Fund focus: Qiming's cleantech team spins out, raises $73m fund

When Yong Zhang, a partner and head of the cleantech team at Qiming Venture Partners, decided to spinout, he received early support from several existing portfolio companies. Hexing Electrical, CSD Environment, and Hailiang Group - all of which are now listed - signed up as anchor investors for Inspiration Capital's debut fund.

The renminbi-denominated vehicle closed in June with commitments of RMB500 million ($73 million). This followed a first close of RMB200 million last November. Other LPs include a fund-of-funds under Shanghai International Group, Shanghai Jiaotong University, three local government guidance funds, and the State Development & Investment Corporation's National Guidance Fund.

While Zhang doesn't think COVID-19 undermined LP support for the fund, it certainly prolonged the bureaucratic necessities. The registration requirements around establishing a renminbi fund delayed the final close by a couple of months.

“Setting up a renminbi fund is logical because the exit channels for our target companies are currently more preferable in the domestic markets. However, I look forward to raising a US dollar fund backed by international LPs,” Zhang says.

There was also a logic behind the spin-out: cleantech investment is becoming more infrastructure-like in nature and the team didn't see it as a good fit for a classic VC like Qiming. “Our investment cycle is longer and we target medium returns with low risk," Zhang explains. "Hardly any of our deals have lost money, but we don't have any that have made 100x returns like Xiaomi either."

Inspiration has broadened its investment scope to include advanced manufacturing as well as cleantech. Bringing new technologies to China's traditional industries is a key area of interest. While cost has always been a selling point for Chinese manufacturers, Zhang believes the real advantage is fast iteration capabilities.

“What drives production efficiencies? The core driver comes from enterprise customers' needs. China is a large market with many 2B customers. They constantly demand new features and the country has a huge base of engineers that can realize that. Without real demand, it's hard to create useful new iterations,” says Zhang, who served as a global head of technology R&D at GE before joining Qiming.

Hexing Electrical, an electric meter manufacturer that Qiming backed in 2011, is cited as an example. The company won a supply contract for pre-paid meters put out to global tender by a South African power grid operator because the product had achieved maturity in China after several generations of iteration. 

Hangzhou-based Hexing listed in 2016 and currently has a market capitalization of RMB7 billion. 

Customized manufacturing is becoming more prevalent in China, with traditional VC firms trying to ride the wave through investments in software or consumer-to-manufacturer (C2M) start-ups. Inspiration has a different starting point. It focuses on hardware, supporting companies servicing businesses or governments (2B2G). 

“Eventually we will meet in the middle,” Zhang says, noting that Inspiration is collaborating with Qiming and Sequoia Capital China on certain projects.

The firm is looking to participate in Series A and B rounds for companies that have at least RMB10 million in annual profit and two or three key customers. “We want to be one of the first institutional investors to know them, follow their growth path and provide our add-on values, but we might invest a bit later," Zhang says.

Earlier this month, Inspiration's first portfolio company - iRay Technology, a manufacturer of components used in X-ray systems - listed on Shanghai's Science & Technology Innovation Board, or Star Market. To date, it is the largest IPO on the exchange by a specialist equipment manufacturer.

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• Topics
• Greater China
• Renminbi fund
• Cleantech
• Industrials
• GPs
• Fundraising
• Qiming Venture Partners