Venture capital firm VantagePoint Venture Partners has over US$1 billion invested in cleantech initiatives globally and is joining the charge into China. Melissa Guzy is the group’s managing director and group leader in Asia. She spoke to Business Spectator’s Isabelle Oderberg in Hong Kong to explain:
The group is eyeing China’s wind, solar, batteries, utility storage, LEDs and waste management sectors
China’s progress in green technology and climate change initiatives is misunderstood
China is putting its money where its mouth is, making funding available, while the situation in the US can still be difficult
Isabelle Oderberg: How much capital have you invested in China so far in terms of green technology and across China and Hong Kong?
Melissa Guzy: We have invested approximately US$20 million.
IO: And is that number expected to grow over the next few years?
MG: Yes.
IO: Do you want to tell me a little bit about the growth plans and how that’s expected to ramp up and what kinds of investments you’re targeting?
MG: We began the process from a deep sector analysis perspective, so rather than just being opportunistic, as far as saying that we were one of the global leaders in clean tech investing, we decided that regionally investing in cleantech is very different. We prepared sector analysis that we’d been working on, collecting over the last three years, and at this point in time we’ve now completed the sector analysis across a wide variety of areas sectors including wind, solar, batteries, utility storage, LEDs and waste management. Our investment pace will definitely increase over the next few years as we’ve now identified what we consider are very good opportunities in Asia across those sectors.
IO: What have you invested in already?
MG: We’ve invested in the LED space and batteries.
IO: When you say batteries, I assume you’re talking about car batteries. There is a lot of discussion around lithium-ion car batteries and it seems to be quite an interesting opportunity. Is that something that you’re interested in and what are you finding about that development in that space?
MG: Well, really electric vehicles are just at the beginning of their life cycle and so any time you’re at the beginning there’s lots of room for innovation, not only just in the battery, but the battery management systems for EVs and so when we look at it, we look at the complete eco-system; everything from the cell maker all the way to the packaged battery and the battery management systems for EV.
IO: And what about wind farm technology? China is one of the leaders in building wind farms – is that something you are looking at?
MG: We had been looking at wind and I think there’s always going to be improvement in these areas over a long period of time, but the one thing about wind is that I suspect there is possibly able to be less innovation in wind than in other sectors. One area of wind where you will see innovation is the utility storage. How do you store renewable energy, you know, during off-peak hours? And how do you increase efficiency from both solar and wind? By implementing battery technology or other types of technology to store it.
IO: Is this an issue that’s also going on in solar?
MG: Yeah. I think when you look at renewables and you say everybody’s objective is to increase the amount of renewables and their efficiency; one of the areas that we see as a bottleneck today is the storage aspect. And we think you’re going to have different parts of the ecosystem improve at different given points in time, but one great achievement today would be to figure out a low cost storage solution for off peak hours for both wind and solar.
IO: If that question could be answered from the technology development space, would it work across – or could it be applied across – hybrid car technology; solar and wind? Could it be applied across various spaces?
MG: Well, sure. I mean the EV area, too, is going to be about how you charge. We have an investment in Better Place, which just raised a significant amount of money doing infrastructure charging. Battery storage and energy storage is a key area for wind, solar as well as EV.
IO: From a financial point of view, do you think there’s a lot of money in these areas?
MG: Sure. Absolutely . And this is a global issue, so we’re looking for solutions at VantagePoint globally, to solve what we consider one of the key areas in renewable development.
IO: After Copenhagen, China seemed to get a bit of a raw deal in the world media in terms of people saying that China’s the reason that we didn’t get a deal, yet China is actually doing more than most developed countries in terms of improving its record and pumping huge amounts of money into green energy development. To what extent do you think the government’s investment in that kind of technology encourages private equity and venture capital? How important is it?
MG: Oh, it’s very important and they’ve done a tremendous job. People should be applauding how the Chinese government has been fostering the development of the alternative energy sector and when you’re on the ground and you’re working with potential portfolio companies and looking at investments I mean they really have been facilitating the development even in small companies.
IO: Do you think they got a bit of a raw deal in some of the coverage?
MG: Their progress and their support to develop this industry is misunderstood.
IO: Can you tell me a bit about where you think the misunderstanding stems from?
MG: Well, I’ll give you a good example. I think people don’t realise today that eSolar [a Pasadena-based company that has signed a 2000-MW deal in China] was able to get funding for a solar thermal plant in China from a provisional government or actually a local government before BrightSource, which is one of our companies, could get funding out of the US government.
