January 08, 2015
Photographer: Roei Greenberg for Bloomberg Businessweek
Amir Peleg hunches his broad, 6-foot-3-inch frame into a tunnel leading to one of several reservoirs that supply water to Jerusalem. Condensation collects on the ceiling, inches overhead, like thousands of tiny stalactites. Peleg, an entrepreneur whose self-given job title is “chief plumbing officer,” catches a droplet on his palm. “Literally every drop counts,” he says. “This is the modern-day Gihon.”
Gihon was the ancient, intermittent spring that made human settlement possible in Jerusalem circa 700 B.C. Today, fresh water sources in Israel and the surrounding region are more precious than they were in the Bronze Age. About 1 million residents continually draw water from this reservoir, which is filled by pipelines snaking from the Sea of Galilee 90 miles north. Located at the edge of Jerusalem, the reservoir is held in a massive underground vault patrolled by armed guards to keep insurgents from poisoning the supply. Thick cement walls surround a floodlit pool of water, ghostly and luminous, 40 feet deep and wider and longer than two football fields.
Like most of its neighbors, Israel is a desert nation, and during the past seven years it’s struggled through a drought with record-low rainfall. In response, Peleg and others have come up with an array of innovations, from microscopic sewage scrubbers to supersize desalination plants to smart water networks. Israel now has higher agricultural yields than it’s had in nondrought years. It even has a water surplus, a portion of which (about 150 million cubic meters per year) it pumps to Jordan and the Palestinian Authority.
“I don’t think it’s overkill to say that Israeli entrepreneurs are disrupting and reinventing how the world creates and conserves water,” says Peleg, 48. He’s become one of the leaders of a water-tech movement that began in the 1950s, when Israel’s first prime minister, David Ben-Gurion, implored scientists and engineers to “make the desert bloom.”
In 2008, Peleg’s startup, TaKaDu, began designing software that uses mathematical algorithms to detect and prevent leaks in water pipelines. Peleg has silver, buzz-cut hair, arching black eyebrows, and a jaw like an anvil—George Clooney’s indomitable Danny Ocean meets the affable Schneider from One Day at a Time. He’s part swaggering CEO and part scrappy superintendent.
Detecting leaks may seem like a small concern, but it matters, especially in environments where water is scarce and expensive. Of Israel’s total water demand (2.2 billion cubic meters a year), less than one-tenth is supplied by freshwater sources such as the Sea of Galilee. The rest comes from filtered gray water—Israel recycles more than 85 percent of its wastewater—and from desalination, an expensive process that transforms saltwater into drinking water. “Among all conservation technologies in development, the most valuable detect leakage in networks,” says Avshalom Felber, chief executive officer of IDE Technologies, Israel’s biggest desalination company. On average, utilities worldwide lose more than 30 percent of the water they distribute in their networks. By comparison, Jerusalem’s utility—Hagihon, Peleg’s first customer in 2009—wastes less than 10 percent of its supply, thanks in large part to TaKaDu.
Over the past five years, venture capital firms and companies including 3M (MMM) and ABB (ABB) have invested more than $20 million in TaKaDu, and its software has been adopted by 14 other utilities in cities from Campo Grande, Brazil, to Bilbao, Spain. Last month, Peleg signed with Australia’s biggest utility, Sydney Water. Collectively, these utilities manage about 40,000 miles of water pipelines. Peleg won’t disclose TaKaDu’s revenue but says it’s grown more than 50 percent annually over the past two years.
TaKaDu’s software is designed, as Peleg describes it, “to slice and dice and analyze raw data measured by smart sensors in the water network.” These sensors monitor the flow rates, pressure, and quality of the water and identify bugs in the meters, valves, and other system equipment. From this data, the software can analyze when and where water is escaping.
“Until TaKaDu came along, the water-utility world was almost deaf and blind,” says Zohar Yinon, CEO of Hagihon. “Our network is not transparent without this software. It’s like an EKG or an X-ray, exposing the inner workings of our system on a real-time basis. We are no longer plumbers and water engineers; we’ve entered the world of preventive medicine.”
