Former US TOPGUN Instructor Drives $20m Business from Start-Up
US company Oasys Water is targeting tough to treat industrial waters, including those from hydraulic fracturing, with its forward osmosis technology. US Navy pilot turned investor and water entrepreneur Jim Matheson has lead the company's international expansion, with a partnership in China and presence in Australia. What does this mean for the established reverse osmosis market?
By Tom Freyberg
Jim Matheson is understandably fatigued. After two weeks of continuous travel, including a stop off at the World Economic Forum in Davos, it's been a relentless fortnight for the CEO and president of US firm, Oasys Water. Yet he still finds time in his rammed diary for a telephone interview and can barely contain his excitement from the past year.
This is not surprising. You could say last year put the relatively new US company on the global map. On the same day in April, the company was named as a Bloomberg New Energy Finances' New Energy Pioneers, as well as GWI's Water Technology Company of the Year. "For us, 2014 was the year we were able to take the forward osmosis technology we've been working on and translate it into solutions in the field," he says.
Flying to success
Unlike most CEOs in the water sector who have a traditional engineering or financial background, Matheson was a former US Navy fighter pilot. After graduating from the US Naval Academy, he flew F-14s and F/A-18 jets in over 200 combat missions in Iraq and Bosnia.
He then went on to become an instructor at TOPGUN, the US Navy Strike Fighter Tactics Instructor program which the film is based upon, before going to the Harvard Business School in his late 30s. After joining Venture Capitalist firm, Flagship Ventures, he went on to become CEO of Oasys. So fighter pilot turns investor and now water entrepreneur? It's an interesting journey and one I'm keen to find out more about.
"The pilot training and perspective helps me keep calm," he says, reflecting on his military duty. "I love the 'Keep Calm and Carry On' motto – it's become ubiquitous everywhere but that's pretty good advice in life and certainly in the start-up world."
He adds: "Connecting the big picture – strategy and big trends with executing daily tactics – that's something we focus on a lot in the military and I try every day in my activities as CEO. It's a mind-set that was absolutely pounded into you from day one of flight training and some of the core values we focused on teaching the students at Top Gun. It applies directly on a day-to-day, week-to-week basis in a start-up."
The FO journey
The "kernel of innovation" for the Oasys Forward Osmosis (FO) technology (see box out), as Matheson calls it, began at Yale University. It was invented by Rob McGinnis, who founded Oasys in 2008 and directed technology development as CTO until 2012. Oasys Water closed $10 million in Series A financing in 2009. Five years later in 2013 and the company raised a further $15 million in Series B funding.
"This capital allowed us to make the transition from pre-commercial to commercial," says the CEO, who joined the company in 2012. "We were moving out of the development phase and moving into the activity phase in early 2014. We focused on activities such as recruiting commercial and supply chain staff to move into commercialisation."
During the first so called "commercial year" in 2014, the company brought in income (total projects and bookings) of $10 million. Matheson says some of this was turned into revenue and expects this to double in 2015 year to $20 million.
A doubling of income in year two of commercial operation will raise some eyebrows in the global desalination market, especially where technology such as reverse osmosis (RO), is well understood. It's an extremely competitive market.
For comparison, it's worth noting another Forward Osmosis story. UK firm Modern Water's FO technology also started off as a R&D project but in the University of Surrey, England. After a trial in Gibraltar, the technology has been used to produce drinking water in two plants in Oman.
Yet the shared named of FO is where the similarities between the two companies stop. While Modern Water targeted municipal drinking water and compared its technology energy savings to traditional RO, Oasys does not.
"Forward osmosis – the way Oasys has manifested it and which, at an abstract level is similar to Modern Water, but at a fundamental level very different," he says. "The type of things our systems can do and focus on are very different. We are able to deal with more complex, high total suspended solids (TDS) waters."
Working in tandem with RO
Instead, the US company is firmly is focusing on the "difficult to treat waters", as Matheson calls it. They are not interested in the seawater to drinking water market. Instead they are pitching the technology as an alternative to thermal mechanical evaporators.
Before 2012, "the company had done enough technical work and market analysis and was starting to realise that municipal – at least seawater desalination – was the less optimal fit for Oasys," he says. "In unconventional oil and gas we were realising there was some real value and it allowed us to shift and become much more granular and clear about different types of industrial water."
With a price tag of $36 billion, it's clear why hydraulic fracturing – for all its controversy – could be potentially very lucrative for Oasys Water. It was at the end of 2013 when the Boston company signed a deal with National Oilwell Varco, an equipment and services provider in the oil and gas market.
