Freshwater is a finite resource, and the purification process is costly. The best purification can come from the planet’s natural processes. But the existence of large cities and highways, combined with the pollutants that they bring, disrupts this natural system. Instead, trillions of gallons of water in the US gets diverted every year, pollution and all, into America’s waterways. Much of this occurs because of rainfall. Polluted stormwater flows into lakes, rivers, and even sections of the ocean, making those areas unclean for drinking and swimming. 

AquiPor Technologies believes it can solve the problems facing this space. The company, through its R&D efforts and by licensing intellectual property from another party, has come up with a new type of permeable pavement. This pavement is built with sub-micron pores throughout it. These pores allow water to seep through, but many contaminants in the water will be blocked from even entering the pavement. Water will continue to make its way through the material, eventually flowing out the other end into the ground beneath. 

Though the company is still in the R&D phase, management asserts that the technology is better than rival solutions out there. It has high permeability like pervious concrete and porous asphalt. All three of these technologies are capable of handling 25 inches of rain or more every hour. It’s also strong like interlocking concrete and cinder-based solutions that are on the market, as evidenced by its ability to handle up to 8,000 PSI. This porous and strong combination makes AquiPor’s answer to the problem ideal for a wide variety of uses. Management envisions its primary use being an add-on to our roads, not a material that replaces them entirely. By adding a strip of this material on the side of each road, stormwater will pour from the road’s center to the strip. That alone should be sufficient to stop pollutants from entering our waterways. 

In many startups, the company in question ends up owning the IP, but that’s not the case here. AquiPor is only licensing this technology from an unnamed ‘related company’. Management, when pressed, asserts that the license is perpetual. This provides a sense of safety since in some cases a license eventually expires or can be recalled by the owner. One other downside (but one that AquiPor is not immune to) is that since it doesn’t own the IP, there is no ability for the company to sell it in the future. Only the IP owner has that right. One good thing, though, is that it doesn’t appear the business will ever face competition from any other licensor. This is due to the fact that its license is exclusive and covers the entire globe. 

To generate revenue, AquiPor has come up with a couple of different strategies. The first is to sub-license out the technology to existing pavement manufacturing firms. Ideally, this would result in a royalty on each unit produced. The upside to a royalty approach is that even if the margins of manufacturing and selling the pavement is low, margins on royalties should be high. The other way the firm intends to generate sales is by acting as an Engineering, Procurement, Construction, and Management (EPCM) Contracting firm for large municipal and private stormwater projects. As part of this route, the company will engage in high-cost management activities aimed at building “AquiDrain systems.” Projects of this nature could be worth millions to even billions of dollars. But the margins would be considerably lower than its royalty approach. 

At this time, AquiPor is nearing the end of its R&D phase of development, and it’s about to begin its initial manufacturing activities. Because of where the company is in its lifecycle, it has no history of revenue. It did, however, incur costs in both 2018 and 2019. In 2018, the firm’s net loss was $357,062. In 2019, this grew to $551,629. Its operating cash outflows were also negative during this period, hitting $320,962 in 2018 before narrowing slightly to $266,016 last year. 

The precise size of the pavement market is difficult to estimate. What we do know, though, is that there are compelling reasons for investments to be made in this space. As an example, consider just New York City. According to one source, from just 460 of the nearly 800 CSOs (combined sewer overflows) around the city and surrounding areas, an estimated 27 billion gallons of contaminated, untreated water pours into New York Harbor each year. This helps to generate algal blooms, it lowers water quality, and it can lead to waterborne disease outbreaks. To address this issue, the city is investing $1.5 billion into green stormwater runoff mitigation strategies between now and 2030. It’s also investing $1.6 billion in grey infrastructure (like treatment plant upgrades) over this timeframe as well. Even with these investments, discharges will only be reduced by about 8 billion gallons annually. Another 6.3 billion gallons of water contaminates local waterways each year as a result of CSOs in Hudson Valley, northern New Jersey, and coastal Connecticut. 

This is not just a New York area issue though. This problem affects cities all across the US. The EPA estimates that over the next two decades the US will need to invest at least $271 billion into the public wastewater system. About one-fourth of this spending will be dedicated specifically to stormwater projects. Actual figures vary depending on where you look. One source states that 1.2 trillion gallons of untreated sewage, stormwater, and industry waste is dumped into US waterways every year. A different source pegs this number at more than 10 trillion gallons. Regardless of the actual number, the cumulative impact of inaction over the years has been awful. In the US, 40% of lakes have become too polluted for fishing, aquatic life, or swimming. 

Though assigning a dollar amount to the opportunity here is a challenge, some analysts have tried. According to one source, the pervious pavement market was estimated to be worth $14.4 billion in 2017. By 2026, this is forecasted to grow to $22.9 billion, implying an annualized growth rate of nearly 6%. A separate source pegs the global opportunity at $22.2 billion by 2026, up from $12.1 billion in 2015, for an annualized growth rate of 5.7%. About 40% of this opportunity is estimated to exist in North America. A further 25% of it lies in the Asia/Pacific region, while 20% is forecasted to reside in Europe. 

In order to continue pushing the company to new heights, the management team at AquiPor Technologies is hoping to raise some capital. They are doing this by issuing common stock in the enterprise. Units will be priced at $1.13 apiece, but the minimum required investment per participant has been set at $249.73. Management’s goal is to raise up to $1.07 million from this raise, but it can close with a round that’s as small as $9,999.37. As of this writing, the company has $127,053 committed to its raise. This is with a rather lofty pre-money valuation of $19.44 million. 

At the helm of the AquiPor Technologies operation are its two co-founders. The first of these is Greg Johnson, the company’s CEO. Johnson is currently the co-founder of multiple other active firms. These include Yellow Core Holdings, a firm that focuses on chemically-cured cementitious components. He also co-founded E-Core, a business that focuses on short-chain hydrocarbons and their role in clean energy applications. Another business he co-founded is Petra World. It focuses on an alternative process for producing clay-based bricks. 

The other key member and co-founder of the team is Kevin Kunz, AquiPor’s VP of Market Development. His prior experience includes serving as the VP of Market and Product Development at KloroTech. KloroTech focused on the exact same problems that AquiPor Technologies is researching. 

Our team has elected to rate AquiPor Technologies a Deal to Watch. The company’s perpetual, worldwide license on what appears to be a superior technology is certainly encouraging. The business tackles a significant problem of modern society. The co-founders of the business have experience in this space, and the industry opportunity looks very attractive. 

This isn’t to say that everything is just peachy though. There are some issues. The firm’s net losses and cash outflows are to be expected given the stage that it’s in. But the pre-money valuation being sought after by management looks high given the circumstances. This is especially true when you consider that the business doesn’t actually own the IP but instead licenses it. If the IP is ever sold, shareholders are unlikely to receive anything from the deal. The company’s goal of entering into the sub-license market in exchange for royalties is a wise move. But the EPCM angle is fraught with risks and the margins will likely be low. None of these are deal breakers to us, even when taken all together. But they are important issues for investors to take into consideration before making a financial commitment to the firm.