But can Peleg shift the world’s lowest-tech industry to big data solutions? “The best and worst thing Peleg has going for him is that he’s ahead of the game,” says Aaron Mankovski, who runs Pitango Venture Capital, Israel’s largest VC firm, and has yet to invest in TaKaDu. “Water is a cautious, nearsighted industry,” he adds. “But I have no doubt that eventually all utilities will go this direction. They will have to, to survive.”
TaKaDu’s headquarters are above a Pizza Hut and a pastry shop, in a glass-and-granite office building in a quiet suburb of Tel Aviv. Inside, the offices have the obligatory signifiers of the tech startup: minimalist couches and bean bag chairs, walls painted primary colors, and an open kitchen with a large picnic table for meetings and meals. The walls bear poster-size photographs taken by TaKaDu employees depicting water in some form, from dewy fields to foaming falls.
“Until TaKaDu came along, the water-utility world was almost deaf and blind”
Peleg’s office is cozy and modest. There’s little here to indicate he’s a veteran of three startups. He sold his last one, YaData, to Microsoft (MSFT), less than two years after he founded it. (A leading Israeli newspaper reported a rumored sale price of about $30 million; Peleg says he’s obligated by contract not to disclose the sum.) YaData was another algorithmic venture; its software helped online advertisers to more accurately target customers.
Peleg was influenced by his grandfather, who built Tel Aviv’s first luxury hotel. At 13, Peleg hacked the first Apple (AAPL) computers that came to the market in Tel Aviv and created a version with Hebrew characters that he sold to local businesses. At 17 he was accepted to Talpiot, the Israel Defense Forces’ most elite technology unit. Over eight years he learned to develop military drone operating systems and software to automatically identify key visual information in satellite images, such as tanks, missiles, and other targets.
Peleg then joined Elbit Vision Systems, a company that develops software for large-scale textile production. The software analyzes visual data to identify flaws in fabrics. TaKaDu is doing something similar today with pipe flows and pressures. “It all boils down to finding new ways to understand aberrations in data,” he says.
Peleg got the idea for TaKaDu at a technology conference in Vienna in September 2008, when he met a water engineer specializing in the Scada (supervisory control and data acquisition) systems that collect data from pipe-embedded smart sensors. The sensors use mechanical methods, such as rotating wheels, as well as ultrasonics to measure network flow and pressure and can transmit hundreds of data points every 15 minutes. Peleg wasn’t interested in the hardware, just the information generated. “I asked the Scada guy what he does with the data. He says, ‘We store it.’ I thought, ‘This is it! I’m going to mine this dormant data for golden nuggets.’ ”
Within a few months of the Vienna conference, Peleg had hired five programmers and was running TaKaDu out of his living room. A number of Peleg’s early recruits were from the Talpiot program. “I said, ‘Now our enemies are not people, but the leaky pipes underground,’ ” Peleg recalls. Instead of using algorithms to scan images, he was now building software that had larger implications for Israeli security and that might even help wasteful and drought-afflicted nations worldwide. His wife, Naama, wrote payroll checks from their family checking account: “Finally Amir was doing something real,” she recalls.
Hagihon CEO Yinon is munching cookies in a bunker-like basement that once functioned as the utility’s control room. “We no longer have a physical control room—TaKaDu has put it right here,” says Yinon, wagging his iPhone 6. “I can find out anywhere if my meters are accurate, my water quality is clean, my pressure is good, my flow is normal, my pumps are working properly, my infrastructure is humming … all these layers are integrated online.”
Six years after founding TaKaDu, Peleg has 35 employees and offers utilities a cloud-enabled service that presents the full gamut of information about the network’s operations. Peleg is essentially trying to do for water networks what Thomas Siebel did for customer relations management (CRM) in the early 1990s: rethink the interaction between organizations and customers and integrate all the layers of information a company has about a customer into a single interface.
