Harvard dropout and brother launched H2Ok for factory sustainability

Annie Lu was a student at Harvard when Covid-19 brought the world to a screeching halt, including her own college experience.

“I remember in March of 2020 basically being kicked off campus and everything going virtual,” Lu, 22, told CNBC in a video interview in June. At the end of the spring semester in 2020, Lu’s sophomore year, she did not return to school.

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She hasn’t looked back since.

That’s because Lu, and her older brother David, 25, have since launched and are now growing their own company, H2Ok Innovations, which uses a combination of hardware and software to improve the efficiency of factories by reducing how much liquid they use.

“I can’t speak to what would have been, but what I can say is it was such an easy decision for me to make and it was so obvious,” Annie told CNBC. “The trade-off was virtually nothing.”

Leaving Harvard and becoming obsessed with improving factory efficiency with your older brother might seem like a surprising move.

But there is a deep family connection: Annie and David’s paternal grandfather started a factory in China that manufactured specialty fine chemicals, and their dad worked for the family’s chemical-manufacturing business. So did Annie and David’s uncles. And they were proud to do so. “As with every family business, everyone is involved in the family business,” Annie told CNBC.

David was born in Saskatoon, Canada, and at age 1 moved to the Bay Area, where Annie was born. Their parents are immigrants from China.

When Annie and David were young, their grandfather, who was deeply passionate about chemistry, taught them chemical reactions and how various pieces of industrial equipment worked. Also as kids, Annie and David would tour their family’s factories and learn about chemical factory parts, like the distillation towers. The idea of “lean manufacturing” was also a topic of conversation in the family.

“I remember in elementary and middle school spending summers touring factories, and having exposure to large scale industrial equipment, understanding how they work. We grew up in the sector,” Annie told CNBC. “That’s where our inspiration germinated from, I would say.”

Since officially launching their sibling enterprise in March 2021, H20k Innovations has raised $6.8 million from investors including Construct Capital, Flybridge Capital, Techstars, 1517 Fund and 2048 Ventures. The company is headquartered out of Greentown Labs in Boston, and is booking revenue. Annie and David were recognized as 2022 Forbes 30 Under 30 and in March, H20k Innovations was recognized at Unilever’s annual supplier summit and granted the “Start-up of the Year Award.”

The two started the company just as Covid-19 disrupted supply chains globally, bringing the importance of manufacturing into the spotlight.

“The pandemic exposing gaps within manufacturing and industrials … was an inspiration” for launching H20k, Annie said. “It was a perfect opportunity.”

In fall 2020, Annie and David moved to Minneapolis for the Techstars Farm to Fork program, which accepted them based on previous projects.

“Annie and I love hacking and building things together,” David told CNBC. “We work really well with each other. There are so many projects we have built in our upbringing when we were growing up.”

They came to Techstars with the idea of developing a low-cost technology to identify contamination in natural waterways and drinking water. But as part of the program, Annie and David got access to 120 executive leaders in various parts of food tech, and they asked those executives what their biggest headaches were.

Eventually, they decided to focus on improving the efficiency of liquid use in manufacturing processes.

“Liquids and fluids are at the heart of it in production process in so many different sectors,” Annie said, including food and beverage, pharmaceuticals, semiconductor making and cooling commercial buildings and factories. “It is such a large white space, and an area where there exists a lot of gaps.”

By the end of Techstars, Annie and David had their vision for H2Ok Innovations set and started to execute.

They came up with the idea of using a combination of physical sensors and software to measure and optimize both the use and composition of liquids and fluids in manufacturing. Their process involves collecting that data and using their software to combine the liquids data with other factory and facilities data in what Annie calls a “very, very versatile” internet-of-things system.

Conventionally, data that is gathered in a factory stays on premises. “We’re basically unlocking previously untapped data streams,” Annie said.

Improving the efficient use of liquids in manufacturing processes reduces waste and lost product, which means the factories are also operating more sustainably.

In 2021, David joined Annie in Boston worked out of a space called Artisan’s Asylum for about six months and then moved into Greentown Labs.

