Why is the launch of derivatives contracts on the NQH2O of interest to Mazarine Ventures?
Updated: Dec 6, 2020
The December 7th launch of derivatives contracts on the NQH2O (see background section in PDF version - below) immediately brings new participants to the water market who have a very specific objective, namely - arbitrage the future price of water (in California for now) for financial return. While this may seem diabolical, traders are neither buying paper-water nor wet-water so there shouldn’t be any conflict with water as a human right, which Mazarine believes in.
Our PoV is that this December 7th inflection (ie: new player at the table) is opening the door for software companies with tools that analyze data to accomplish one of two things:
1) predict near-future precipitation (ie: supply of water) for a specific region or parcel of land, or,
2) measure the water security risk for a specific parcel’s land use and business/operating model.
In short, we need better tools for understanding water quantity risk anyway, but as a result of a more sophisticated player at the table, those tools will be in everyone’s hands much sooner.
Our thesis is that technology investors will do well by backing innovations that offer analytical tools to those seeking to manage direct-use water quantity risks like farmers, companies, and cities, but also those seeking to manage indirect water quantity risks (ie: exposure), like finance, insurance, investors, and derivative traders. This is a niche, but fast growth, corner of ‘water-tech’ investing, and December 7th represents a significant inflection point that will result in a growing numbers of commercial opportunities for data science innovations built to address market demand for water quantity risk tools.
Read Mazarine's Point of View below