#StartupsEverywhere Profile: Susan Springsteen, President, H20 Connected.
This profile is part of #StartupsEverywhere, an ongoing series highlighting startup leaders in ecosystems across the country. This interview has been edited for length, content, and clarity.
Qualified Opportunity Zone Business Looks to Bolster Economic Development
H20 Connected manufactures wireless-enabled products like LeakAlertor to help property management and hospitality businesses deal with leaking, overflowing, and running toilets. The startup was incubated in Coatesville, Pennsylvania, to utilize the city’s Qualified Opportunity Zone program to help scale their growth moving forward. We recently spoke with Susan Springsteen, the president of H20 Connected, to learn more about Opportunity Zones, her startup’s work, and the steps that she believes lawmakers should take to strengthen the Paycheck Protection Program for small businesses affected by the ongoing pandemic.
What in your background made you interested in entrepreneurship?
I’ve had an entrepreneurial mindset since I was a kid. When I was around nine years old, my first business was holding a carnival in my backyard. My mom was my angel investor, and we did everything: tickets, games, food, prizes, and I even recruited some of the neighborhood kids to man the game booths. By the time I was 11 years old, it was a full fair with pony rides, all kinds of different game booths, and great prizes! Kids showed up from all over the extended neighborhood and stayed for most of the day. In order for it to be successful though, I had to learn to analyze my target market, advertise, coordinate the games and vendors, keep track of the finances, and manage the whole process. Looking back on it, this was quite an undertaking for someone under the age of 12! It gave me my first taste of running my own business.
My first job after college was in the investment world, first as an analyst in a boutique corporate finance division and then as a stock broker. I remained in wealth management for over 25 years, with a secondary involvement in corporate finance. I built practices in four different investment banks, and the experience gave me a taste of what it was like to be entrepreneurial without putting capital at risk. After a while, I really wanted to make something tangible, something I could hold in my hand—which of course we can’t do managing investment portfolios. I also wanted to be able to set company culture and have a greater impact on my community, so I started looking around for a small business where I could have a leadership and investment role.
Through my church, I met my current business partner, Eric Canfield. He led the product development division for a manufacturing company and was interested in developing a line of water conservation and damage prevention products. Long story short, there were changes happening at his company so we were able to acquire his part of the business, and we started nth Solutions, a vertically integrated product development and manufacturing company, which advances innovation from concept to revenue. I liked what we were creating, so I eventually left the investment business and joined nth Solutions full-time.
Tell us a bit about H20 Connected and the work that you’re doing. How did the startup originate, and what is your focus?
H2O Connected resulted from the divestiture of the nth Solutions water tech products, technologies, and intellectual property into a separate company. After founding nth Solutions, the first technology we developed was a leak detection device for toilets called the LeakAlertor. Now in its sixth generation, the multi-patented LeakAlertor 6000 is an ideal solution for homeowners looking to avoid high water bills due to leaking or running toilets, as well as avoid extensive property damage due to toilet overflows. As the product started to gain traction in the marketplace, we received overwhelming feedback from multifamily and hospitality property managers that they loved the product but needed a wireless version that would send an alert to maintenance personnel. So we went to work to develop the LeakAlertor Pro, an installs-in-seconds wireless device that sends a text message and/or email to maintenance when the toilet has a problem and then provides water usage analytics by toilet, through a dashboard.
The market for our products is massive. There are 350 million tank toilets in just the United States and Canada, and nearly all of them will leak, run, or overflow at some point. The cost—both financially and environmentally—of a problem toilet is also massive. For instance, a running toilet can easily waste 4-5 gallons of water per minute, that’s over 7000 gallons per day, which often translates into a $100 a day expense. And there are dozens of other ways that toilets can waste water and money without being detected. We’re finding that properties are getting a positive return on investment anywhere from 2-4 months, and from then on it’s money in the bank.
The size of the market and the problem warranted incubating the water technology division into a separate women-owned, early revenue company called H2O Connected, and raising capital to fund the final development of the LeakAlertor Pro and the marketing and sales effort to capture the market.
Our focus right now is completing the capital raise, introducing the LeakAlertor Pro to multifamily, hospitality, and senior living property managers and manufacturing our first production run. The LeakALertor products are Made in America, right here in Pennsylvania and soon to be in Coatesville..
Can you tell us a bit about how you became Coatesville’s first Qualified Opportunity Zone business?
