A Light Bulb Goes on, and China Starts Thinking ‘Alternative Energy’

On the vanguard of venture capital, the buzzwords of late have been “alternative energy” and “China.” Are the two worlds about to collide?

Seed investors are financing, or considering financing, start-ups in China that are developing equipment for wind and solar power, clean water and food alternatives and technology to promote energy efficiency.

While this may seem to be an arbitrary combination of two of the hottest trends in venture capital — sort of like the first person who mixed peanut butter and chocolate — there is a growing number of investors who believe that the potential reward in China is worth the tremendous risk.

China has voracious energy needs and “the most serious environmental problem in the world,” said Jerry Li, a consultant in Beijing who matches venture capitalists with entrepreneurs. “There is a huge demand for investment” in alternative solutions, he said.

Mr. Li is the first director of Cleantech China, a joint venture beginning this month between Tsinghua University in Beijing and the Cleantech Venture Network, a blossoming North American trade and research group for venture capitalists investing in alternative energy technology.

While independent hard data on alternative energy investments in China is hard to come by, Mr. Li’s joint venture, aimed at marrying overseas investors and Chinese entrepreneurs, testifies to the emerging trend. From June 2005 to June 2006, American venture capitalists put $100 million into China-based start-ups focused on alternative energy, double the investment in the period a year earlier, Cleantech China said.

But the challenges are immense. For one, China has a hard-driving, fossil-fuel-centered economy that has so far done little to diminish its reliance on those fuels.

And venture capitalists have still not entirely figured out how to manage investments from such a distance, and across cultures, and, pointedly, how to get their money out once they’ve built the start-ups into viable companies.

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