Venture capital (VC) and private-equity (PE) funds are constantly on the lookout for so-called home-run projects, investments that can deliver ten or even a hundred-fold return.
If successful, one such project will be enough to offset other less performing ones. VC and PE funds often shoot to fame for being able to find these big wins. And once they succeed, it will be a lot easier for the entities to raise new funds next time.
The fund companies that invested in Alibaba, JD and Momo, for instance, have become very much sought-after among investors.
In the Greater China arena, most VC or PE funds have been focusing on the internet sector, where explosive growth has been witnessed over the past five years. By contrast, there are very few funds which mainly target the environmental protection sector.
However, there is tremendous growth potential in the environment-related sector given that China is facing increasing pressure to tackle heavy pollution.
Given time, we may see the rise of funds focusing on environmental protection, much like those which posted strong growth by investing in fields like virtual reality and 3D printing.
The success of US venture capital firm Lux Capital offers a good example.
Lux reportedly reaped return in excess of 40 times by investing in Kurion, a start-up that develops technology for cleaning up nuclear waste.
Founded in 2008, Kurion is a pioneer in nuclear waste technology. The company was later acquired by French water and waste giant Veolia for approximately US$400 million.
Many Chinese VC and PE houses hope to enjoy similar success by identifying good companies involved in environmental protection technology overseas.
Many of China’s nuclear plants have operated more than five years, and their nuclear waste can only be stored for five to eight years. Therefore, demand for nuclear waste cleanup technology will surge in coming years.
Currently, most of Chinese nuclear plants use obsolete technology in handling nuclear waste. If a fund manager can find overseas startups with advanced technology in this field, there is a good chance they would become the acquisition targets of mainland companies.
This article appeared in the Hong Kong Economic Journal on April 1
Translation by Julie Zhu
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