Access to safe drinking water is becoming increasingly recognised as a critical issue, both in Africa and globally. As more companies emerge to address this need, investment opportunities in the water sector are growing. Incofin Investment Management is about to launch its Water Access Acceleration Fund, which aims to capitalise on these opportunities by providing equity funding to businesses in Africa and Asia that are working to accelerate or simplify access to drinking water. Jeanette Clark spoke to Dina Pons, managing partner at Incofin, about the fund’s investment strategy.

Tell us more about Incofin’s Water Access Acceleration Fund.

Incofin Investment Management is a global impact investor with over 20 years of experience and currently manages around €1.5 billion in assets. The Water Access Acceleration Fund is a blended finance initiative that we are launching to support local entrepreneurs in the drinking water industry, which has traditionally been attended to by the public sector. We realised that there are many emerging private sector solutions for providing safe drinking water and we want to provide financial support to these local entrepreneurs to help solve the problem of limited access to clean water.

Are you looking to invest in startups or established businesses?

We are targeting established companies that are at the Series B or C funding stage and are already generating revenues. We are not looking to incubate businesses, but to provide equity funding and technical assistance along with our expertise in the water field. We will be focusing on opportunities in Asia and Africa to demonstrate that private-sector drinking water provision can complement public-sector interventions.

Which African countries are you targeting?

We are diversifying our portfolio by investing in several countries that we have researched and prioritised. We focus on countries that have a regulatory framework in place that demonstrates support for private sector water access provision. Currently, we have identified Kenya, Senegal and South Africa as priority countries. We also have experience working in Nigeria, Rwanda and Uganda and believe that these countries align with our investors’ risk appetite. Additionally, we consider the presence of a robust pool of potential private sector companies and impact investor ecosystem when choosing which countries to invest in.

What sub-sectors within the drinking water industry do you consider most promising for investment?

We target three sub-sectors. The first is safe water enterprises – modular and decentralised kiosks that sell drinking water at an affordable price. The water is usually sold in large 20-litre or 50-litre plastic bottles. Sometimes the kiosks receive treated water through pipes from a treatment facility, other times they have built-in filtration systems to make the water safe for consumption.

This is an interesting business model for us. It is asset-light, it is agile, and it is very easy to scale, making growth possible. These businesses can provide a litre of water at a relatively low price while maintaining decent hygiene, effectively serving people who have lower purchasing power. The kiosks sell to those who don’t have access to safe tap water.

The second sub-sector we are looking at is suppliers of decentralised pipe infrastructure; those that establish the last mile installation of water infrastructure to deliver drinking water to consumers. Where this works well is if you have a network of water stations in rural areas that need private capital to consolidate or establish the required pipe network from a treatment facility or source of clean water. In Asia and Africa, it is often the case that the public sector only manages to get the utility infrastructure to urban areas, but in sparsely populated areas, it is mostly absent.

We want to back businesses that can fill this gap. These suppliers often have strong operations and maintenance practices in place, while also using more sustainable pipe materials than those used in the public sector and therefore have fewer leakages. This means their non-revenue water is less. They could also be more sustainable because they use internet of things (IoT) technology to maintain their infrastructure network before leakages can result in losses. These businesses also put in place smart payment systems, thereby limiting late payments.

The third one is technology. Here we are interested in technologies that are conducive to any water business, including the ones I have just described. For instance, energy-efficient solutions such as solar panels for the water kiosks are something we look at. Or companies that are working on desalination technologies or tech that tries to capture water from the air and then provide it as a drinkable good.

Would you consider early-stage investments in applicable technology companies?

We will keep them on the radar, for sure. Our fund is a close-ended tenure fund, with a five-year investment period. So even if a company is not yet ready for investment today, we will stay in touch. We also have a lot of investors and donors who could assist with technical assistance to get that business investment-ready, or even provide grant funding in the early stages.

We want to be an agent of coordination in the sector to prove that it is, indeed, investment-ready.

Desalination is still a very expensive technology. Do you see this becoming more affordable, leading to more attractive business cases?

We do see some signs of this. In Asia, there are examples of companies that can install the technology, and then via their ability to scale, can absorb the high costs. So, I think that there is hope for other parts of the world to benefit from this trend.

India is a very interesting example and I think it is a good laboratory for water businesses. We are keen to have a few investments in India so that we can find synergies and leverage this in other parts of the world.

Are there any water businesses you would be hesitant to invest in?

We look for companies that have a climate and environmental strategy in place. We also don’t invest in businesses operating in the humanitarian or sachet water space, as that is better addressed by other funds and non-profits. Additionally, we focus on providing solutions for people earning less than $8 per day and therefore, solutions serving the well-off population may not be a good fit for our investment strategy.

By when can we expect the fund’s first investment?

The pipeline is vibrant. We are quite hopeful that within the coming weeks, we will announce the first close of the fund and a few weeks after we will have the first deal ready in Asia. Beyond that, we have at least six hot deals in both Asia and Africa.

The fund’s first close is going to be at roughly €35 million, but we are aiming for €70 million for the final close. From that, we hope to do 10 to 12 deals in total, half in Asia and half in Africa.

---

Incofin managing partner Dina Pons’ contact information

Contact details are only visible to our Monthly/Annual subscribers. Subscribe here.