Why We’re Building Our First Growth Fund
In startups, good things tend to happen when the right opportunity meets the right people at the right time. It’s clear the same thing can be said for funds. Arthur Rock and his pioneering of the category. Don Valentine taking his knowledge from Fairchild to see the generalised implications of the semiconductor and founding Sequoia. Andreessen and Horowitz seeing the opportunity for radical founder-centrism in their original counter-positioning to Benchmark (among others). Seeing the development of (or creating) an Overton Window, and having the right people to take advantage of it, is a good recipe for potential outperformance whatever business you’re in.
BIV’s Fund I followed this heuristic. I established Fund I as a direct result of being one of the only people on earth who could have noticed that in 2020 there was finally a critical mass of talent in water. We had always had extraordinary individuals emerge (like the three exited founders on the BIV team). But by the turn of the decade, it was clear that there were more than enough coming through to build a 20 company portfolio, through a forest of really tough decisions. I just happened to have a dataset through my time at Imagine H2O that no-one else had. The fact that water was massive, broken, and inevitably going to become of paramount importance in the coming decades has always been obvious to everyone in the sector. That was and is a very helpful operating environment for water founders. The critical mass of talent meeting a market that had to start to do things differently was our Overton Window for Fund I.
2021 happened to be a frighteningly permissive time to be starting a fund, but I think the argument as to “Why me?” was not a bad one. I had worked directly with more water founders than anyone else in the world, our process yielded strong results (especially if you’re pursuing a fat-tailed portfolio construction), and no-one else was working on water in that cohort of fund starts.
Fast forward to 2023, and Christine joined as my Partner in May in order to balance the load as we went out for Fund II. This represented a giant leap forward in the capabilities of our team, then just Marissa and me. We added Jennie at the same time, because she was deeply smart and capable, but also to show LPs we had the bandwidth to deal with the work coming at us with Fund II, while also making sure Fund I was well-looked after.
By the end of 2023, it was fairly obvious to me what was to come from Fund I. I knew our graduation rate was going to be 90%+. I knew important companies were on the right glide-path to financial security, making their presence in the market (and eventually the exit market) inevitable. I knew that our Fund I decisions got harder over time, and Fund II was even more competitive, with no signs of slowing. I also knew that water had the same problem that I had tried to solve with Fund I - there had been no Seed Fund for water when the conditions were absolutely there for one to exist. Now those companies were moving towards the Series B.
And there was no growth fund for water.
Christine and I assumed that we would have to be sensible - that either going multistage and expanding the remit of Fund II was going to look too much like being entrepreneurially out of sequence (also known as biting off more than you can chew). Maybe we could look at it in 2027 or whatever, but we should stick to our knitting. Then one of our LPs got in touch saying that he liked what we were up to, and was there a possibility of joining in all the fun (little did he know…). Christine and I had known Steve Kloos for a long time, and we knew that this meant that the right person was meeting the right opportunity at the right time. Adding Steve to the partnership would not only allow us all to cover both strategies (he had spent a lot of time at the Growth Stage), it would add vital hardware expertise alongside Christine’s world class software expertise and my rather high number of entrepreneurial experiences in water. It was a triangle that made abundant sense.
We spent about 3 months trying to prove to ourselves it was a bad idea. That the pipeline wasn’t there, or that we wouldn’t be able to win the deals, or that we didn’t have the argument to raise the fund, that this was too early in the development of the BIV platform. We couldn’t. What we ended up seeing was that the internal logic of a Growth Fund was absolutely there - in its simplest form it was the inevitable consequence and parallel of what we saw in 2020. There was critical mass at Seed then, and there was critical mass at the Series B coming in 2025. Our job was to build a vehicle to serve that demand. The job of the Growth Fund would be to invest in the best-of-the-best emerging water winners that get through the initial commercialization gauntlet and into early growth.
We think there are a number of core advantages that mean we’re the right team and fund to launch this Fund at this time:
Just like I had a dataset that no one else had in 2020, BIV has an in-depth dataset of the emerging winners in water. We’ve been in business for five years, and are tracking over 2000 companies and have been in touch with many of these entrepreneurs for longer than BIV has been around. We have seen their progress, we know their teams, and their results and reputation in the market. Crucially, they also know (and usually like) us.
The clear and known competitive landscape between internal and external companies as destinations for Growth Fund capital means that we have a very clear idea of the forced curve, and the progression of the forced curve over time - as we have a long view of the development of companies who will be available in our deployment period. This allows us to be as accurate as possible in our investment decisions, as the alternative destinations for capital are known.
We have enough companies in Fund I and II that are working to provide competition for all ten slots in the Growth Fund just by themselves. We know them extremely well, they are diversified, commercially and technically compelling, and are post-product/market fit. The competition for places in our 10-company portfolio is extreme - as it should be.
