water investment environment

March 2007

Investment Environment in Water

Nothing contained in this presentation constitutes tax, legal, insurance, or investment advice, nor does the presentation constitute a solicitation or an offer by Aquillian Investments Inc. or its affiliates to buy or sell any securities or other financial instruments. Securities are offered only by Private Placement

Memorandum or Prospectus. Investing involves risk up to and including loss of all principal. Aquillian Investments Inc is a member of FINRA/SIPC.

Aquillian Investments, LLC www.aquillian.com (415) 677-9118 2

Outline

1. About Aquillian Investments

2. Overall Investment Opportunity

3. Global Trends and Drivers

4. Water Market and Expected Growth

5. Sub-sector Focus

6. Company Examples

7. Select Investment Opportunities (ETF, Mutual, Hedge, PE/VC)

8. Water Investment Strategies

9. Investment Risks

10.Conclusion/Questions

Aquillian Investments, LLC www.aquillian.com (415) 677-9118

Firm Overview

• Specialized investment research and consulting on emerging themes across all alternative asset classes

– Venture capital, private equity, project finance– Hedge funds, fund of funds– Real estate, commodities– Direct investments

• Thematic investment expertise focused on generating alpha through resource efficiency

– Clean technology– Sustainable natural resources – Health and wellness innovation

• Informational edge achieved through qualified industry experts

– Founded in 2004• 12 person team

– Based in San Francisco, CA• Offices in New York, Los Angeles, Connecticut, Chicago

– Serving fund of funds, corporations, foundations, endowments, family offices, public and private pension funds, and ultra high-net-worth investors

Presenter

Presentation Notes

The flow of the first few slides needs to follow a format – of who we are and what we do, what we believe, why we believe it, and why we’re better than anybody else in delivering on our declaration. Replace ‘emerging’ with sustainability or resource efficiency


Service Offerings

• Industry research– Analyze opportunities and deliver investment recommendations– Publish specialized research reports– Conduct seminars and presentations for institutional investors

• Opportunity identification, selection, and due diligence– Evaluate leading investment managers in thematic disciplines– Perform deep due diligence on selected opportunities– Identify direct investments for strategic venture and M&A advisory

• Investment policy creation and implementation– Define goals and provide strategic direction for funds in formation– Provide access to thought leaders, managers, and service providers– Assist in negotiating eventual transactions


Resource Efficiency Thesis

Presenter

Presentation Notes

DRIVERS OF RESOURCE EFFICIENCY ARE CREATING UNPRECEDENTED OPPORTUNITIES FOR ENTREPRENEURS AND INVESTORS


Water - Overall Investment Opportunity

• Water has no substitute at any price

• $400 billion market growing at 10-15% annually in developed economies, 4-6% in developing economies

• Demand for reliable, safe supply of water unaffected by inflation, recession, interest rates, inventory loss or change in taste/preferences

• Exponential growth in demand due to urbanization and industrialization around the world

• Supply side infrastructure in need of significant, long-term improvements and investments

• Regulatory environment driving innovation and adoption of clean technologies


Global-Macro Trends and Drivers

• Long-term Supply-Demand-Geographic Imbalance

• Aging Infrastructure Worldwide

• Urbanization and Industrialization

• Public Health Emergency, 1.1 billion people lack access

• Increasingly Stringent Regulatory Environments

• Moving Towards a Water Oligopoly

• Climate Change/Fluctuation in Precipitation/Snowmelt


Supply Imbalance

Areas of Physical and Economic Water Scarcity

Source: International Water Management Institute (IWMI), 2006

Presenter

Presentation Notes

Red: Physical Water Scarcity. More than 75% of the river flows are allocated to agriculture, industries or domestic purposes (accounting for recycling of return flows). This definition of scarcity—relating water availability to water demand—implies that dry areas are not necessarily water-scarce. For example, Mauritania is dry but not physically water-scarce because demand is low. Light Red: More than 60% of river flows are allocated. These basins will experience physical water scarcity in the near future. Orange: Economic Water Scarcity. Water resources are abundant relative to water use, with less than 25% of water from rivers withdrawn for human purposes, but malnutrition exists. These areas could benefit by development of additional blue and green water, but human and financial capacity are limiting. Blue: Abundant water resources relative to use: less than 25% of water from rivers is withdrawn for human purposes.


