As American rivers and water reservoirs get dryer, water conservation becomes more important, which is the premise for the business of WaterSmart Software , a startup that just raised $4.5 million in new capital.

The San Francisco company runs water conservation programs for about a dozen water utilities and currently sends water usage reports to about 50,000 households, according to its founder and chief executive, Peter Yolles . Utilities pay between $5 and $10 per customer, according to Mr. Yolles, with the idea that every gallon of water saved is a gallon of water less to procure or treat.

To expand its reach to more utilities and households, WaterSmart closed its Series A round, led by California venture firm Westly Group, with participation from Physic Ventures , Draper Fisher Jurvetson and Apsara Capital, which had provided WaterSmart's $2.4 million in seed funds prior to this. Sand Hill Angels was also an early investor.

The company is now trying to reach more of the 100 million water customers in the country, according to Mr. Yolles. That is a market that Mr. Yolles estimates to be about $1 billion in total.

The company sends out water usage reports to homeowners where it compares their usage to those of similar homes in their neighborhoods. That comparison has the psychological effect of motivating people to conserve water to match up or outdo their neighbors, and has amounted to water savings of some 5% over six months, the company says. The method is similar to that used by Opower Inc ., a much larger private energy-efficiency company that sells its service to power utilities.

Water utilities spend $60 billion annually on capital and operational expenses, Mr. Yolles said.

"Our rivers and our lakes and our groundwater basins are running dry, and that means that water utilities are having to spend more and more money finding new sources of supply, such as recycling and desalination and building pipelines from farther distances, which makes conservation and water efficiency much more cost competitive," he said.

Traditional water conservation programs involve issuing rebates for more water-efficient appliances, such as dishwashers, as well as paying homeowners to replace lawns, which require a lot of water usage, with other landscaping options.

The challenge for WaterSmart, which was incorporated in 2009, is to explain to water utilities that behavior-based conservation programs could be more effective and cheaper than traditional programs, Mr. Yolles said. WaterSmart also says that it helps utilities distribute other conservation programs to their customers.

Mr. Yolles said that the current round of funding would take the company to profitability. He declined to say how many water meters it needs to reach to be profitable.

(Correction: A prior version of this story incorrectly said SV Angel was an earlier investor in the company. Sand Hill Angels was the earlier investor.)

Write to Yuliya Chernova at Follow her on Twitter at @ychernova

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