We have a proven ability to help at all stages of company-building. The BIV platform is now a significant value-add for founders, from talent identification to funding support. We are effective, engaged board members that understand the reality of these markets, and we’re confident these companies can go further and faster with our involvement. Another of the benefits of being a specialist.
There is a large segment of LPs that agree that there is a compelling thesis in water, but don’t want to layer on seed-stage risk, and would prefer to avoid the inevitable zeroes that come along with seed investing (even though we’ve only had one in five years). Loss aversion is real. Growth Fund I gives them an on-ramp to exposure to water’s tailwinds, with relatively proven companies that are still reasonably priced, certainly relative to an increasingly clear exit market. They also like the shorter timeline to liquidity that stems from entering at the Series B.
Related, LPs like to have proximity to proven solutions moving to scale, both for security and for potential co-invest opportunities - especially as we’re pursuing a “one-and-done” strategy so our pro-rata is essentially available for LPs.
We really understand the exit pathways in water. We’ve mapped exit pathways for all of our companies, and have in-depth relationships with almost all of the potential acquirers. This is obviously true for the Seed Fund companies, but our underwriting can be specific in ways that other funds would struggle to match. We also know that the acquirers, from industry incumbents to Private Equity (as well as the investment banking world) have their eyes on our activities.
So we decided we were raising not only Fund II, but Growth Fund I*. Tellingly, that didn’t feel like a risk. We knew the opportunity was crystal clear, it was just a question of fundraising and then deal execution. Easier said than done, I know - but I felt very calm about it. It was: “Well, I guess we’re doing two then.” In retrospect I was perhaps somewhat blasé about raising two funds concurrently (more on our fundraising experience and advice for GPs here), but we are well on our way, with more than a third of the Growth Fund I signed. Xylem is our anchor again (what a team they are), with an array of investors from Fund I and II electing to add exposure to the new strategy. Now Fund II is closed, I’m only raising one which feels like an unfeasible luxury.
And the raise will get easier over time, because we’ve made it real. We have our first three positions in place, and we really like them:
The first step change in reverse osmosis in decades, utilizing existing flatsheet membrane technology and standard module designs. The company’s printed spacer tech is straightforward to implement with value benefits that are immediate and varied (reductions in energy, chemicals, operational complexity, large improvements in performance and cost).
In conversations to be preferred supplier to some of the largest F&B companies and the largest semiconductor companies in the world, not to mention global desalination capacity. $70m in annual orders potential from their existing accounts alone.
A game-changer for any incumbent, which will drive multiples at exit. Enormous value at stake for both strategics and PE players - this is the new standard for the construction of a membrane element.
Now the standard for emergency response management for utilities and municipalities, including being full stack across municipal needs from road management to solid waste. They are now the provider for their core market of water and wastewater utilities ($3bn p.a. revenue potential alone).
On course for a huge year as they continue to ramp in their core markets, maintaining their extraordinary upsell and c.zero churn performance, as well as bringing their first investor-owned power utilities online (a $100m ARR opportunity with the IOUs already in their pipeline).
We have already seen deals around this space for 20x revenue in 2025.
Their product is applicable everywhere, from railway management to elevator maintenance. It’s as close to a universal heuristic for anyone who manages assets out in the world - things break, and you have to understand what’s wrong, and get people there to fix it. Daupler is the conduit.
This is the one for those who are exasperated that irrigation systems throw water onto concrete. Irrigreen’s next-generation sprinkler head “prints” water exactly to a pre-specified outline (lawn or piece of landscaping) and is certified to provide 50% water savings over the incumbent, outdated mechanical sprinklers.
They are a totally new paradigm for installers, with a 50% reduction in trenching and piping due to needing 80% fewer sprinkler heads. This also has huge implications for O&M, as there are 80% fewer points of failure in a system.
They will eventually be unignorable for any of the big irrigation companies (Rainbird, Irrigreen, Toro, Netafim, John Deere etc) or associated companies (fertiliser), or anyone who is interested in breaking into the $24bn landscaping market.
Given their technical lead and their product plan, and exceptional unit economics for both Irrigreen and their customers (that will improve on both sides with scale), it’s a good place to be.
We have gone multi-stage earlier than we thought, but at its core BIV is an entrepreneurial enterprise. When the time is right, the time is right. Our original Fund was the right opportunity at the right time (I’ll let you judge if it was the right person). This is the same thing - right opportunity, right time, and now incontrovertibly the right people. We are privileged to work on behalf of an exceptional group of LPs. Let us know if you would like to discuss it.
—
*It’s worth noting that we originally called it Opportunity Fund I, but LPs assumed it only took positions in companies we had already invested in, and it also raised questions about being some sort of continuation vehicle. We have a core belief (even in the Seed Fund) that every capital allocation decision has to be as competitive as possible to make sure you’re optimising for the potential multiple of the marginal check, regardless of whether the company is inside or outside the existing portfolio. If you’re limiting your investment decisions to companies you’re already invested in, you’re violating that principle by definition. So, a name change was in order.
