Andrew Chung’s quest to become global matchmaker for sustainability got a big boost recently with his firm’s initial close of $200 million in anchor commitments.
Chung’s firm, 1955 Capital, wants to connect technology providers in the Americas and Europe to China, India and the developing world to help these regions deal with growing pains. Chung sees untapped opportunities for these providers to create sustainable ways to deliver energy, food, agriculture, health, education and manufacturing.
The $200 million will fund companies between $10 million and $15 million each in the later rounds when they have proven technologies, established pilot projects and demonstrated the ability to take their technology abroad, according to the firm.
The firm embraces 1955 in its name to recognize “a seminal year when one generation of revolutionaries (Albert Einstein and Charlie Parker) passed the torch to another (Bill Gates and Steve Jobs),” the firm’s site notes. Chung sees his firm serving as a “cultural bridge by assisting management teams in evaluating and potentially entering China, India and other emerging markets.”
“Don’t just advise companies to focus narrow-mindedly on the U.S. market and render frontier markets an afterthought,” the site states.
Before starting 1955 Capital in the fall last year, Chung acted as a “bridge and intermediary” for portfolio companies exploring opportunities in China as a partner at U.S.-based Khosla Ventures. His Chinese background and fluency in Mandarin and Cantonese garnered him respect in China, while his board service for several companies focused on sustainable technology boosted his standing since “board to board” level communication is important in China, Chung tells CleanTechIQ in an interview.
Technology providers that can appreciate and address the urgent challenges spurred by growth are better positioned to succeed. For China, it’s “survival-driven demand” for clean technologies versus just “nice to have” in other places, Chung notes, as China deals with fundamental issues around energy, food, and air and water pollution.
But companies that have proven their technologies during the “first stage of clean tech” in the U.S. face potential roadblocks due to having fewer funding sources and corporate partners, Chung says. This has spurred a greater willingness by U.S. companies to explore China as a place to set up commercial projects, even if it means dealing with other potential challenges around IP theft, culture and language.
A key benefit for US clean tech companies doing business in China includes being able to bring their technology to market faster though joint ventures and licensing deals, says Chung. He points to two companies, Lanzatech and Ecomotors, where he worked to develop successful commercial partnerships in China.
As a board member at LanzaTech, Chung was able to validate their technology through a partnership with Baosteel, the largest steel producer in China. Baosteel funded the commercialization of Lanzatech’s first plant to create low carbon transportation fuel using emissions from their steel mills through biological fermentation. Lanzatech also developed a partnership with another major Chinese steel maker, Shaugang Corporation.
Another waste-to-value firm mentioned by Chung that is developing business in China is Calera, which raised $10.6 million from Khosla Ventures and Peabody Energy in 2011. That year, Calera announced a partnership with China Huaneng Group and Peabody Energy to develop a 1,200-megawatt supercritical power plant project that would capture a portion of carbon dioxide (CO2) and convert it into green building materials, such as cement.
And Detroit based EcoMotors, another Khosla Ventures investment, which makes fuel efficient, clean burning internal combustion car engines, has now set up two joint ventures in China. The reason they focus on China is that “they couldn’t get a deal in Detroit,” says Chung.
EcoMotors set up their first plant in China’s Anhui Province with a non-exclusive license from Chinese auto parts giant Zhongding Power, which invested $200 million in the company from its balance sheet. Zhongding was able to gain access to a technology that wasn’t available in China, so it was a “win-win,” says Chung.
In 2015, Chung was working with about a dozen Khosla Ventures portfolio companies that were doing business in China, including joint ventures, licensing deals, equity investments and customer relationships.
Large Chinese industrial companies are increasingly setting up corporate venture capital units and are willing to invest capital and take a chance on early stage, “revolutionary” technologies in order to “leapfrog their environmental problems,” says Chung.
Still, it’s hard to develop partnerships in China. Culture and language issues are the biggest reasons deals fall through between U.S. and Chinese firms, says Chung. He says “ego and fear” often come into play in negotiations, and developing strong relationships and trust with your Chinese partners is key to getting deals done.
Chung was a special advisor to the delegation for the U.S. trade mission to China in April 2015 to promote U.S. clean tech firms in China, which was led by the departments of Commerce and Energy, following the major U.S.-China joint agreement on cuts to carbon emissions in late 2014.
He said the trade mission was a “historic event” due to the “intent and motivation” from both sides to come together and find solutions to China’s environmental problems. He said it provided “eye popping exposure for U.S. companies in China” as the delegation met with the most senior business people, including industrial leaders. China’s government officials, the energy ministry, and banking sector were involved in the trade mission as well.
He noted the interest in new technologies from Chinese automotive companies was particularly strong during the trip.
Other key clean technologies of interest by China include grid storage, as they are building “the largest grid from the ground up that will need energy storage.”
There’s also big demand for LED lighting technologies, as there are lots of government projects that need LEDs, he says.
As reported, Chinese regulators have focused on encouraging green and energy efficient practices in both new and established buildings. Last year, California-based LED chip company Bridgeluxe was acquired by a Chinese investment group led by state-owned China Electronics Corporation (CEC) and Chongqing Linkong Development Investment Co.
Chung also points out that the Chinese have been long time wind developers, and the need for new wind technologies is big.
And there’s large potential for new bio-based chemical technologies, he says, as China has the largest petrochemical market in the world but has very little oil and gas reserves.
China is also paying more attention to sustainable agriculture and food technologies, as they have the largest population moving into urban areas that will need to be fed, says Chung. Plant-based protein replacement startups Hampton Creek and Impossible Foods, two Khosla Ventures portfolio companies, are well positioned to fill this growing need for protein in China, he says.