China is experiencing a hardtech VC boom due to a a congruence of factors. VC investing in “hard technology” has been elevated to be part of “national strategy”. Funding for what’s animatedly-termed “throat-strangling technologies (卡脖子技术)” has become a national priority and patriotic act. The fervor is a rational result of real and perceived threats posed by the “China Containment” mentality prevailing in the West, but like any reaction to threats that inevitably goes into short-term overdrive, the fervor has real short-term consequences.
We see several short-term consequences on the ground for VCs in the space:
While now is the best time for “hard tech” entrepreneurs in China as funding is widely available, it is a challenging time for long term VCs who understand and appreciate the long commercialization and development cycles for hard-tech companies. As costs-of-building companies go up and valuations goes up, returns come down unless the exits become much bigger.
We are tweaking our strategies to address the short-term challenges while maintaining our disciplined and long-term focus on hardtech.
Now is the golden age for “hardtech” or industrial tech. There will be a fall-out from the current policy overdrive and financial markets over-heating, particularly for those large funds that dive into the sector with much fervor but little due diligence. But the upside is that the sector is finally becoming a “mainstream” VC market rather than a “niche” market. Firms that emerge stronger from the heated competition will be long-term winners. For us who have been always here in this market, we cherish playing the main court in the spotlight as the golden age for hardtech has finally come.