One Bed, One Dream: some learnings from the 2013 China Cleantech Tour
November 3-8 I had the honor and pleasure of leading Cleantech Group’s 3rd annual Cleantech Tour of China, an intense week of activities to help 13 companies and investors meet key players in China, to learn about the market and to think through potential entry strategies and partners. Over the week we met with over 100 organizations. Had I written a summary letter to the group, summarizing the experience and the learnings, this is what it might have looked like.
Dear 2013 Tour Party Members, (representatives of Advenira, Bowman Power, Electranova Capital, Enlighted, E.ON (Strategic Co-investments), Generation Investment Management, Idinvest Partners, NexSteppe, Silicon Valley Bank, Sol Voltaics, Solexant, sunfire and van Dyne Superturbo)
I think you just learned why it is imperative to always approach China with as open a mind as possible. Each time I take a group like you, of companies and investors, on our annual Cleantech Tour of China, I am always struck how pre-conceptions get challenged during the week, and how much, during the week, people begin to see and appreciate how fast the market dynamics change and how different the market and the innovation eco-system is in China – and how much they will need to adjust their strategic approaches to it.
Whilst in the US and Europe (perhaps a bit less so), anything that touches on, or involves, government is generally seen as something to avoid, if at all possible, in China almost the opposite principle applies. This leads to a very different-looking and a differently motivated ecosystem. Too much and too complex to do justice to in this summary piece, but here are some pointers and reflections on the key actor types in the ecosystem, based on what we did last week and who we met, as we traveled through Beijing, Changzhou and Shanghai.
That there was such strong interest in our group of foreign technology entrepreneurs both reflects the need for solutions at speed (such is the growing intensity of China’s pollution and environmental challenges) and a recognition that there is a shortage of indigenous technology and business-building experience. The latter point, though, may be overstated and runs the danger of being misunderstood. There is plenty of innovation in China (but more of it right now is around business models and cost reductions in the indiginezation process of existing innovation/technology). And we also got a glimpse that there are some “under the radar”, impressive entrepreneurs. By way of example, our guest of honor at Tuesday night’s dinner was Ms Wu CEO of Scinor Technology, a 2013 Global Cleantech 100 company, an impressive lady who has already successfully sold one business to Siemens and is busy building Scinor.
In many ways, VC’s in China, interested in cleantech, are not so different from their counterparts in the West. Especially from those operating under the classic 10+2 model, with western LP’s, you hear the same preference for capital-light and post-revenue growth stages. That said, what is also striking is the variety of financial investor types now appearing at the showcase events we hold during the tour week; and the number of new names appearing each year. Cleantech is not a swear word in China, like it is in the Valley. Both factors lead to more flexibility and the potential for more opportunism, when a genuine match between China and your companies’ solutions is spotted.
SOE’s and large industrials
The pressures on the large companies of China to become more sustainable and less polluting, and to be more open to change and innovation, are growing, as central government finds itself under increasing pressure to show its people that they are getting a grip on the all too evident pollution problems which will, if left unchecked, cause a negative feedback loop onto GDP at some point.
The cases of elephants in China dancing with foreign fleas like you are still few and far between, with the Baosteel/LanzaTech story we discussed last Wednesday still the pre-eminent case study. But meetings during the week with names such as Baosteel, CECEP, COFCO, Hanergy, Shanghai Electric, and Trina Solar suggest that more will happen over time.
2005-07 did not see us, or anyone else, talk much about corporate activity in cleantech (though some were playing at that time, of course). Fast forward to 2013 and we have a very different scene (our most recent report on corporates in cleantech being our third in three years). In China, the same drivers and reasons that propel their western counterparts to be involved in open innovation and venturing programs will surely propel large Chinese companies too – with the added twist, in the case of SOE’s, that these are instruments and levers of national government policy too.
Ultimately, to operate in China you need a license to do so, you need to “land” somewhere. Bewildering are the number of parks promoting themselves as open to environmental protection businesses. Striking this year was the increased number of these parks taking an interest in our tour party, and striking too was the fact that, rather than shunning solar, for example, there is evidence of newer parks trying to leapfrog themselves into solar 2.0, as the solar 1.0 players (e.g. Suntech) are on their knees and as the technology at the right costs starts to be available to create profitable solar companies for the 2020’s.
These parks, instruments of national, provincial and local government, are critical to your success in China – especially as their determination of how “strategic” you are, will impact how generous the entry support package (subsidies, provision of land, tax breaks, etc.) might be.
The Chinese seem deeply competitive – not least amongst themselves. Government officials (and so Parks and SOE’s) are, it seems, keen to out-do each other, a dynamic that can be to your advantage – if what you have to offer is strategic enough. Imagine, say, if your industrial efficiency technology could help a major manufacturing tenant of a Jiangsu province park stay in a park (and continue to be a contributor to local GDP) because you helped bring their emissions into line with the new guidelines, rather than their being forced to re-locate their manufacturing activities in the west of China (where pollution control levels are less demanding).
Understanding this, and understanding not to jump at the first thing, the first partner, the first deal thrown at you, is critical.
One Bed. One Dream
There is a Chinese saying, One Bed, Two Dreams, that is used to describe the situation where you may think you are in a partnership with someone who sees things as you do – but where actually you are not, and trouble will eventually result.
The very fact that this phrase exists in local parlance is instructive and a warning flag to us foreigners. At our final tour dinner, hosted by the government of Yang Pu (a district of Shanghai where Silicon Valley Bank, one of the tour’s premium sponsors, has established its joint venture, SPD-SVB), you may recall I proposed a toast to the idea of “One Bed. One Dream” and spoke of the importance of investing in the process of understanding the ecosystem and who might be your partners and why, investing in localization and the indigenization of your solution, and having local representation, to truly discover whether things are really as people say they are, who you are getting into bed with, and what the dream/vision really is.
I look forward to following all of your stories from here and to helping some of you further in China. Keep in touch: one of the most lasting benefits of these tours are the shared learnings and the bonds built up within the group (‘esprit de corps’ was how I recall referencing it at Sunday night’s opening tour dinner).
P.S. Here are additional photos of the trip: