and what they wish founders knew.
I spoke with Peter Yolles, Founder and Managing Partner at Echo River Capital and Tom Ferguson, Founder and Managing Partner at Burnt Island Ventures. Both have backed dozens of early-stage startups in this sector. Both bring rare operator and founder experience into their investment lens. And both offered candid perspectives on what works, what doesn’t, and where they believe the real opportunities lie.
Peter Yolles began his career in water policy before co-founding WaterSmart, a data analytics and behavioral science platform for drinking water utilities. After guiding WaterSmart to a successful exit via acquisition in 2020, he shifted into advising and investing – work that ultimately became Echo River Capital. Today, ERC’s portfolio spans 25 companies worldwide, shaped by Yolles’ “3D” thesis: digitize, decentralize, and decarbonize.
Tom Ferguson first entered the sector while co-authoring the Carbon Disclosure Project’s inaugural water report in 2010. He went on to lead Imagine H2O’s accelerator, working with hundreds of founders, before launching Burnt Island Ventures in 2020 – the first specialist seed fund devoted entirely to water. His firm has since become a go-to early and growth-stage backer for companies tackling everything from leak detection to utility software, guided by a simple conviction: water is too important to remain underfunded.
The stakes are far too high – water is a fundamentally essential resource that remains undervalued, and we are quickly closing in on a supply-demand mismatch with potentially dire repercussions for every system, product, and service we rely on. Ferguson doesn’t sugarcoat it: he launched Burnt Island Ventures with the conviction that “water was clearly unbelievably important, and no one cared. In that gap is a really interesting delta that was only going to close in the coming decades.” For him, the challenge – and the opportunity – has always been hiding in plain sight.
But he also warns that compelling narratives don’t always translate into viable businesses. “Over time, selling a dollar for 80 cents just doesn’t work.” Too often, weak business models get blamed on the sector itself rather than on poor underwriting.
Yolles echoes that emphasis on fundamentals. Regulation may create tailwinds, but it can’t be the core of the business case. “We don’t invest in companies that are purely reliant on regulation… founders must really understand the customer’s business better than they do, and build a value proposition that adds to the bottom line.”
The message is clear: water is an investable sector, but only for founders who build resilient, ROI-driven models. As Ferguson put it, “nobody likes hard. But if you can get through hard, then what that gives you is quite an interesting moat.”
One of the longest-running misconceptions in water tech is that sales cycles are impossibly slow. Yolles pushed back. “I do think that this notion of a slow sales cycle in water is actually a myth – most of these are B2B companies, and it’s an enterprise sale just like any other. The average enterprise process is around a six-to-eight-month timeline, and that’s been consistent. The water tech space isn’t really any slower.”
Ferguson added that what some investors see as barriers can actually be defensible moats. Take municipal RFPs, often dreaded by founders: “If you get good at RFPs, you win them all. Because very few people apply, and those who do often don’t do them very well.”
RFPs may look like red tape, but they’re also where discipline and strategy pay off. The key is to be intentional about where you compete. “If the RFP isn’t written for your company, you’re not going to win it,” Yolles cautions. The smartest founders either influence the process by earning trust and building sound relationships – or skip the mismatched opportunities entirely.
Either way, what many might cast off as friction can actually be a solid opportunity – for those disciplined and driven enough to navigate it.
Both investors are enthusiastic about the pipeline of solutions emerging today. Ferguson pointed to the “cat’s cradle disaster” of utility and industrial data systems as one of the sector’s biggest opportunities. Automating data cleanup and connecting siloed workflows could unlock tremendous value. “It’s always a good idea to sell to the CFO,” he added, hinting at where the purchasing power really sits.
On the physical side, he sees potential in trenchless pipe replacement and robotic interventions that stretch capex timelines. And, like many in the sector, he believes the long game is reuse: “If we can use the same droplets of water over and over again… the issue gets much better really quite fast” – especially as electrification, AI infrastructure buildout, and other water-intensive transformations start to really accelerate.
Yolles’s current focus areas echo his firm’s “3D thesis” – digitize, decarbonize, decentralize. He also puts real emphasis on the need to digitize water information and transform traditionally analog mechanisms into accurate, real-time, in-situ data. And on the decarbonization front, emerging contaminants like PFAS and microplastics remain a priority, but Yolles is also watching methane reduction closely: “about 10% of global greenhouse gas emissions come from the human management of water, half from the built environment (i.e., moving, heating, and treating water) and the other half from the natural environment (agriculture, reservoirs, etc.) …a lot of those direct emissions are methane and nitrous oxide, which have a much stronger effect on climate than CO2.” For him, decarbonizing water is as urgent as decarbonizing energy.
Both investors are candid about the paradox of AI. On one hand, data centers are set to become water’s newest stress test. “The single largest new demand for water over the next 20 years will be data centers,”Yolles said, citing Echo River’s current research.
On the other hand, AI is also a core enabler for utilities and industry. Ferguson flagged companies building purpose-built, reliable AI for operators: sewer inspections (SewerAI), emergency response (Daupler), or infrastructure design (Transcend). “AI in water has to be right all the time – and that’s not AI’s specialty,” he cautioned. The winners will be those grounded in proprietary data, not generic models.
For both investors, AI is a tool, not a panacea – with a “handle with care” label firmly attached.
Earlier this fall, Burnt Island Ventures closed its second fund with $50 million committed to advancing critical technologies across the global water value chain, strongly signaling that investor confidence in the sector is deepening and that early water-tech backers are doubling down on their conviction. The good news is that exits are happening. Yolles pointed to Autodesk’s $1 billion acquisition of Innovyze and Badger Meter’s $185 million purchase of SmartCover as signs that scaled outcomes are possible. Ferguson highlighted M33’s strategic investment in SwiftComply, and Thermo Fisher’s $4B acquisition of Solventum assets. He sees the sector itself approaching a tipping point. “Water is just lifting off the S-curve in terms of maturity as a vertical for investment,” Ferguson said, comparing its trajectory to fintech a decade ago.
The implication: this is an entire investable category poised for accelerated growth, and founders entering today have the opportunity to forge real, transformative impact.
Across these two conversations, the message to water entrepreneurs was simple: Build real businesses. Learn to think like your customer. And don’t be afraid of what looks hard – it may turn into your moat.
Our earlier blog posts mapped the tools, and now Ferguson and Yolles have sketched the playbook: fix the core, measure what matters, reuse wherever possible, and never rely on hype to carry weak fundamentals. The future of water innovation will belong to those who heed that advice – and build companies resilient enough to outlast both bubbles and droughts.