IO: That’s fascinating, isn’t it?
MG: It is. And so what you see is, yes there’s a lot of talk about renewables in the US and developing this industry, but so far when you look at China’s ability to help and support and foster the young companies to develop and grow, they’ve done an excellent job. And if you look at the public solar companies today, how many of them are located in China? Quite a few. Look at wind, you have Dongfang, Sinovel, Goldwind. You have three very good companies in the wind space. If you look at areas of EV, BYD Auto has been extremely aggressive. They’ve done a very good job and in areas where they need development. There’s a lot of local support, provisional support to develop companies to address the needs.
IO: What kind of opportunities are there for investment in the nuclear sector?
MG: We are looking at it, but we just are trying to figure out where we could possibly invest in the nuclear sector. I think there are other people wondering the same thing, but perhaps there’s some innovation in the component level, but we’re still investigating that space.
IO: Are you optimistic that there will be opportunities for development?
MG: We’re not sure, we’re still investigating the area but, in China in particular, there’s clearly support for nuclear and we believe it’s an interesting space.
IO: In terms of the private equity landscape in China and companies coming to this area to invest, do you think there’s going to be a jostle for, I guess, quality investments, or do you think there’s enough to go around?
MG: In the whole renewable energy sector, the alternative energy sector is still in its infancy. I think there are lots of different areas to invest in, so we’re not worried about having it so over-invested. You have to remember, the amount of money that’s flowing into China’s private equity and venture is still relatively small compared with the US. So yes, it’s a popular area, but it’s a country with lots of innovation.
IO: Is it hard to stay on top of it all? There must be so many small companies. I can’t even imagine how many emails you get everyday what with people wanting to approach you. How do you sort them?
MG: Well we are driven by sector analysis, so we really do try to stay focused on a couple of sub-sectors of the space at a time and, if it’s outside of an area where we’ve done significant amount of works, we’ll just postpone looking at it. We really believe that you need to go very deep on the knowledge basis as well as making sure that you look at it, not only from a China or Asia perspective, but globally. One thing that is different about investing in the cleantech sector for private equity or venture is that it requires significant knowledge, compared with other investment sectors; a completely different knowledge set. And so we have a pretty large team in China and in the US relatively for looking at the space.
IO: What’s the size of your staff?
MG: Well, we have seven people in Beijing and four people there are dedicated to cleantech. And we have 17 cleantech people, I believe, in the US.
IO: I was looking at your bio and you’ve actually got an investment banking background. How do you actually evaluate your investment opportunities in this space, from a financial perspective?
MG: Well, there are a couple of key aspects about how you pick winners. One, you’ve got to start with a really good management team. There’s absolutely no doubt that really, really good management teams can figure out how to build successful companies. Strong management teams are absolutely number one. Number two is you have to be investing in a sector or a sub-sector where innovation can be rewarded. You have to have a large enough market, so that if you do develop the really great product, you can actually get rewarded for all the development. And finally you need favourable government policies to support development and innovation in a particular space.
IO: Where do you think the real money is going to be made in clean technology in China right now? Where do you think the real opportunities are?
MG: We look at all phases. We do growth capital as well and we actually do growth capital for some public companies, so we are across the spectrum. One area, today, that we particularly like is lighting. Getting people to change their light bulbs and applying the semiconductor technology to that space is going to be an area that is independent of other aspects, so we like LEDs a lot. We like waste energy. We think it’s very interesting in China. And, as I mentioned, we think that utility scale storage is very important.
IO: When you say ‘waste energy’, just for those of our readers who might not be familiar with the term, do you want to just give a basic explanation for it?
MG: Well, for example, we were looking at a company that takes the slime from coal and turns it into energy. There are other examples of companies taking household waste and turning it into energy. We think that space is interesting.
IO: Are you operating in any areas of water or desalination?
MG: We’ve looked at it, but we’re not focused on it right now. We think it’s a little harder for us.
IO: I was wondering about it, from the perspective of food security, lately and I just thought it would be an interesting area.
MG: Well, food security is interesting. I mean we did fund a company that’s doing culture and logistics because food security is an interesting topic.
IO: Do you think there’ll be a lot of funding given to things like GM food crops and things like that as China seeks to get a grip on the issue?
MG: The food sector is interesting in China. I mean, because you have just mass urbanisation, right, and industrialisation and they’re going to make improvements in different verticals and it’s an interesting area.
IO: Thank you so much for your time.
MG: Thanks Isabelle.