In fall of 2021 and early 2022, Annie and David participated in the 100+ Accelerator program, a virtual accelerator program run by Unilever in partnership with AB InBev, the Coca Cola Co. and Colgate-Palmolive.

“The aim of the 100+ Accelerator program is to rapidly fuel the growth of startups developing sustainability solutions including reducing energy used in supply chains. Through the partnership, we work directly with entrepreneurs to refine and test their new technologies in our businesses, to put their solutions on an accelerated path to deliver a positive impact towards our sustainability goals,” Sandeep Desai, the Unilever ice cream chief product supply officer, told CNBC in a written statement.

“These startups operate across many fields including new packaging technologies, digital and geospatial solutions and new ways to upcycle product ingredients, that would otherwise be considered as waste,” Desai said.

As part of this partnership, Unilever tested the H2Ok Innovations solution at its Ben & Jerry’s facility in Waterbury, Vermont.

“At our Waterbury Ice Cream Sourcing Unit, our partnership has allowed for an 18% reduction in downtime during cleaning, which increases productivity and lowers costs in the supply chain. We have also saved 40% of a cleaning cycle’s water consumption by using the technology,” Desai said. Unilever is working to implement the H2Ok solution at other non-ice cream facilities in the U.S. and Brazil, Desai said.

In spring 2021, the siblings raised their first round of funding, and added to that during summer of 2022. H2Ok Innovations now has 17 total employees.

For investors, H2Ok’s value proposition is especially timely, as more manufacturing is coming back to the United States, and those facilities face increasingly strict efficiency standards.

“The U.S. is rising again as a manufacturing powerhouse and there is a compression of the normal technology lifecycle adoption curve in industrial companies and a push to be both innovative and more efficient given decades of intense, global competition,” Jeff Bussgang from Flybridge Capital told CNBC. “U.S. manufacturers have a strong climate and sustainability mandate, compelling them to be even more precise with their usage of liquids and energy.”

Plus, some investors see an inevitability to the sensor technology H2Ok Innovations is using.

“We found the H2Ok’s vision of replacing monolith-based water measurement with a swarm of sensors very compelling. Our thesis is that all measurements and data will be provided in real time and used to optimize operations of plants, data centers, etc.,” Alex Iskold from 2048 Ventures told CNBC. “That’s exactly what H2Ok is building.”

All of the investors who spoked to CNBC commented on how impressed they were with Annie and David, which is to be expected of investors doting on their portfolio companies, but still, the glowing accolades were notable and reflect the conviction the siblings share in building in the space their family has worked in for generations.

“They are exceptionally smart, visionary and courageous — the kind of founders investors dream to back,” Iskold told CNBC.

“We invested because they are incredible founders. Annie and David are relentless and incredibly smart, and this is the culture they have built out at H2Ok. They are the right and rare mixture of customer- and problem-oriented, and they have executed well to build a defensible technical solution that fits the customers’ needs,” Dayna Grayson from Construct Capital told CNBC.

“The founders are brilliant technologists and visionaries,” Bussgang from Flybridge Capital told CNBC.

Being siblings brings a level of inherent trust in that’s valuable to both Annie and David, who have been close to each other and the rest of their family their entire lives.

That trust is invaluable because running a business with employees, partners and customers can get stressful.

“There are hard conversations that need to be had,” Annie said. “We can have these hard conversations in a very, very comfortable way, and hold each other accountable and push each other to be better.”

“We know how to fight, we know how to have hard conversations. We’ve been fighting our whole lives,” David said.

Both Annie and David giggled at this thought. It’s something of a joke, they said, but it’s also serious. Getting through hard conversations is “crucial for the success of a business,” David said.

Their complimentary skill set is a great boon, too.

Annie is creative and an “especially out-of-the-box thinker,” said David. And David is excellent at recognizing patterns across disciplines and executing on technical developments, Annie said.

They also share a philosophy on how to interact with people. They acknowledge that they’re young and that listening to others is important.

“I think this aspect of authenticity, and coming into every single conversation with customers, to users, to mentors, and beyond with deep humility and empathy is so critical to who we are as a team, but particularly who we are as founders,” Annie said.