Persistent US Drought Conditions


Demand Imbalance

Aggregate Daily Water Usage Per Capita in Selected Regions(in gallons)


Aging Infrastructure

• Estimates of US investments to bring water infrastructure “back to acceptable rates” is between $277 and $420 billion

• The City of San Diego buys 300 million m3 of water every year, but 25 million m3 are never actually used, which costs the city approximately $22 million.13

• Total water loss nationwide is in the region of 23 million m3 per day, which is equivalent to the combined water consumption of America’s ten biggest cities.

• In France and Spain water is also being used inefficiently: around 30% of water is lost before it even reaches the end consumer

Source: USEPA, 2002; AWWA, 2007; European Environment Agency, 2007


Industrialization Drives Demand, Diminishes Supply

Global Demand For Water

Source: National Geographic, 2002; World Bank, 2001


Water Sector Consolidation

Water Technology M&A and IPOs, 2005-2006

Source: SVB Alliant, 2007


Select Water Acquisitions (1998-2007)


Current Market Size

Distribution and Management– Water Mains (New) 33 B– Water Main (Ren) 10 B– Sewers (New) 35 B– Sewers (Ren) 14 B– Pipes (all) 42 B – Valves 4.5 B– Pumps 8 B– Management 20 B

• Water and Food– Bottled Water 91 B– Organic Food 33 B– Irrigation 9-30 B

• Advanced Water Treatment– Sewage Treatment 104 B– Wastewater Treat. (Equip.) 12 B– Wastewater Treat. (Mem.) 4.2 B– Wastewater Treat. (Chem.) 13 B– Drinking Water Purification 129 B– Ozone Treat. 0.3 B– UV Treat. - 0.5 B– Membrane Systems Treat. 1.9 B– Thermal Desal. 2.5 B– RO Desal. - 2.4 B– Desal. Operations 7.3 B

• Demand-Side Efficiency– Ind. Wastewater Treat. 24 B– Domestic Install/Appl. 10 B– Wastewater Reuse 1.3 B– Water Meters 2.4 B

Source: SAM


Expected Water Sector Growth

• Investments of $400-500 billion annually (10-15% Growth)

• Distribution and Management– Water Mains (New) 7.2%– Water Main (Ren) 4.3%– Sewers (New) 7.4%– Sewers (Ren) 5.5%– Pipes 3.4%– Pipes (Plastic) 4.4%– Valves 6.7%– Pumps 4.3%– Management 10.0%

• Water and Food– Bottled Water 10%– Organic Food 10-12%– Irrigation 10%

• Advanced Water Treatment– Sewage Treatment 4%– Wastewater Treat. (Equip.) 6%– Wastewater Treat. (Mem.) 19%– Wastewater Treat. (Chem.) 4%– Drinking Water Purification 4%– Ozone Treat. 10%– UV Treat. 14%– Membrane Systems Treat. 20%– Thermal Desal. 4%– RO Desal. 8%– Desal. Operations 9%

• Demand-Side Efficiency– Ind. Wastewater Treat. 4-5%– Domestic Istall/Appl. 10%– Wastewater Reuse 17%– Water Meters 12%

Source: SAM


Representative Water Investment Opportunities


Specific Sub Sector Opportunities

Treatment and Purification• High Purity Water• Desalination

Monitoring, Security and Safety• Leak Detection and Monitoring• Control Systems and Smart Metering Technologies• Advanced Sensors• Agricultural Harvest, Transport and Food Washing

Distribution• Distributed Treatment, Storage and Delivery Systems• Separation of Water into Use-types

Demand Side Efficiency• Smart/Precision Drip Irrigation (Low-volume Irrigation)• Smart Appliances

