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How do big companies evolve? How do they learn to do something new? These are questions that have taken up untold pages of books, magazines, and journal articles. As a venture capitalist (VC) in water, I’ve seen firsthand that most large companies in the sector struggle to effectively engage with external innovation, particularly with entrepreneurs developing technologies that could enhance their value propositions or product suites. Yet, both sides stand to gain: Large companies expand their product suites without having to build from scratch, and startups gain access to something invaluable: distribution at scale.
That’s what makes Xylem’s success with Xylem Innovation Labs such an impressive case study. Formed in 2021, the program was a deliberate effort to bridge this gap, engaging with the growing ecosystem of water entrepreneurs and investing in the best talent developing industry solutions. If you think entrepreneurship is hard, try corporate innovation.
A model that works
Building a new function within a company requires navigating the constraints of an existing organizational structure. Simply tacking on a skunkworks team with a Gone in 60 Seconds-type team of innovators often leads to fragmentation, internal resistance, and ultimately, failure. Xylem Innovation Labs avoided these pitfalls by structuring its program with precision and purpose, making it a model for systematic change.
At its core is the Partnerships Accelerator, designed to fast-track the introduction of breakthrough technologies that address critical challenges for water utilities, industrial water users, and communities worldwide. Each year, the team surveys the entire company to identify strategic gaps that technology could help fill in. They then scour the global startup landscape—working with partners like us at Burnt Island Ventures (BIV) and Imagine H2O—to find companies with the right solutions. Applications are then reviewed across Xylem’s business units, and a committee that includes members of the company’s C-suite (this is a $8.6 billion revenue company, after all) makes the final selections.
Once a startup is selected, it gains direct access to Xylem’s leadership and expertise, with a dedicated team member acting as a guide through the corporate landscape. They then embark on a year-long Partnership Accelerator program that not only develops their partnership with the company but a path to the broader market. The program is defined by its speed and transparency—we all know that startups don’t have the luxury of waiting years for a decision. When a “no” comes fast, it’s never a “no forever”—it’s about timing, potential, and mutual fit. This founder-friendly approach makes it one of the most effective corporate innovation models I’ve seen.
Breakthrough partnerships and lessons learned
Since its 2022 launch, the Partnerships Accelerator has engaged over 45 companies from 14 countries—contributing to real progress across the water innovation ecosystem by accelerating solutions, relationships, and learning. Nearly a quarter of these startups have formalized partnership agreements with Xylem, while a new cohort are just beginning their journey. This isn’t just about numbers; it’s about tangible progress in tackling some of the most pressing water and public health challenges of our time.
The potential for transformation is significant, and initiatives like this are setting a new standard for how large companies can engage with startups to deliver meaningful change. Take Aclarity, a BIV portfolio company that developed an electrochemical oxidation process to destroy forever chemicals (PFAS). After participating in the 2022 Xylem Partnerships Accelerator, Aclarity continues to collaborate with Xylem to bring its technology to market. Other partnerships have already led to new product launches, such as eoapp Aqua, a satellite-based water quality monitoring tool that debuted in the U.S. in 2024 as a collaboration between Xylem’s YSI brand and EOMAP, a German remote sensing company.
For BIV, partnering with Xylem isn’t just strategic—it has reshaped how we approach venture investing in water. Xylem collaborates with a global network of more than 40 open innovation partners, including universities, research institutes, accelerators, VCs, and end users. This extensive reach gives us an edge in sourcing high-potential startups, but this isn’t a one-way street. We share promising startups with Xylem, and nearly half of our portfolio companies have engaged with Xylem in some capacity. The result? A stronger ecosystem where startups have a direct path to commercialization.
The buck doesn’t stop here
Xylem Innovation Labs isn’t just coasting on its early successes. In 2024, Xylem expanded its corporate venture investing plans to support emerging companies and water services providers, complementing its existing investments in BIV and Westly Group. More importantly, it’s now deploying capital into high-impact, frontier markets through its work with WaterEquity. This holistic approach—combining partnerships, investments, and strategic innovation—is creating a powerful engine for scaling water technology solutions at an unprecedented pace.
And the impact is growing. A self-reinforcing funding and innovation flywheel is now in motion for early-stage water companies. Four companies from BIV’s Fund I have already advanced to Series B funding, and we’ve since launched Fund II and Opportunity Fund I, both anchored by Xylem, to further support high-growth water startups. The timing couldn’t be better. Both VC and entrepreneurial attention are shifting toward climate adaptation and resilience, and water is at the center of that transformation.
Institutional agility is possible
I’ve seen too many large companies fail at innovation simply because they lack the structure and discipline to integrate external ideas. But Xylem Innovation Labs is proof that it doesn’t have to be this way. I believe that when a corporation commits to engaging with startups strategically—rather than treating innovation as a PR stunt—it can create an engine for sustained competitive advantage. Xylem has done this by taking external innovation seriously, embedding it into its core strategy, and executing it with speed and transparency. In today’s world, where water challenges are intensifying, integrating emerging technologies isn’t optional, it’s a necessity for survival and long-term growth.
Tom Ferguson is founder and managing partner of Burnt Island Ventures.
