Rethinking water: the biggest challenge is commercialisation, not innovation

Water has long occupied a curious position in global markets: indispensable to every industry, yet persistently undervalued as an investment theme. That contradiction is becoming increasingly difficult to sustain. As AI infrastructure expands, semiconductor manufacturing accelerates and climate change intensifies both droughts and floods, water is emerging as a strategic constraint rather than simply a utility.

For Sivan Zamir, executive vice president and chief innovation and products officer at water technology provider Xylem, this shift demands a rethink not only of how investors view water but also of how large industrial companies work with startups. The problem, she argues, is not a shortage of innovation.

“We don’t have a technology problem,” she says. “We have a scaling problem.”

That diagnosis has shaped Xylem’s corporate venture strategy into something notably different from the conventional CVC playbook. The company has built an operating model designed around one objective: turning promising technologies into commercial deployments. This approach is led through Xylem Innovation Labs, the company’s innovation and venture platform, which combines open innovation, commercial partnerships and venture investment to accelerate deployment.

Commercialisation before capital

Many corporate venture funds begin with investment and then explore strategic collaboration. Xylem reversed the sequence.

Before launching its venture programme, the company first built the internal processes required to absorb external innovation — governance structures, commercial incentives, partnership frameworks and decision-making processes designed to move technologies into customers’ hands.

“We asked ourselves what the goal of engaging with the external ecosystem actually was,” shares Zamir. “Is it just ecosystem scanning? Or is it bringing technologies in, scaling them and generating growth? Our target is customer value.”

That philosophy shapes every stage of the investment process.

The company invests in external VC funds for market intelligence, deal flow and exposure to emerging technologies, while direct equity investments are reserved for startups that are simultaneously entering commercial partnerships with Xylem. Those investments are intended to reinforce the operating relationship.

“When you make a commercial agreement, both parties are committed to making it successful,” explains Zamir. “Our sales teams invest time, reputation and resources into building those partnerships. Making a direct equity investment further reinforces that commitment.”

It also reflects a broader trend across industrial corporate venture capital. As strategic investors increasingly compete for access to scarce technologies, ownership alone has become less valuable than the ability to help companies scale.

Escaping “death by pilot”

If there is one phrase Zamir wants to eliminate from industrial innovation, it is “death by pilot”.

The term describes a familiar pattern across infrastructure sectors: startups successfully complete technical trials but fail to reach large-scale deployment. Utilities are often criticised for being overly conservative, yet Zamir believes that diagnosis misses the point.

“Water is mission-critical,” she says. “I want the people running my water systems to be cautious.”

The obstacle, she argues, is less institutional risk aversion than fragmented decision-making. Technical validation, procurement, financing, regulators, channel partners and end customers frequently operate on separate timelines, creating years of unnecessary delay.

Xylem’s response has been to redesign the process around collaboration rather than sequential approvals.

Its Partnerships Accelerator is not an accelerator in the traditional startup sense. Instead of focusing on mentoring or fundraising, it functions as a commercial due diligence programme. Startups receive what Zamir calls a “corporate crash course”, introducing them to organisational structures, intellectual property frameworks, sales channels and procurement processes before any commercial engagement begins.

Equally important, Xylem brings utilities, distributors, engineers, regulators and investors into the same room early in the evaluation process.

“You’re consolidating what could be years of discovery into the course of a couple of days.”

Even the language is different. Rather than running pilots, Xylem conducts “proofs of value”, with every exercise designed to answer a specific commercial question rather than simply demonstrate that a technology works.

“The point isn’t the number of pilots,” Zamir says. “It’s how many commercial agreements are created and what value they generate.”

Financing innovation differently

Commercial friction extends beyond technology validation.

Many pilot projects require startups to absorb significant costs with no guarantee of deployment once testing is complete. When successful trials end, negotiations often restart from scratch, delaying implementation even further.

Here too, Zamir believes financial innovation matters as much as engineering.

She points to Trial Reservoir, a revolving loan facility backed by industry stakeholders, as one example. Under its structure, utilities agree in advance to convert successful pilots into commercial contracts if predefined performance targets are achieved. Technology providers repay the pilot funding only if the resulting commercial sale proceeds.

The mechanism removes uncertainty for both sides while aligning incentives around deployment rather than experimentation.

It reflects a wider challenge facing water infrastructure. Although governments continue to fund research and development, commercial financing mechanisms capable of accelerating adoption remain comparatively underdeveloped.

Water’s investment case is strengthening

Investor interest has improved significantly over the past decade, particularly as climate technology has become a mainstream asset class.

Dedicated water venture funds such as Burnt Island Ventures have emerged to address what was previously a funding gap, while private equity firms have become increasingly active across water infrastructure.

Yet capital allocation remains disproportionately small relative to water’s economic importance.

Citing statistics published by the World Economic Forum, Zamir notes that water underpins more than 60% of global GDP, while attracting only around 0.25% of climate-related venture capital

“By that measure, we’re still dramatically underinvested.”

The mismatch is becoming harder to ignore.

Semiconductor fabrication, pharmaceuticals, food production, advanced manufacturing and hyperscale data centres all require reliable access to high-quality water. AI’s rapid expansion is only increasing those demands, alongside the power infrastructure needed to support it.

“You can make all the investments you want in artificial intelligence, but if you don’t have water to run the data centre and the power plant behind it, the laws of physics still apply.”

Building resilience, not just sustainability

Xylem’s investment priorities reflect that changing landscape.

Rather than focusing narrowly on climate technologies, Zamir groups opportunities into four categories: flooding and water excess, water scarcity, water quality and workforce automation.

The Xylem portfolio spans subsea desalination technologies capable of significantly reducing energy consumption, advanced treatment systems for contaminants such as PFAS, digital tools for leak detection and AI platforms that automate wastewater treatment plant design.

Many of these technologies already exist. The challenge is deploying them quickly enough to match growing demand.

That distinction increasingly defines the future of water innovation.

While many technology sectors remain preoccupied with discovering the next breakthrough, water may require something less glamorous but ultimately more consequential: better mechanisms for collaboration, financing and commercial execution.

For Zamir, the industry’s biggest opportunity lies in recognising that innovation does not end when a technology is invented – it ends when it is adopted at scale.

Until then, water’s greatest constraint will not be engineering capability, but the systems built around it.