Waterlily Bed Linen Ltd was established in 1999. The inspiration for Waterlily came from a friend of Sarah's, who tried a silk-filled duvet while in Shanghai and then raved about how well it made her sleep. Sarah believed there would be a market for silk-filled duvets in the UK, and mentioned her idea to Kate, who was equally enthusiastic.

After considerable research, they went to Shanghai, found a factory and Waterlily was established in January 1999. The company started trading in March 1999 from their homes, however the business grew quickly and expanded into new premises and a showroom in London in May 2001.