Disposal• Water Recycling and Reuse• Biological and Mechanical Wastewater Treatment (non-chemical)• Sludge Minimization

Energy From Water• Tidal and Wave Power


Remote Water Quality Monitoring

Presenter

Presentation Notes

Venture-backed private technology company. Ardesta, Ann Arbor, MI - www.ardesta.com Firelake Capital Management, Palo Alto, CA - www.firelakecapital.com NGEN Partners, Santa Barbara, CA - www.ngenpartners.com Technology Partners, Palo Alto, CA - www.technologypartners.com Topspin Partners, Roslyn Heights, NY - www.topspinpartners.com Sensicore's mission is to create smart sensors and sensor networks that advance the purity and surety of water on a global basis. We help municipalities ensure the quality of the water they produce and assist them in safeguarding their water infrastructure. We accomplish this by providing complete water profiling information that is fast, reliable, easy to use and less costly. The introduction of WaterPOINT, the first lab-on-chip water profiler, is our first important step in achieving this mission. Sensicore... founded in the belief that smart sensors create smart solutions that improve the way we live.


Water Storage

Presenter

Presentation Notes

Currently raising a 6mm Series B Round.


Food Safety

• Ioteq was founded in Sydney, Australia, in 1999 with the specific aim of developing an iodine-based water sanitation system.

• Currently raising funds for US launch.• Alternative to chlorine due to the significant environmental, health and

safety problems associated with chlorine.• 150 successful commercial installations across Australia and New

Zealand in several agriculture sectors– Fruit and Vegetable Post-Harvest– Nurseries and Hydroponics– Food Processing– Poultry– Dairy

• The business model is that of “razor-razorblade” with one-time sales of the system equipment and subsequent regular purchases by the customer of the specially formulated iodine from Ioteq for use in the system.

Presenter

Presentation Notes

Background Existing sanitation systems predominantly use chlorine as the sanitation agent. There is strong pressure from government, industry and consumer groups to find an effective, cost competitive Ioteq recognized this pressure and has successfully developed and patented the ISAN® System, a revolutionary platform technology for the accurate dosing of iodine2 into water for disinfection and sanitation across many industries which has the ability to replace existing chlorine-based sanitation systems. Record Following development of the ISAN® System, and obtaining the Australia EPA and FDA equivalent registrations, Ioteq tested and proved the technology with 150 successful commercial installations across Australia and New Zealand in several agriculture sectors including: 1. Fruit and Vegetable Post-Harvest 2. Nurseries and Hydroponics 3. Food Processing 4. Poultry 5. Dairy Further opportunities have been identified in sewage treatment, drinking water, CIP, wine production, aquaculture, pharmaceuticals, beach remediation, cooling towers, and several other industries where disinfection is essential. Positioning The ISAN® System’s use of iodine is proven to increase product yields and reduce growth cycles due to the higher kill rates on bacteria, viruses and fungi. Additionally, it is the most technologically advanced system on the market for accurate chemical dosing and control of iodine into water with the ability to data-log, print Quality Assurance Certificates, connect to computers and be monitored and controlled remotely from anywhere in the world. The business model is that of “razor-razorblade” with one-time sales of the system equipment and subsequent regular purchases by the customer of the specially formulated iodine from Ioteq for use in the system. Opportunity Armed with global patent protection, Ioteq now intends to launch the ISAN® System in the US, and subsequently Europe and Asia, to take commercial advantage of the size and concentration of these markets. A California based senior management team, supported by a Technical Advisory Board comprised of pre-eminent scientific authorities, is ready to commence US operations. Ioteq has created a technology that, using iodine, is set to revolutionize the way industry sanitizes water, surfaces and food. Ioteq is now seeking funds to exploit this exciting opportunity on a global scale. 1 Dr. Joe Montecalvo, Professor and Consultant, Head of Food Science and Nutrition Department, California Polytechnic State University, San Luis Obispo, California, USA. Dr Montecalvo is a member of the Ioteq Technical Advisory Board. 2 Iodine is an element with proven sanitation and disinfection properties. Used globally for the disinfection of open wounds and general sterilization, iodine has been proven to be up to 5 times more powerful than chlorine, the most commonly used water disinfectant today. Chlorine is a dangerous chemical, hazardous to both workers and the environment, and poses significant technical issues to an operator for accurate dosing into water to achieve proper sanitation. Iodine is an element that is safe to workers, the environment and can now be dosed effectively into water to achieve accurate, self adjusting, digitally data-logged, and quality assured sanitation.


