People from a sewage treatment company recently pitched their project to me.
Although the idea sounds promising, as most sewage treatment projects do, it’s not something private equity (PE) and venture capital (VC) companies are excited about.
They are concerned whether there is a sustainable market for this type of business.
In previous years, mainland venture funds have invested in sewage treatment companies but those businesses ended up struggling for orders.
Also, they were having a hard time cutting their production costs.
Investors became stuck, with no way to offload their investment, and were forced to write it off as a failure.
PE and VC funds are very cautious about pure technology sewage treatment companies for many reasons but the most important is that there are tens of thousands of sewage treatment businesses in the world.
Whether a certain project will make it largely depends on local regulations.
For instance, some mainland regulators will ask whether a company uses foreign or homegrown technology.
Only companies with their own advanced sewage treatment technology that are superior to their Chinese counterparts have an even chance.
In most cases, such companies still struggle to attract funding.
Because of the geographic challenges of setting a sewage treatment facility, PE funds often find it impossible to spot small operations with big potential.
A plant that does good in one province may not do as well in another.
Sewage treatment projects need enormous capital investment.
Although these can generate a stable cash flow, their income and costs are unpredictable.
Funds would rather put their money in internet companies and other technology projects.
This article appeared in the Hong Kong Economic Journal on Mar. 10.
Translation by Myssie You
[Chinese version 中文版]
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