"We talk about the Oasys FO system as being compatible with reverse osmosis, which treats lower TDS waters – up to 50,000-70,000 ppm (parts per million) TDS. It does that very effectively. But when you get beyond that, because of the fouling of the membrane – either because of the added chloride or minerals, it becomes very limited. If you're trying to reach higher recovery or Zero Liquid Discharge (ZLD) – RO only gets you a small part of the way there. You need a brine concentration and crystallisation solution to get all the way to ZLD. That's where FO comes in."
Naturally, Matheson is keeping a close eye on the recent oil price plummet and believes this could push water treatment up the agenda.
A 60% decline in the price of crude since June, slipping to below $50 – its lowest since March 2009 – has had huge implications for the oil industry, with jobs being cut in the North Sea.
Entering Asia's Dragon
It was in September last year Oasys signed a deal with the Huaneng Group in China, its first outside of the US. The Changxing Power Plant, located in China's northern Zhejiang province, will be using the FO technology to treat a coal-fired power plant's wastewater from flue gas desulphurisation (FGD). The wastewater system will desalinate up to 650 m3/day of the FGD wastewater for reuse.
Matheson explains how the Oasys tech is used in tandem with RO in the China case.
"Water's coming out of the FGD effluent between 30,000 - 50,000 ppm TDS," he says. "For the system that we designed and delivered downstream of the power plant, it starts with the RO to do that initial concentration, then hands over to the FO. This takes you from 70,000 – 80,000 ppm TDS to 300,000 ppm TDS using the membrane. Then, if you want to go to ZLD, we might install a crystalliser on the back."
For oil and gas applications, as the water is already concentrated, the RO unit on the front end is not needed and it goes directly to FO.
To support its operation in China and the rest of Asia-Pacific region, the company opened an office in Sydney, Australia. Matheson also has his cross-hairs set on the UK and Europe.
"We're paying hydraulic fracturing close attention in the UK and across Europe," says the CEO. "We have an eye towards this region generally, not just hydraulic fracturing, but the power market. As we're now operating in China and Australia, the ability to operate in Europe would be very welcome to us and it's part of our strategy."
To IPO or not? that is the question When asked the question of whether he is building up Oasys Water for an initial public offering (IPO), Matheson doesn't deny the possibility. "To me an IPO is a means to an end, not the end itself," he says. "The ultimate goal for me is to build a valuable and important company for the long-term. An IPO is an interesting step along the way and would allow us to access capital and to continue to grow and to pursue more opportunities."
UK forward osmosis company, Modern Water – went public and completed an IPO in June 2007, raising £30 million in the process. It will be interesting to see whether Oasys will also undertake this and raise further investment for international expansion.
Moving forward, Matheson is confident about the business growing.
"Our plan is to double or more our project count in 2015-2017 – the market is significant enough and we're small enough," he says.
It's difficult not to be infected by the CEO's enthusiasm. During its formative years, the company researched the water market and identified a niche – industrial treatment – to move into.
The description for a US Naval Aviator states individuals will: execute strategic aerial manoeuvres, control and maintain internal and external aircraft systems and provide vital attack, defence and logistic support.
It's clear Matheson is employing similar disciplines to his role as CEO. Using naval terminology, the competitive RO market has been identified as an ally, not a threat. The office opening in Australia could be called a strategic manoeuvre. And providing "logistic support" could be likened to the recruitment of logistic professionals using the second round funding. The company's growth has been orchestrated by Matheson in true military, strategic fashion.
He believes that an uptake in FO will require an education of the market place and I agree; there is still perhaps confusion as to what forward osmosis actually is, how it's different to its RO brother and how Oasys is using the technology for industrial water purposes.
But if Matheson's education of the market is anything like one of his former classes at the TOPGUN academy, then we're in for one exhilarating, high-octane ride along the way. So buckle up – the time for forward osmosis is now.
Nuts 'n' Bolts: The Forward Osmosis Process
Using a draw solution, a natural osmotic flow of water across a semi-permeable membrane is created, separating salt from water. Water that crosses the patented membrane combines with the draw solution. Low temperature heat transforms the diluted draw solution from a liquid into a vapour, leaving behind fresh water. No feed water boiling or "high pressure pumping", as Oasys Water calls it, is required. The Membrane Brine Concentrator (MBC) system is designed to process high salinity wastewater, from 5% to 15% dissolved solids, into fresh drinking quality water.
Tom Freyberg is chief editor of WWi magazine. Email: [email protected]
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