A Web application that alerts wine grape farmers when their vines are thirsty has won first place in a competition to spur entrepreneurs in the investment-starved water sector, organizers said on Monday.

Fruition Sciences, which operates in both California and France, came first among 50 teams in Imagine H2O's global competition aimed at building a Silicon Valley for water.

Water is a $500 billion business worldwide, but draws a mere 0.5 to 1.0 percent of venture capital and only a handful of investments per year despite growing demand for solutions to widespread water shortages.

The prize rewards the business plans with the greatest promise of breakthroughs in the efficient use and supply of water, and Fruition was able to show significant water savings for nine California grape growers that used the monitor.

In the water sector, most entrepreneurs want to be in every single market, but Fruition has started out with an intriguing niche market where they can polish their idea and then go broader into other agricultural markets, said Scott Bryan, director of operations for Imagine H2O, a non-profit backed by Royal Bank of Canada and PriceWaterhouseCoopers.

Fruition co-founder Sebastien Payen said he saw a real challenge in the wine industry because there were absolutely no plant-based sensors to optimize water management.

He combined his expertise in sensor and information technology with co-founder Thibaut Scholasch's research on vine water status to create the Web application.

Australia's Rainwater HOG was prize runner-up with its H2OG water tank, which collects rainwater and can be used by city dwellers who do not have much space.

The tank already sells in the United States, Australia, and the United Kingdom and markets are opening in India and Japan.

California's WaterSmart Software was also a runner-up with a Web-based application that allows water utilities to optimize their water conservation programs.

Once it goes to market, the WaterSmart application could save participating homeowners an average of 3,000 gallons of water per year, and in some cases lead to a total water use reduction of 20 percent, Imagine H2O said.

Imagine H2O offers cash prizes as well as business, legal, accounting and tax support, and access to partners, customers and financiers to bring ideas to market.

The prize is intended to become a magnet for water entrepreneurship and give the finalists extraordinary exposure to the investment and business community, said Imagine H2O chairman and executive director Tamin Pechet, a Silicon Valley venture capitalist.

(Editing by Hans Peters)

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