"Tsinghua University has been the number one-ranked university in China for years. Yet most people outside of Asia haven't even heard of it," says Dan Cowen, Director of International Affairs for Tsinghua Holdings Capital.
Like the many and varied 'University Venture Funds' around the world, this firm has benefited from being embedded in the ecosystem around a leading academic institution. Yet in recent years the firm's focus has shifted away from university start-ups and spin-outs towards more mature, growth-stage companies. Now the firm is even beginning to look for investment opportunities outside of China, while Tsinghua University itself seeks a stronger international profile.
In this week's Future Planet Blog, Cowen shares insights from Tsinghua's story and explains what he's hoping to find in nominees for the upcoming Future Planet Awards: firms with the potential to scale up and transfer beyond the local market to the wider world. "We're encouraging Chinese start-ups to get involved. This country has some very interesting innovations emerging right now, especially in medical technology and clean air technology, he says."
"Tsinghua Holdings [a State-Owned Enterprise] was created in 2001-3 to manage the sixty or so firms that had already developed from Tsinghua University research transfer," Cowen recalls. "There was no management previously governing those, no structure." Just three years later, the group created a specialised private equity investment arm focusing on discovering and nurturing new companies. This unit evolved into what is now known as Tsinghua Holdings Capital, a wholly owned subsidiary with more than RMB 20 billion (USD 2.9 billion) in assets under management.
As it has grown and developed, its focus has also shifted away from nurturing university-related start-ups and towards slightly more mature companies. "Today we're more focused on private equity and growth-stage, which is a change from where we began," says Cowen. "Although we still have excellent links with the university and we do invest in companies that have developed through the system here, including some of the excellent incubators, we don't invest in spin-outs so much anymore."
In part, this is because of "client demand" - the appetite of the insurance companies, banks, fund-of-funds, family offices and endowments that make up THC's LP base. Yet it is also a matter of investment reality. "Picking a world-beating player at VC stage is very difficult, especially in China," says Cowen. "Here it is almost assumed that you will have competition from the get-go: no matter what innovation you've produced, someone else will more than likely be working on the same thing. In the west, you can look for firms that do something unusual; that approach doesn't apply here to the same extent."
Nowadays, the start-up funding tends to come from a range of sources: angel investors, incubators, state grants. "Recently a lot more of the funding has been coming from wealthy individuals who have made money through their own start-ups and are now wanting to put some of that money back into entrepreneurs."
Is it really true that the Chinese innovation landscape is fundamentally more competitive than some of its western counterparts? "This is partly about simple numbers," Cowen explains. "The Chinese population is simply bigger than the USA or the EU, where we see a lot of duplication of administrative functions and a lack of willingness to enter a market where there is competition to overcome. But it’s also about the policies of national and regional governments in China... Each province or local government has a significant degree of autonomy to encourage innovation in their region through grants and subsidies. A couple of provinces in South West China want to be leaders in Big Data. A few years ago, some of the North-West provinces wanted to be leaders in Solar and Wind Energy. The result tends to be that you'll get multiple groups working on similar projects and that creates more internal competition for those innovators."
Having evolved towards a more traditional private equity profile, THC is now thinking about the next step: going beyond China. "We have a newly founded international team which is just getting started," says Cowen. "We are looking towards investing abroad, whether we go directly or act as an LP." At the same time, the University itself is seeking to internationalise and develop stronger links overseas. "We want to build the Tsinghua University brand globally. This has been the number one school in China for years and it should have greater prestige on the international stage."
Right now, Cowen and his colleagues are looking forward to seeing the nominees of the upcoming Future Planet Awards, which will recognise the new and emerging companies that are most likely to address key global challenges across climate change, healthcare, sustainable growth, education and security. "We're encouraging Chinese start-ups to get involved. This country has some very interesting innovations emerging right now, especially in medical technology and clean air technology, areas where China is set to lead the world in scientific development."
In particular, they're keen to see firms that have the potential not just to do well in China but to succeed globally. "We're looking for scalability and transferability. There are quite a lot of competitions in China that are about doing well in this market. But how likely are companies to be able to scale up into profitable, sustainable businesses that can transfer outside of China?"