China: Now the land of cleantech capital

Coda sedan

China has long been perceived as the must-tackle market for clean power and cleantech, but it’s also become a spigot of private capital for startups that find the marriage of money and market opportunity particularly appealing.

“China continues to be on everybody’s mind – how you access the market there, how you access the capital,” said Sheeraz Haji, CEO of the Cleantech Group, during a conference call on Wednesday to discuss the group’s third-quarter venture investment data.

The China attraction runs both ways. Startups are looking for strategic investors that can help them gain entry into the Chinese market more easily, and Chinese investors are bullish about cleantech innovations and look to American startups for good bets. U.S. startups also might be finding less capital to be had from U.S. investors, some of whom are concerned about the impact of federal budget battles and election politics on government subsidies, which many cleantech businesses rely on.

China’s public markets also are hopping. During the third quarter of this year, China hosted more initial public offerings of cleantech companies than anywhere else in the world, Haji said. Eleven of the 14 IPOs took place in China, including four solar cell and panel makers.

Several recent fundraising rounds reflected China’s growing importance as a source of venture capital. Boston-Power just raised $125 million in a combination of private equity from a Chinese investment firm and grants and other incentives from governments in Beijing and the Shanghai region. The new funding also is prompting the lithium-ion battery maker to shift a signification portion of its operations to China, including manufacturing, and it’s looking for Chinese executives to helm the company.

Startups often cite the Chinese government’s long-term policy as a big reason for spending time and energy courting customers and investors in the country. Last month, the Chinese government announced it would set solar electricity pricing to guarantee profits for developers. Chinese consumers, who have far more disposal incomes these days, are snapping up vehicles.

“The Chinese are buying tons of vehicles, the 2-wheels, 3-wheels and 4-wheels,” Haji said.

Electric car startup Coda Automotive created a joint venture with Chinese battery maker, Lishen, last year. China’s Hafei Motor has also worked with the Coda team. Coda and Lishen have agreed to invest $100 million into the venture alongside a commitment for a $294 million line of credit from the Bank of Tianjin Joint-Stock Co. New Coda CEO Phil Murtaugh previously launched GM’s Shanghai-based business and Murtaugh has said that Coda will be selling a car in the Chinese market as well as the U.S.

Earlier this year, Better Place, an electric car charging and battery swapping startup based in Silicon Valley, said it was heading to China and inked an agreement with China’s Southern Power Grid to create a charging network. A123 Systems (s AONE) created a joint venture with Shanghai Automotive Industry Corp. in 2009, the first such partnership between a non-Chinese battery maker and a major Chinese automaker, according to A123. Dubbed Shanghai Advanced Traction Battery Systems Co., or ATBS, the joint venture was established as the preferred supplier of energy storage systems for all hybrid and electric vehicles manufactured by SAIC.

Not all China-related investments will have happy endings, of course, and Haji said he already has heard cautionary tales. One company, which he wouldn’t name, was a U.S. company that failed but was restructured and pitched to Chinese investors as a great deal.

“It was presented as a hot company, raised some capital and really had some fundamental flaws. It failed again,” Haji said. “I don’t know if that is pervasive. But I’ve heard from four or five people cautioning about ways to get burned when investing in young companies.”