China comes to the rescue for Khosla Ventures' clean tech portfolio once again
When you grow up, go to China.
That seems to be Khosla Ventures' mantra lately to the clean tech companies it has invested in.
Today Khosla-backed EcoMotors, a Detroit-based startup that builds fuel efficient engines, announced it will be opening up a second factory in China, this time with $200 million in funding from the Chinese government owned car company First Auto Works. The factory will operate as an independent entity, with EcoMotors owning 49 percent, and First Auto Works owning 51 percent.
It's a win for Khosla Ventures even more so than EcoMotors.
While many other VC firms turned away from big clean tech bets in the last few years, Khosla Ventures doubled down. Of its $2.5 billion fund, half of that investment has gone to clean tech companies according to a recent WSJ interview with Vinod Khosla.
Vinod Khosla is bullish on the potential of clean tech investments, but the path hasn't been an easy one to tread. He told the WSJ that one of the biggest problems is finding fellow VC firms to go in on deals with. As a result, Khosla Ventures "has been 'adjusting strategies' and getting 'creative in getting investors.'"
The EcoMotors-First Auto Works (i.e. Chinese government) partnership is a prime example. It's a strategic funding opportunity, one that will give EcoMotors an avenue for auto sales in China, as well as financial protection in building the factory.
Other Khosla-backed companies have followed the strategic partnership playbook. After announcing a $100 million round in January, Khosla-backed "smart window" company View's CEO told me he has relied on diverse investors to raise its $188 million total in capital.
“We need an infrastructure base. It’s not just money,” Mulpruir says. Mulpruir went on to explain what each category of investor brought to the table for View’s efforts.
“Venture is good at big ideas and big disruption, strategic investors are heavily involved in the energy industry which signals we can be a threat, and late stage growth firms like Madrone help us scale,” Mulpruir says. “Their vision capacity matches who they are and what they’re capable of delivering.” For View, the strategic investors were big corporations in the glass and window sectors, who could validate the View smart glass product and advise View on rolling it out to enterprise markets.
For EcoMotors, it's First Auto Works and, prior to that, a factory partnership with Zhongding Power.
It's no coincidence that EcoMotors has turned to China for these strategic partnerships as it gets ready to scale its engine production. China is fertile ground for finding willing clean-tech funders.
"The country has a demand for clean technologies," Andrew Chung from Khosla Ventures says. "It's a survival-driven demand."
In Beijing the toxicity in the air quality is many times the amount recommended by the World Health Organization, 300 million people don't have viable drinking water (a statistic from 2005), and people are dying because of air pollution. For all of those reasons, government entities and companies in China are looking for clean tech answers they can invest in.
Of course, with a partnership like First Auto Works and EcoMotors there's plenty of things that could go wrong. There's a cultural gap, a language barrier, and the simple fact that the factory will be based in China, far from EcoMotor's Detroit home. A simple syndicate of like-minded investors in the Valley would be a lot easier.
"If we don't manage the relationship well and stay close to them at all levels that can cause all of this to fail," EcoMotors Chief Operating Officer Amit Soman told me.