What comes to mind when you think of China? $1/hour manufacturing of your cleantech product? 1B+ potential customers? Right and right, but now add investment capital to the mix.
China is spending hundreds of billions of dollars on cleantech, and an increasing piece of those investment dollars will go towards equity in cleantech start-ups from the U.S. and other countries.
The Rhodium Group estimates that China invested about $60B overseas in 2010, nearly 2x 2008, with clean energy a major target. While much of that spending goes to buying local production capacity or sheer market share, the smart money is on innovation.
As Rueters’ Gerard Wynn reported, “The owner of patents, not factories, will likely earn the biggest profits and win the technology race.”
China is acutely aware that it lags in the innovation race. Beijing set the IP world abuzz in November when it announced a national goal of 2 million patents filed by 2015, with green innovation again a major goal. Homegrown patents are obviously the preference, but the country has the financial resources to buy its way up the ingenuity curve.
My company, OnGreen.com, is a leading indicator of cleantech deal flow, and we’re already seeing strong Chinese demand for foreign innovation. We match entrepreneurs and investors online and off, and we’ve had to dramatically swing focus toward China this year.
- In March, we hosted a delegation of Chinese investors here in Los Angeles, touring facilities and demos by several local green firms.
- In May, several start-ups from OnGreen.com will meet in LA and Boston with another delegation of cleantech investors from Hong Kong and the Jiangsu province.
- In June, we’re traveling with 30-40 start-ups to greater Shanghai to meet with 50 investors over the course of two days.
We’re still accepting applicants for the May and June events. Interested entrepreneurs should email me at stanleyholt@ongreen.com after creating an account (free) and posting a profile of their company on OnGreen.com (also free).
Despite heightened interest, obstacles abound to overseas Chinese investment in cleantech. Chinese authorities place strict controls on capital outflows, which can slow the speed with which a private or public company can effect an investment. Governments from recipient countries like the U.S. exercise their own restrictions, usually due to “energy security” concerns or plain old industry lobbying. Protection of intellectual property (IP) is another potential obstacle, as start-ups wonder if China will let their patents slip into the hands of competitors.
Lastly, there are, inevitably, cultural differences to overcome in soliciting, negotiating and carrying through with an investment between companies from two different countries. For example, many U.S. entrepreneurs are used to pitching professional investment firms armed mainly with a patent, a great Powerpoint pitch and a plausible Excel model. In China, securing capital is often a more personal odyssey, dependent on long-time relationships, trust-building rituals and valuations grounded more in the past than the future. Patents only get you so far, as Chinese cleantech investors are often looking for technologies that are “shovel-ready” or at least close to commercialization.
But none of these obstacles are insurmountable, as recent activity demonstrates.
Five years after the U.S. government blocked the takeover bid for Unocal by China’s state-owned oil company CNOOC, Chinese investments went through for U.S. energy firms InterGen and Chesapeake Energy, and CNOOC Chairman Chengyu Fu just told Reuters that the atmosphere for foreign investments in the United States was welcoming. On a much smaller scale, OnGreen’s own Series A investment came out of Shanghai, and, we are working with the Joint U.S. China Collaboration on Clean Energy (JUCCCE) and the University of Michigan and The Erb Institute to explore the best model for Chinese investment in U.S. IP.
As JUCCCE Co-Founder Peggy Liu puts it, “This joint research project would not only bring positive trade flow into the U .S. from China and create jobs, but also potentially help the U.S. bypass historic patent infringement issues in China.”
Given bumpy trade relations between Beijing and Washington, non-profits and researchers are stepping in to help build a framework for east-west capital flow. But whether or not the U.S. would ever approve of a CNOOC-Unocal deal may become irrelevant. Rather than a few monster deals, look for hundreds of smaller investments in the coming years as China leverages its cash and innumerable cleantech projects to reduce its innovation deficit.
Stanley Holt is the President and COO of Los Angeles-based OnGreen.com, a global clearinghouse for cleantech investment. Click here to learn more about OnGreen’s China Capital Road Show.
Image via yunheisapunk
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