Food Washing

Presenter

Presentation Notes

A Canadian developer of cutting-edge household sanitizing systems, Tersano is an innovative company that is changing the way we think about cleaning chemicals, and in the process, creating an entirely new market category. Tersano's state-of-the-art technology improves quality of life and delivers peace of mind by providing consumers tools with which to reduce, if not eliminate, the need for toxic chemicals in their homes.


Food Safety

• Based in Pleasanton, CA• Recently closed $25M Series C Round• Chemical-free, ozone-based family of products has been approved by the

FDA, EPA and USDA to kill deadly, food-borne pathogens such as E. coli and Salmonella, while remaining 100 percent organic

• Safest and most natural purification and disinfection agent for both bottled water and pharmaceutical applications.

• Pre-harvest and post-harvest packaging, transport and cold storage processes.

• Thin-film sunshield, made from harmless calcium carbonate crystals, reduces sunburn damage and product losses for growers, resulting in better quality product and increased returns.

Presenter

Presentation Notes

Purfresh Closes $25M Series C Round with $5M from Perella Weinberg Partners Purfresh is a leader in clean solutions for food and water. Its chemical-free, ozone-based family of products has been approved by the FDA, EPA and USDA to kill deadly, food-borne pathogens such as E. coli and Salmonella, while remaining 100 percent organic; its water solutions use the safest and most natural purification and disinfection agent for both bottled water and pharmaceutical applications. Purfresh’s patented technologies preserve and protect the world’s food and water supply throughout the pre-harvest and post-harvest packaging, transport and cold storage processes. Its cutting-edge, thin-film sunshield, made from harmless calcium carbonate crystals, reduces sunburn damage and product losses for growers, resulting in better quality product and increased returns.


Distributed Water Treat.

Presenter

Presentation Notes

Effective against all water-borne pathogenic bacteria and viruses • UV-C light disables DNA of micro-organisms • Micro-organisms can’t replicate and soon die • High efficacy: 12 seconds to treat water • High throughput: 4 gallons/minute • Low operating costs • Low energy usage: Uses 6,000 times less primary energy than boiling water • Low maintenance • No effect on taste or smell of water


Distributed Water Treat.


Niche Water Systems

• Water and Wastewater Systems in the Caribbean

• Mobile Desalination Plants – Emergency and Contingency Water

• $20 million round Q1-2008 was led by TPG Growth and Element Partners. Virgin Green Fund, Advent-Morro Equity Partners and CEO Doug Brown also participated.

26


Water Efficient Treatment

Presenter

Presentation Notes

Privately held, Canadian company. Starbucks Canada McDonald’s Canada


Demand Side Efficiency - Residential

How US Households Use Water (%)


Dual-Flush Toilets

Presenter

Presentation Notes

The remarkable 6/3 liter two button dual flush system is the latest development in Caroma's research and technological advancement and a world first. With an average flush volume equivalent to just 3.8 liters, it is set to become the global standard for water usage. ��Compared with the traditional 11 liter single flush cistern, the 6/3 liter technology has the potential to reduce water usage by up to 67%. Caroma is Australia’s foremost designer, manufacturer, importer and distributor of domestic and commercial sanitaryware and bathroom products. Caroma is at the forefront of product innovation and is the market leader in reduced flush water efficient sanitaryware.� Caroma is a wholly owned subsidiary of GWA International Limited, a Brisbane based, Australian owned company, with diverse interests including Sebel Furniture, Rover Mowers, Dux Water Heaters, Dorf Tapware, Clark Sinks and Gainsborough Hardware. GWA employs more than 2000 people. Public: ASX:GWT


