Venture capital: A way to enter the Chinese water treatment market

Abstract

China is today facing severe water challenges and is increasingly focusing on attracting cleantech solutions to assist the country with water treatment products which provides an immense market for international as well as domestic cleantech ventures. The thesis builds upon the case of DHI spin-off projects which arise from the Danish cleantech water treatment company, DHI. The company aspires to move the new projects that lie outside their core competences from Denmark to the expanding Chinese market. However, these projects lack funding and expertise to successfully transfer the solutions to China. Venture capital is hence a key instrument for the spin-off projects from DHI as this type of funding provides capital and business knowledge simultaneously. The question is therefore what main possibilities the DHI spin-off projects have to engage in venture capital alliances to enter the Chinese water treatment market. The findings of the thesis are that the spin-off projects possess several strengths to attract venture capital investors present in the Chinese market which facilitates the entry to the country. Four different types of venture capital investors exist in China. However, we recommend the spin-off projects to engage in an alliance with the government and the foreign venture capital investors as these combined present the best opportunities for the new venture. The government venture capital investors provide access to the water treatment industry as well as vital networks in the market whereas the foreign investors contribute with capital, commercialisation expertise, and business knowledge. In order to create the alliance with the government and foreign venture capital investors the DHI spin-off projects are required to compensate the knowledge and accesses from the investors by providing shares in their venture and admittance to their research and development. However, we recommend that the sacrifice is beneficial as the alliances create a major potential for success of the DHI spin-off project in the Chinese water treatment market.