I wanted to give my investors the highest after-tax return possible. Since we have a technology and business model with the potential to scale and become quite valuable, I thought combining a great business opportunity with the Opportunity Zone benefits made a lot of sense. In addition, we like to be a blessing to the community where we are located. Locating the ongoing product development, sales, and manufacturing in an Opportunity Zone would enable us to bring a growing number of jobs with a pathway from entry level to higher pay. That made the decision to incubate H2O Connected as a Qualified Opportunity Zone business an easy one. Here in Chester County, the Opportunity Zones are located in the City of Coatesville. I had driven through Coatesville every day for probably 15 years. I would look at the buildings and think how it would be a cool town if someone would come in and fix it up. So I thought, alright, let me take a look. And the more I looked, the more I just fell in love with the city.
What really sold me on Coatesville was the people. I talked to everybody. I hung out in the post office, in the local diners, and I talked to everyone on the street that would talk to me. I heard stories from people about how long they lived there and what their dreams were and what their frustrations were, and I just really liked what I heard. The city leadership is very supportive and business friendly, and I just thought I could be here.
We leased a small office right across from City Hall to incubate H20 Connected. And then one of my former colleagues had a private Qualified Opportunity Zone fund with a real estate focus. So we purchased an office building built in 1902 that had been vacant for 15 years. It was boarded up but it’s such a neat building with interior brick walls and wrought iron interior staircases. The building is just amazing. So we’ve been renovating it, and adding a 20,000 square foot engineering lab, manufacturing, warehouse, and additional office to the building. This will be the new headquarters for H2O Connected, nth Solutions, and other early-stage companies interested in being located in a high energy startup ecosystem. The facility will be known as the nth Innovation Center.
I know that you participated in a Congressional Startup Day meeting last week with Rep. Chrissy Houlahan (D-Pa.). Why is it important for entrepreneurs to connect with their members of Congress?
It was really helpful because we were able to sit down with the congresswoman and tell her more about our business. And the idea of Congressional Startup Day is phenomenal. I think it’s important for small companies and startups to have relationships with their lawmakers. It’s helpful for lawmakers to have relationships with people who can give them feedback as they’re forming legislation. Sometimes there’s legislation that looks good on the surface, but when you get down to the law of unintended consequences, it can really be detrimental to startups. So it helps to have those relationships to avoid those types of issues.
Were you able to utilize any of the emergency funding for businesses affected by the coronavirus pandemic, and what can Congress do to further support startups at this time?
We were able to get some funding through the Paycheck Protection Program, which was good. But the program looked at last year’s expenses and took our average for rent, healthcare, payroll, and utilities. If you’re a startup, you likely have more employees and more expenses today than last year. We have twice as many employees now as we did last year. So I was grateful for the funding because it was very helpful, but there was no way it was going to cover two months of allowable expenses.
If Congress revamps the program, it would be great to be able to look at trailing it 60 days or 90 days—something that’s a little closer to where early-stage businesses are today. Broadening the program would be great. It’s great for payroll and I know they wanted it to be used to reclaim jobs. But one of our largest expenses is components for our inventory or for R&D. None of that can be covered now under PPP.
What are some of the steps that you believe local, state, and federal policymakers can take to further support Pennsylvania’s entrepreneurs?
On a state level, the Keystone Innovation Zone Tax Credit Program provides tax credits for up to $100,000—based on your year-over-year increase in revenue—to companies that are less than eight years old. And you can either use or sell those credits. Anything that can be done to expand the program, especially in Opportunity Zones, would be great because those tax credits can really help with raising money or serving as a source of capital.
When it comes to Opportunity Zones, there are 10-year holding periods if you’re going to get to a 100 percent step-up in basis when you sell your company. I think it’s interesting that 96 percent of Opportunity Zone dollars are going into real estate, and only four percent are going into QOZ Businesses. And I think part of the reason is because of that holding period. I understand the spirit of it. You don’t want someone to come into a community, collect the incentives, and then leave. In that case, the Opportunity Zone community wouldn’t benefit from the investment. On the real estate side, there is some ability to sell before the 10 years is up, as long as you reinvest it in additional real estate inside the zone. So I’d love to get some additional clarity here. Let’s say I get the offer of the century in five years. If the buyer agrees to keep H20 Connected in the zone, and the proceeds are re-deployed in a Qualified Opportunity Zone, it would be helpful if the 10 year clock kept running. I think that might spur more investments in Opportunity Zone businesses.
What is your goal for H20 Connected moving forward?
Driving sales and growing the business. We’ve got tremendous interest in the technology. There are other products in the pipeline as well. Within twelve months, we’re hoping to have a homeowner version that will hook into residential WiFi. We’re also excited that our products will be Made in America, right here in Coatesville.
All of the information in this profile was accurate at the date and time of publication.
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