Tankless Water Heaters

Presenter

Presentation Notes

Noritz Corp (TSE:5943) �ENVIRONMENTALLY CONSCIOUS��Through all phases of production from development to manufacturing Noritz takes great pride in contributing our share of efforts to preserving the global environment by recycling, conserving resources, and curbing waste. Our environmental research has resulted in a breakthrough development of a burner that is highly efficient while minimizing NOx emissions. ��ENVIRONMENTALLY-FRIENDLY��1. Energy Efficient�At Noritz, we stress energy efficiency. Using advanced technology allows for 80-85% efficiency in our product. Noritz tankless gas water heaters provide an endless supply of hot water while heating only the demand that is needed. This performance cuts water-heating costs up to 50%.��2. Low Emissions�Over 50 years of rigorous research and development has brought Noritz to the forefront of tankless technology. Because of the high efficiency of our tankless heaters, the NOx emissions are minimized. In addition, because the water heaters only heat water on demand (less "on-time") they emit less CO than other water heaters.��3. Recycled Packaging�As part of our efforts to preserving the environment, we use recycled paper and materials in our packaging. This ensures Noritz products are environmentally friendly, even after leaving the production facilities.��ADVANTAGE��When you buy Noritz water heaters you can rest assured knowing that you are buying the highest quality products made with cutting edge technology and the best parts available. The excellent craftsmanship of Noritz's dedicated employees also makes it possible to deliver water heaters of the utmost quality to our valued customers throughout the world.


Smart Irrigation

Presenter

Presentation Notes

HydroPoint Data Systems, Inc. provides water management systems in the United States. Its products include WeatherTRAK ET Contollers, an irrigation controller, which automatically adjust irrigation schedules based on landscape needs and local weather conditions; WeatherTRAK ET plus, a home irrigation system; and lawn and landscape irrigation systems. The company also provides indoor and outdoor controllers for residential and commercial applications. It serves homeowners and small businesses, landscape professionals, property managers, builders and developers, architects and specifiers, and water providers. HydroPoint Data Systems, Inc. was founded in 2002 and is headquartered in Petaluma, California. Venture-backed Investors (USD in mm)InvestorRelationship TypeTransaction Date(s)Company TypeInvestment CoverageMost Recent Transaction SizeMost Recent Amount Invested Chrysalix EnergyCurrentFeb-01-2007Private Investment FirmGreg Sullivan19.00-Similar Investments: H2scan Corp.; TesSol, Inc. Firelake Capital Management, LLCCurrentFeb-01-2007, Nov-09-2005, Nov-11-2004Private Investment Firm-19.00-Similar Investments: Sensicore, Inc. J.F. Shea Venture CapitalCurrentFeb-01-2007, Nov-09-2005, Nov-11-2004Corporate VC-19.00-Similar Investments: Vaser, Inc. Monitor VenturesCurrentFeb-01-2007, Nov-09-2005, Nov-11-2004Corporate VCTeymour Boutros-Ghali19.00-Similar Investments: There are no similar investments RockPort Capital PartnersCurrentFeb-01-2007Private Investment FirmStoddard Wilson19.00-Similar Investments: Davidson Instruments, Inc.; EKA Systems, Inc. Sustainable Development InvestmentsCurrentSep-25-2007Private Investment Firm---Similar Investments: There are no similar investments Toro Co. (NYSE:TTC)CurrentFeb-01-2007, Nov-09-2005, Nov-11-2004Public Company-19.00-Similar Investments: There are no similar investments


