China’s VC giants take aim at climate tech

Venture capital fundraising in China is cooling off as investors weigh how to navigate the country’s new regulatory regime. One strategy that’s taking shape: VC firms are aligning themselves with Beijing’s strategic goals by planning big bets on climate-friendly industries.

Founding partner James Mi addressed the threat of climate change in a statement announcing the funds, adding that Lightspeed China would seek out companies that have a “positive impact” on society. Along those lines, the firm has invested in electric truck maker Newrizon and biomaterial startup Bluepha.

Earlier this year, Sequoia China reportedly established a fund with Envision Group, an alternative energy tech company. The vehicle is targeting 10 billion yuan (about $1.57 billion) to invest in technology that will reduce carbon emissions.

Sequoia China has been among the most active investors in Chinese cleantech firms in recent years, according to PitchBook data, amassing a portfolio that includes electric vehicle manufacturers Nio and Leapmotor, as well as battery maker EcoFlow.

The new funds stand out against a backdrop of a broad decline in VC fundraising in China, which is on track to notch its lowest year by deal value since 2015, according to PitchBook data. Indeed, many tech-focused investors have re-evaluated the Chinese market in the face of a hostile regulatory environment that has done significant damage to the portfolios of international investors.

Despite sprawling regulation by the Chinese government that spans gaming, tutoring and consumer lending, many private investors remain dedicated to the region. Following recent regulatory clampdowns, 92% of PE and VC professionals said their investment strategy in China had not changed, according to an October survey by accounting firm EisnerAmper.

The renewed emphasis on clean energy among China’s venture capitalists reflects a changing market as well as Beijing’s new strategic moves to cut carbon emissions.

An earlier surge in Chinese cleantech investing in 2017 and 2018 helped give rise to richly valued EV makers like Nio and Xpeng, which offer a proof point that climate-friendly investments can generate returns. And Chinese companies with higher-than-average ESG scores outperformed their peers over the past three years, according to an analysis by investment firm Cambridge Associates.

China has pledged to reach peak emissions by 2030 and achieve net-zero emissions by 2060. That’s a tall order for the world’s largest emitter of greenhouse gases, but one the government is increasingly taking seriously. Earlier this year, China rolled out the world’s largest carbon emissions trading market, which focuses on the power sector.

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