As a reasonably successful entrepreneur, i frequently get lunch invitations from extraordinarily bright and energetic startup founders who seek my advice (for whatever that’s worth) and, inevitably, my money as a private individual or “angel” investor. I rarely say no to lunch (even though I’m buying), rarely say yes to investing, but I always find the stories fascinating.

I’m fairly certain that a would-be angel investor has better odds of making a killing by taking his or her $50,000 to a Vegas roulette table and smacking it all down on 22. Yet over countless lunches between friends, family, coworkers, roommates, and friends and family of all the above, tens of millions in angel money are invested each year, providing vital cash to embryonic startup companies around the globe.

The scudding economy has made the angel’s role even more critical. With few exceptions, conventional venture capital firms are still reeling from the high-tech/dot-com implosion. Venture capital funds continue to plough money into life support for their existing portfolios of bad investments in the hopes (most likely vain) that the economy will rapidly recover and their companies can claw their way toward profitability. The venture capitalists that still have money to spend on new investments have gotten gun shy and are staying well clear of seed-stage startups in favor of more mature, revenue-producing operations.

Jon Flint, a managing general partner of Waltham, MA-based Polaris Ventures, which is one of the more successful East Coast venture capital firms, once opined to me that “like great artistic talent, the number of excellent, investable startups that emerge each year is a constant.” By that principle, the current drought in seed-stage investing is just as irrational as the venture-financing exuberance of the late 1990s. Almost by definition, the next eBay or Microsoft must be out there, overlooked or ignored by the venture capitalists.

Unfortunately, just picking a winner is only the first trial in a gauntlet of trouble that waits for angels. As further investments come in, the angel’s share in the company (and thus of future rewards) can be diluted right out of the water by more aggressive and savvy professional investors. An angel whose initial ownership is 10 percent of a company might wind up, three years down the road, owning less than 1 percent-without oversight of or influence on the management decisions in between. And while the goodwill and financial incentives of a company’s founders are critical to its success, later funders care little about what happens to the angel’s stake.

So why do it at all? Why bet in a casino that takes your money but makes you wait outside while the game is played? I think the answer is that angel investments are decisions of the heart, driven by passion rather than clinical assessments of risk and return. An entrepreneur tells a story about what just might be and kindles the investor’s sympathy for a group of people, their ideas, and their vision of changing the world. And if in the process, as occasionally happens, an angel can turn the price of a golf cart into the price of a Gulfstream, what could be better?

In each of my columns, I will be featuring a different startup that is looking for private investment, considering the company not just from the gee-whiz technology angle, but also from the perspective of a would-be angel. For obvious ethical reasons, I have no financial interests in any of the firms I’ll be writing about, and I am not endorsing them as investments in any way. Rather, I’ll be selecting the stories of people who have unique and fascinating pictures in their minds of how the future might be different, if only their companies can succeed.

Ovation Products

How would you feel about drinking a glass of water distilled from your own raw sewage? You’ve no doubt just experienced what Bill Zebuhr, founder and CEO of Nashua, NH’s Ovation Products, calls the “yuck factor”-which may present a major hurdle to market acceptance of his household water distiller. Then again, it may not. If, for example, you live in a part of the world where your drinking water is already directly contaminated by sewage (yours and your neighbors’), the distilled option is clearly more palatable, and one that might save your life. Or perhaps, if you can’t quite bring yourself to take a sip, you might not balk at watering your lawn or washing your car with the output of Ovation’s machine. Especially when you consider that distilled water is as pure as water gets.

Zebuhr claims that his distiller can take water contaminated with virtually anything, from pathogens to toxic chemicals, and produce 45 liters of pure distilled water each hour for the astonishing price of more than five liters per penny. The device looks a bit like R2-D2 with extra tubes hanging out, and while I’m certainly no expert, it appears to be a tour de force of thermodynamic engineering, an area in which Zebuhr specializes and holds more than two dozen U.S. patents. Contaminated water, at room temperature, is boiled into steam, and the steam is compressed and condensed into pure distilled water. Through a series of innovative heat exchangers, the pure water also leaves the system at approximately room temperature, largely conserving energy within the system. (Its droidlike appearance comes from encasing the entire mechanism in a stainless-steel dewar, which acts like a giant thermos.)

Zebuhr’s vision is that someday every house, apartment building, and Third World village will have an Ovation distiller humming away, recycling wastewater into drinking water and eliminating the need for central water and sewage treatment plants, as well as endless kilometers of connecting pipes. While the market opportunity for cheap drinking water is mind-bogglingly vast, Ovation is attacking some richer niches first.

Zebuhr explains that more than 150,000 household septic-system leach fields (the areas where wastewater is purified by percolation through the soil) fail each year, requiring some form of expensive remediation. He holds a patent on a process for distilling septic-tank waste to separate out pure water for reuse (though not necessarily drinking), effectively eliminating the need for the leach field in the first place. Zebuhr’s back-of-the-envelope calculation holds that while leach field remediation usually costs between $10,000 and $40,000, Ovation can build distillers in quantity for around $1,000 each. He places the total septic-tank remediation market at more than $1 billion annually, yielding considerable revenue opportunities if he can successfully attack the market.

Zebuhr and his team are also making a foray into cleaning industrial-waste runoff, where they believe they can cheaply remove clean water from toxic chemical solutions-enabling factories to drastically reduce the cost of pollutant disposal. The Ovation team notes that in certain situations, such as the washing of machine parts, distillation is the only viable process for separating toxins from the water in which they are dissolved.

Ovation was founded in 1996, and after seven years of development, it appears to be on the verge of bringing in its first sales from the industrial-cleanup market. Those sales, however, are contingent on successful production of a beta version of the distiller. Every startup runs a race between generating sufficient revenue and running out of money (an event affectionately known as the “splatter date”), but in Ovation’s case, the contest has hit a particularly dramatic stage. The alpha distiller apparently works, but not well or reliably enough for commercial production and sales. The beta model is well under way, but Ovation’s splatter date is rapidly approaching.

Ovation has spent about $6 million to get this far, mostly invested by angels and an anonymous strategic partner, and Zebuhr believes he has around $700,000 in new investment committed, buying six months of extra runway. He hopes to find a few more angels to provide some room for error, despite his firm belief that he’ll have his beta in production and into the hands of paying customers in early 2004. But Ovation is a bit long in the tooth to still be out looking for angel money.

Conventional wisdom in technology startups is that the “mad scientist” founder can never make a good long-term CEO, and Zebuhr takes pains to emphasize that he is open to a replacement should the need arise. But I got the distinct impression that this veteran of several startups is in fact rather attached to captaining his own ship, having had some difficult experiences in the past. It seems to me that managers accumulate business experiences like bad girlfriends or boyfriends: once they’re burned in some particular way, they go through the rest of their lives ultrawary of being burned the same way again. Nonetheless, Zebuhr has what I see as a critical attribute for an entrepreneur: he knows his own mind and sticks to his guns. Often in a startup it’s better to be decisive than to be entirely right.

For now, Zebuhr is sticking to his belief that there are endless applications for a low-cost water distiller, from the industrialized West, where a household device can pay for itself in water- and sewage-bill savings, to the Third World, where the widespread lack of safe drinking water is perhaps the biggest threat to human health. Ovation also sees a tremendous opportunity in homeland security, where the poisoning of central water supplies has been identified as a major terrorist threat against which there are currently no practical protective measures.

But like all startups, especially those that seek private investment, Ovation has some formidable obstacles to clear, most notably finally getting the product to beta and then on to production. And then there’s the yuck factor, which may stand in the way of the full realization of Zebuhr’s water-recycling vision. Would you take that sip?