Grey Water Recycling


Grey Water Recycling

Presenter

Presentation Notes

Perpetual Water - Home® allows you to save and recycle up to 67% of the water you use on a daily basis. The Perpetual Water - Home® can treat up to 660 liters of grey water per day. This gives you the potential to save and reuse 240,000 liters of water per year. Water collection Grey water from your shower, bath, handbasin and laundry is collected in a sump tank that its buried underground. When the sump tank reaches a certain level, a message is sent to the computer that water is ready to be processed in the settling tank. Settling tank The Grey water is in the settling tank for 7½ hours. A settling agent is added to the water which aids the contaminants in the water (such as dirt, detergent, sand, hair, lint) to settle to the bottom, leaving clear water at the top of the tank. The clear water then goes through a further filtration process and the small volume of contaminants at the bottom of the settling tank are flushed to the sewer. Filtration The clear water from the settling tank is then pumped through Perpetual Waters patented filtration process to complete the cleaning and treatment process. Perpetual Water - Home® is not a biological system, instead it uses a smart filtration method called “Active Adsorption Filtration”. There are 2 filters that combined contain 5 different filtering agents that remove any organic, inorganic and biological impurities from the water and adjust the pH level to an acceptable level. The end result …. safe, blue water that looks and smells just like tap water! Storage To allow safe storage of the purified water, a very small amount of chlorine is then added before the water is stored in a reuse tank ready for use by your household. Using your recycled water Perpetual Water – Home® comes with a re-use pump so that you can be sure that the water pressure is ideal for watering your garden and use back into your washing machine and toilet.


Energy – Water Nexus

• Investments in Energy Efficiency translate to Water Efficiency and vice-versa

• There is an increased understanding and appreciation of the energy and water interrelationships

• We are experiencing a “double whammy”– Increasing energy costs and a decreasing or degraded water supply

• Increased need and value for technologies that: – Increase energy production while decreasing water use– Increase water supply and quality while reducing the energy required to

provide it

• Two of the largest sectors of the global economy


Energy-Efficient Desal.


Wave Power


Tidal Power


Exchange Traded Funds

Ticker PHO PIO CGW FIW

Manager PowerShares PowerShares Claymore First Trust

Expense Ratio 0.66% 0.75% 0.50% 0.70%

# of Holdings 35 40 51 36

Top Ten Holdings % 38.05 42.07 54.56 43.29

Average Market Cap 22.04 B 19.55 B 17.59 B 5.41 B

Average P/E 24.96 23.17 22.41 25.77

Sector Allocation 26.03% Misc. Manu. 21.02% Env. Control

31.44% Water 23.82% Misc. Manu.

17.03% Water 14.25% Machinery 15.96% Electric 21.61% Water

13.43% E&C 13.33% Misc. Manu. 14.70% Misc. Manu 15.56% Machinery

Geo. Allocation 88.57% US 24.92% US 31.82% US 89.44% US

4.14% France 10.08% Japan 20.35% France 4.69% Brazil

3.45% Germany 9.93% Germany 13.67% UK 4.41% France

Source: www.seekingalpha.com, November 2007

Presenter

Presentation Notes

Water Indices: Bloomberg Water Index Janney Global Water Index S&P Global Water Index ISE Water Index Palisades Water Index

http://www.seekingalpha.com/


Water-focused Mutual Funds

• Pictet Asset Management – Criteron Water Infrastructure Fund – Canada (VEN5400)

• Sustainable Asset Management - US

• Kinetics – US


Criterion Water Fund

Source: Criterion, www.globalblue.ca, 20008

Presenter

Presentation Notes

Launched in 2000. Oldest and largest water fund. Offered in Europe and mirrored in Canada and Japan.

http://www.globalblue.ca/


SAM Water Fund

• The fund invests worldwide in companies providing technology, products and services relating to the water value chain, such as:

– Water distribution– Water management– Water treatment– Water analysis– Irrigation– Demand-side management

