As China’s venture capital market continues its rapid growth riding on Beijing’s endeavours to achieve technological self-reliance, an investment veteran said that excessive government funding could squeeze room for venture investors looking to cash in on the country’s technology advancements.
“Broad [government] support has been the most valuable gift that we’ve received as investors,” Jeffrey Lee, co-founder and managing director at Northern Light Venture Capital (NLVC), told DealStreetAsia in an online interview. “Where we found regret, as sometimes bad side effects, is when a regional- or local-level government overly promotes specific industries by giving too much capital.”
An example of that, said Lee, would be the growth of China’s photovoltaic solar industry.
The sector saw the Chinese government’s direct investment, subsidies, and easy access to bank credit over the past 20 years create what is now the world’s biggest producer of solar energy, led by domestic giants including LONGi, Suntech Power, and Trina Solar.
“China’s solar panel sector was a big success story,” said Lee. “But from an investment perspective, the sheer amount of capital that the government offered to industry players made it very hard for us as investors to benefit.”
Coupled with its capital market reforms, massive government funding is expected to continue amid China’s ambitions to become a global leader in the scientific field.
In a wide-ranging interview, Lee touches upon multiple themes including the overall investment landscape as China shifts to a consumption-led and innovation-driven economy, the increased regulatory oversight on consumer-facing sectors, and NLVC’s deal momentum and focus sectors.
Founded in 2005 and now with over $4.5 billion in total assets under management, NLVC backs early-stage startups in China and the US. The firm has by far invested in over 400 companies through six US dollar funds and four Chinese yuan funds with a focus on the fields of TMT, advanced technology, and healthcare.
The firm was looking to officially close its USD Fund VI and RMB Fund IV with $700 million in total capital commitments in the recent two months.
Edited excerpts of the interview:-
