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Refreshing Ideas

Entrepreneurs take on the world's growing demand for pure water.
January 1, 2007
URL: http://www.entrepreneur.com/article/171942

Imagine your town has just been visited by a massive natural disaster. There's no electricity, and the water system is contaminated with sewage. What are you going to drink? At the six day disaster preparedness exercise called Strong Angel III, held last August in San Diego, the answer for the event's 800 participants was purified seawater from Aqua Genesis LLC. The 3-year-old Las Vegas company's desalination device can be powered by geothermal heat, so it will work even if the power grid goes down.

The easy-to-maintain device, which has few moving parts, is the brainchild of tire heir Doug Firestone, 56, and Ronald Newcomb, 53, who's also director of operations at the Center for Advanced Water Technologies at San Diego State University. Last fall, the entrepreneurs were in the process of securing roughly $4 million in private financing to build the first full-scale plant using their device, known as the Delta-T, in California's Imperial County. They plan to operate their own plants and sell water to municipalities around the Southwest, a market that Newcomb estimates at $1 billion. "We tried to estimate the potential size of our company," Newcomb says. "But the numbers became so big, we just stopped."

Newcomb isn't the only entrepreneur who thinks he's found a gold mine in water. With the world's popu-lation increasing about 2 percent each year, fresh water supplies are being exhausted in many locales. The World Health Organization estimates 1.1 billion people worldwide lack regular access to potable water today, some 17 percent of the world's population. Here in the U.S., growing population has put pressure on water supplies in California, Hawaii, parts of the Southwest and elsewhere as wells are contaminated or exhausted and river-water supplies become scarcer. Hurricane Katrina also raised public awareness about the problems of contaminated water. Experts believe there's boundless opportunity for creative inventors who can help meet the world's growing water needs.

In recent years, many water entrepreneurs have seen fat payoffs. Major corporations interested in building water businesses have been spending lavishly to acquire new products. For example, in March 2006, General Electric bought water-filtration company Zenon Environmental Inc. of Ontario, Canada, for $656 million. At the private-investor fund Summit Water Equity Fund LP in San Diego, managing general partner John Dickerson likens the water industry of today to the oil industry in the 1920s--in other words, it's a ground-floor opportunity. He notes that water is the only product people can't live without, and for which there is no substitute.

One new water product his fund invests in is Ice Rocks, a high-end spring-water ice cube line made by Miami-based Water Bank of America Inc. Dickerson expects the ice cubes to capture a niche in the luxury end of the American bottled water market--which Beverage Marketing Corp. estimated at $9.8 billion in 2005.

"I think [they] will become expected in first-class hotels and restaurants," Dickerson says of Ice Rocks. "They'll give them to you in the case, and you'll pop them in your glass." Water Bank was founded in 2002 by three Canadian brothers, Michel Pelletier, 41, Jean-Jean Pelletier, 37, and Robert Pelletier, 34, who've raised over $6 million to fund their efforts. Water Bank purchased the Ice Rocks company from a French firm in 2004.

Last year, the trio was planning a mid-November 2006 launch for Ice Rocks in luxury resorts and hotels in California, Chicago, Miami and New York. One test-marketing program in Europe distributed 300,000 four-packs of the cubes paired with bottles of Chivas Regal; that angle, marketed as Scotch Rocks, has a planned early '07 rollout. With a 48-cube pack of Ice Rocks selling for about $4.99, the company estimates first-year sales could top $10 million. According to Jean-Jean, "We're hearing from a lot of airlines and alcohol companies."

Another new water company targeting a more mainstream customer is Next-RO in Redondo Beach, California. The 2-year-old company offers a water-purifying device for home and office use that's smaller and more efficient than current models using similar reverse-osmosis technology. The unit will likely sell for about $500, roughly twice the price of many existing units, so the company faces the challenge of selling customers on the machine's merits.

But Next-RO founder and CEO Tim Beall, who helped create the device, says initial industry reaction has been strongly positive. The startup has commitments for 600,000 machines from water-product companies located around the world, and last fall it planned to be producing its machine at a Torrance, California, factory this month.

Previous attempts by Beall's team to license a similar technology to other companies proved unfruitful. He went broke several years ago pursuing the technology and had to start again from scratch. Beall got back in the water game with $250,000 in funding provided by a neighbor who heard about his device. Now, Beall says, "This is ready to grow rapidly."

Carol Tice is Entrepreneur's "Tax Talk" columnist.