• Fund Basics– 64 Holdings– Top Ten – 37%– Less utility-focused– Tilted to mid to small-cap– Benchmarked to the MSCI World Index– Approx. 80% of holding have 20% of

revenues attributed to water– DCF model for sustainability and fair value

• www.sam-group.com

Source: SAM; S&P Fund Analysis, 2008


Kinetics Water Infrastructure Fund

• Aims to invest in securities issued by companies operating in the water infrastructure and natural resource sector globally. The companies targeted in the water sector will include, but are not limited to:– Water production companies– Water conditioning and desalination companies– Water suppliers– Water transport and distribution companies, – Waste water, sewage and solid, liquid and chemical waste treatment companies– Sewage treatment plants – Equipment, consulting and engineering services companies

• Fund Basics– Inception Date: 06/29/07– Trading Symbol: KWINX (KWIIX- Institutional, KWIAX – Advisor)– Assets (12/31/07): $6,139,795 – Sales Charge: None– Total Expense Ratio: 1.74%– Investment Minimum: $2,500– Objective: Long-term growth of capital– Sub-Adviser: Aqua Terra Asset Management, LLC– Portfolio Management: William Brennan, Portfolio Manager

• www.kineticsfunds.com

Source: Kinetics, 2008


Water-focused Hedge Funds

• Master Water Equity Fund - Summit Global AM (US)

• Water Partners Fund - Aqua Terra AM

• The Water Fund – Terrapin AM (US)

• The Reservoir Fund – Water AM (US)

• The Oasis Fund – Perella Weinberg (US)

• Signina Water Fund – Signina Capital AG (Switzerland)

• MFS Water Fund of Funds – MFS Aqua AM (Australia)

• Triton Water Fund of Funds – FourWinds CM (US)

• Water Edge Fund of Funds – Parker Global Strategies


Venture Capital and Water

Venture Capital Invested per Cleantech Segment, 2003-2006

Source: Cleantech Group, 2007


VC Activity in Water

Water Technology VC Investments, 2003-2006

Source: Cleantech Group and SVB Alliant, 2007


Leading PE/Venture Capital Opportunities

• Water Pure Play Funds– 100% Water or Near-water Company-focused– Deep Water Industry Experience– Water Company Realizations/Exits

• Specialist Cleantech Funds– 3+ Investments (or 1/4) in Water or Near-water Companies– Compelling Water Investment Theme/Strategy– Internal Water Industry Expertise and Experience– Significant Number of Realizations/Exits from Overall Portfolio

• Generalist Cleantech Funds– <3 Investments in Water or Near-water Companies– Expressed interest in Water Investments


PE/VC Investment Strategies – DD

• What level of internal water industry experience and expertise?• What external sources of industry expertise, access to academics and

thought leaders, relationships with CEOs and entrepreneurs?• What is the underlying "use" or "role" of water for the technology or in

the business model?– Input?

• Agricultural, heating and cooling, beverage– Manufacturing Process?

• Automobile, semi-conductor– Energy generation?

• Hydro, wave, tidal– End-Product?

• Drinking Water, ultra-pure water– Increase Energy and/or Water Efficiency or decrease?

• Smart meters, smart appliances• Number of investments and rationale/value proposition?• What problem/inefficiency are the attempting to address and thereby

profit from?• Opportunistic or part of a larger water investment strategy or theme?• Number of and time to realizations/exits?


PE/VC Investment Risks - DD

• Technology Risk– Proven, protected, existing/potential competition, operational/financial sustainability?– Address safety, reliability or profitability?– Hardware, software or service?

• Business Execution– Business model: direct sales, distribution, licensing, etc.– Team risk

• Market Adoption Risk– Who are the customers? (Utility, Agricultural, Commercial, Residential)– How large is the market?– What pain points is the water technology/service addressing?– What is the ROI?

• Regulatory Risk (Quality and Quantity)– EPA, Utility Commission/Water Authority, Municipality

• Price Risk (Right vs. Commodity)– How do the customers/users value water?


Conclusion

• Global trends and drivers are real and occurring now

• Water companies are capitalizing on these trends with real technology/service solutions and scaleable business models

• Water investment vehicles are performing well, but for diverse reasons

• Water investing requires a distinct theme/strategy and discipline

• Investors and advisors should identify their existing water sector exposure and evaluate new opportunities with an added level of due diligence

• Water is not the next oil….oil has substitutes!


Aquillian Investments, LLCOne Post Street, Suite 2775San Francisco, CA 94104

www.aquillian.com

Thank You…Questions?

• Robert Steiner, Director– [email protected]– (415) 677-9118 ext. 219

mailto:[email protected]

Additional Slides


Water Supply Chain

Source: Sustainable Asset Management, 2006 and SVB Alliant, 2007


Water Value Chain

Source: SAM Group, 2008


Smart Meters

Presenter

Presentation Notes

Subsidiary of Roper (NYSE:ROP) The company was founded in 1886 as Thomson Meter Company and changed its name to Neptune Meter Company in 1892 and to Neptune Technology Group, Inc. in 2001. Neptune Technology Group is based in Tallassee, Alabama. As of December 29, 2003, Neptune Technology Group, Inc. is a subsidiary of Roper Industries, Inc.


Monitoring/Valves

Presenter

Presentation Notes

Part of the Halma Water Management Group (UK)


Perth Seawater RO Plant –Emu Downs Wind Farm


Precision/LV Irrigation

Presenter

Presentation Notes

Has recorded increase in yield up to 230%. Saves water up to 70% compare to flood irrigation. More land can be irrigated with the water thus saved. Crop grows consistently, healthier and matures fast. Early maturity results in higher and faster returns on investment. Fertilizer use efficiency increases by 30%. Cost of fertilizers, inter-culturing and labor use gets reduced. Fertilizer and Chemical Treatment can be given through Micro Irrigation System itself. Undulating terrains, Saline, Water logged, Sandy & Hilly lands can also be brought under productive cultivation.


Competence Correlation Matrix of Water Companies

58

Source: 3Stone Advisors


Water Infrastructure Value Chain

59

Source: Perella Weinberg, 2007 (*=Private Company)


Wastewater Treatment

60

Source: Wm. H Reilly and Co., 2008


Water Treatment

61

Source: Wm. H Reilly and Co., 2008


Water Valuation Continuum

62

Source: Goldman Sachs Research


Public and Private Water Facilities

63

Source: Environmental Protection Agency (EPA)

Presenter

Presentation Notes

54,000 facilities in the US serve about 250 million people


Water Sector Outperformance

64

Source: FactSet, Goldman Sachs Research


Water Shortages and Population Growth (1995)


Energy – Water Nexus

• Investments in Energy Efficiency translate to Water Efficiency and vice-versa

• There is an increased understanding and appreciation of the energy and water interrelationships

• We are experiencing a “double whammy”– Increasing energy costs and a decreasing or degraded water supply

• Increased need and value for technologies that: – Increase energy production while decreasing water use– Increase water supply and quality while reducing the energy required to

provide it

• Two of the largest sectors of the global economy


Water Use for Fuel Extraction and Processing


Estimated Energy Use Integral to Water End Use


Energy Needs Throughout the Water Use Cycle


Estimated U.S. Freshwater Flows in 1995 (total ~341,000 Mgal/day)


Estimated California Freshwater Use in 1995 (36,000 Mgal/day)


Energy – Water Interrelationships


CA Energy Snapshot

• Population: 34 million,1.1% per year growth

• Multiple Utility Service Territories

• 2004 Electricity Use: 262,000 GWH

• 2004 Peak Demand: 54,500 MW

• Annual growth:– Consumption - 1.4%– Peak - 1.65%


CA Electricity Production (2004)


Water System’s Demand for Electricity


Electricity Use Per Capita


CA Water Snapshot

• 2/3 of Precipitation in North

• 2/3 Demand in the South

• Water Demand: 43 maf– 9 maf Urban– 34 maf Agricultural

• Energy Use:48,000 GWh; 4,300 MTh

• Population by 2030: 48 million

• 2030 Water Demand: 43-50 maf


Regional Disparities

water investment environment

Economy & Finance