Water treatment technology firm H2O Innovation Inc. has launched a venture capital fund with Montreal-based climate-tech investor Cycle Capital to provide $30 million for innovators in healthier, sustainable water use.

Based in Quebec City, H2O Innovation’s main product is a membrane filtration system to treat water. It has designed, engineered and built water treatment equipment for corporate clients such as Apple, Amazon and Tesla, and municipalities and cities including Los Angeles, San Diego and Orange County, Calif.

The founding of the Cycle H2O Fund by a company is “very unusual” and “very innovative” in Canada, H2O Innovation’s president and CEO Frederic Dugre told Sustainable Biz Canada. Such a model is seen more commonly in Europe or in the pharmaceutical industry, he added.

Companies from Eastern Canada will be supported by the Cycle H2O Fund, which plans to invest in fields such as addressing contaminants, water recycling, green chemistry and sustainable agriculture.

“I think it validates entrepreneurial projects in a way more efficient way,” Dugre said. “We can rapidly say, ‘well, that makes sense. This product or this technology will service specific needs.’ So this kind of validation is probably the best due diligence other investors could have. It’s a way to mitigate risks from an investment perspective.”

Opening a funding stream for watertech

Capital from the fund will be deployed in tranches of $500,000 to $3 million. A pipeline of companies being considered for investment has already been compiled.

The Cycle H2O Fund has made its initial close, with the fund expected to operate for 10 years.

Investissement Québec is the anchor investor. Other investors include Boann Capital, Fonds Climat du Grand Montréal, The Atmospheric Fund, family offices and private investors.

Dugre declined to disclose the portion of the capital contributed by H2O Innovation.

Areas of focus for Cycle H2O Fund

The structure of the Cycle H2O Fund is intended to be “small enough to be creative,” Dugre said.

Areas of interest for the fund will be digital technology, data management, water treatment, and solutions to address contaminants and harmful chemicals such as PFAS (per- and polyfluorinated substances, also known as "forever chemicals" ).

Companies which optimize irrigation or recycle wastewater for farmers are more specific examples offered by Dugre.

Water scarcity is expected to increase due to global warming, particularly affecting agriculture. Promoting more effective use of water may blunt some of the impact.

The first investments will be announced in the coming weeks, Dugre said.

Part of the impetus for the Cycle H2O Fund stems from Dugre's background as an entrepreneur. When he started H2O Innovation in 2000, Dugre knocked on many doors for investment across Canada, but found no opportunities outside of self-funding or going to his family and friends.

Dugre said he believes the investment climate in Canada has been less receptive to companies in the water treatment sector, “because we don’t live with the constraints of water here in Canada as much as our southern friends (in the United States). We don’t have the same reality check and the same tension to this.”

He added he would like to help young entrepreneurs grow in the water industry, which will create an ecosystem of companies that could have a global impact.

As for Cycle Capital, the Cycle H2O Fund is also fulfilling a personal ambition for senior partner Simon Olivier, according to Dugre. Olivier, he said, has a passion for water, and Cycle Capital matches the culture of H2O Innovation because of the environmental focus.

About H2O Innovation

H2O Innovation uses filters and reverse osmosis to treat water, unlike other methods that use chemicals. The company’s technology can remove PFAS, hormones and microplastics, Dugre said, and does not leave chemical residues that need to be managed or disposed of.

Its applications include drinking water, water reuse, desalination, mining, food and beverage, and oil and gas.

It was acquired for $395 million in October 2023 by Investissement Québec, Caisse de dépôt et placement du Québec and a fund controlled by New York-based private equity firm Ember Infrastructure Management, LP.