TaKaDu’s software establishes a baseline of “normal behavior” within each network. The better it understands normal patterns of water flow throughout the day, the more accurately it can detect aberrations that indicate a leak or burst. It knows that water flows are highest in mornings and evenings, before and after people are at work. It also considers local factors: At a Netherlands utility, for example, the system detected spikes of flow at regular intervals one Friday afternoon; it noticed that these patterns corresponded with breaks in play during a World Cup game between the Netherlands and Spain, when fans were flushing toilets.
The software can also detect water theft. At Unitywater, a utility in Melbourne, the system noticed abnormally large flows coming from a fire hydrant; officials were notified, and they found a strawberry farmer siphoning water from the hydrant.
Within a year of adopting the TaKaDu system, Unitywater saved more than 1 billion liters of water. That translated into savings of more than $2 million. The utility also reduced the time it takes to repair problems in its network by more than 60 percent.
TaKaDu is not a standalone solution for utilities. “We’ve found that TaKaDu works best when connected with other systems,” says Yinon. Aquarius Spectrum, a company run by Israeli Zeev Efrat, uses advanced sound equipment to detect the exact location of leaks. Yinon uses TaKaDu software to identify the location of a leak within a neighborhood and then Aquarius’s technology to find the pipe it’s coming from. Another Israeli startup, Curapipe System, offers an automated leak repair system that plugs ruptures without digging.
When Peleg notes that TaKaDu has no direct competitors, it’s more a lament than a boast. “There are companies doing many different aspects of what we do, but none yet that encompasses all.” The French water and waste management company, Suez Environnement (SEV:FP), recently introduced a similar smart-network service called Aquadvanced, but it’s too new to the market to have made an impact. Peleg insists that he wants competitors to come in and “wake up the market, so utilities get more familiar with the future we’re all headed toward.”
As it is, only about 20 percent of utilities worldwide—and fewer still in the U.S.—are using smart sensors in their infrastructure. “Not everybody can see it yet,” says Zvi Arom, a member of TaKaDu’s board. “There are those utilities you meet and you tell them what TaKaDu can do, and they say, ‘I may as well believe in Snow White and Santa Claus.’ ”
Peleg lives with Naama and their three young kids in an agricultural village about halfway between Tel Aviv and Jerusalem. Their house is a modern expanse of glass and steel surrounded by eight acres of heavily irrigated farmland that Peleg calls his Eden. He has olive, pomegranate, avocado, lemon, fig, mango, and pecan trees, a vegetable and herb garden, and a small vineyard with merlot and chardonnay grapes.
The family pays the equivalent of thousands of dollars a year for water. Peleg, an avid cook who pickles his own cucumbers and brines his own olives, takes a certain pride in his water bill: “Americans think water should be free and unlimited, like air. But the philosophy in Israel is, if you want to have a garden or a pool, fine—pay for it!” Israel has a three-tiered pricing system, he says: “We’re only allowed to consume a certain amount of low-cost water for a family of five, for example. Above that quota the water is 50 percent more expensive. On the next tier, the pricing goes wild.”
About 20 percent of utilities worldwide use smart sensors
The pricing structures of many U.S. water utilities, Peleg says, encourage rampant consumption: “A third of the counties in America still charge a flat rate for water, whether you are a business or resident, you pay a flat rate. Like for $9.99, it’s all-you-can-eat water.”
Last July, as California suffered through a crippling drought that would claim 200,000 acres of crops, a pipe broke under Sunset Boulevard in Los Angeles and released 20 million gallons of water. “Our software could have prevented such a burst,” Peleg told a panel at a recent conference in Tel Aviv. “It would have picked up the problem when it was just a small leak.” This year, Peleg will introduce a cloud-based service for U.S. utilities that monitors water quality, which is tightly regulated by the U.S. Environmental Protection Agency.
Peleg and his peers are betting that as hardware costs decline, data tools improve, droughts become more common, and water pipes get older, the U.S. will become a more lucrative market for their products. “It is becoming a much lower-risk investment,” says Pitango Venture Capital’s Mankovski. “The biggest challenge for a water startup is to get the initial 10 to 15 customers and proof of concept. Peleg has done this and has ushered those relationships into long-term contracts. He has a real chance of providing the de facto tool for municipalities worldwide.”