Venture capital boost for China's early stage cleantech innovation: Analysis by Zhun Ma

Accel Partners, a VC firm behind investments like Facebook and Groupon, is planning to raise $1 billion for two China funds, one for early-stage investments and the other for later-stage opportunities.  Accel plans to focus its investments in China on cleantech including LEDs, smart grid, clean transmission and photovoltaic materials. The company’s emphasis on innovation and early stage opportunities within these industries is a smart move.

Cleantech has been the top VC investment category in the world since 2009, showing tremendous growth over the past few years that is seemingly due to government support for this sector. Typically, the leading cleantech sectors are solar, transportation, green buildings, biofuels and wind. As China’s economy is growing fast, it is believed that the country’s cleantech sector will follow suit. Last December, China announced a new raft of energy subsidies with the goal of creating 13 industry zones and paying up to half the price for equipment for solar power projects. Additionally, the announcement outlined a target of 1,000 megawatts of solar generating capacity each year through 2020. According to Pew Environment Group’s report released last year, China has overtaken the U.S. in clean energy investment, and the energy policy frameworks and financial stimulus packages in the country could grow the leadership gap at a rapid rate.

The sheer scale of the opportunity in China aside, it is the potential for China’s emergence as a source of cleantech innovation that causes the most contention, yet lingering confidence for policy makers and businesses across the globe. China still needs to import advanced techniques and collaborate with its foreign partners, US- and Europe-backed companies and investors. However, domestic innovation and talent in China are maturing, driven by the government’s efforts to enhance its cleantech R&D capacity.

As such,  Accel takes smart steps into China’s cleantech market by participating in funds that cover both initial and commercialization stage investments. The latter is not new, and in fact replicates years of foreign investment in China in manufacturing and retail/consumer driven growth. It is Accel’s specific focus on early stage opportunities that is noteworthy. The seeds of a viable and investible science-driven innovation system are apparent in China, and has been experienced by angel investors based in the country. Accel’s bifurcated approach covers the spectrum, incubating local innovative cleantech as well as partnering with those established cleantech businesses serving today’s market.

Zhun Ma is an Analyst at Lux Research and is based in Singapore, working in the China Innovation practice and the Printed Electronics Intelligence service. He studies emerging technologies and innovative start-ups, companies and leading academics in the fields of energy, advanced materials and clean technology in China, an emerging and fast-growing market.

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