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How Haiyin Capital is bridging the divide between U.S. tech startups and China

May 21, 2015

Dozens of some of the most promising high tech entrepreneurs in the U.S. are headed to Beijing over the next day or two for a weeklong trip that could represent the future of U.S.-China technology cooperation.

The trip is organized by Chinese venture capital firm Haiyin Capital, which just finished dispersing its third fund of $50 million into mostly U.S. tech startups like energy storage startup LightSail Energy, based in the Bay Area, solar tech startup 1366 technologies, located just outside of Boston, private space flight company XCOR Aerospace, in Mojave, Calif., and crowdfunding company AngelList (distributed offices).

The attendees on the trip are mostly entrepreneurs that Haiyin Capital has funded. LightSail Energy's co-founder and chief scientist Danielle Fong is already on her way there; LightSail co-founder and CEO Steve Crane leaves today. Frank van Mierlo, the CEO of 1366, is also en route.

The group will start in Beijing, and tour through the manufacturing regions of Hangzhou and Guangzhou, meeting with local businessmen and government officials along the way. They'll also attend entrepreneur-focused events that Haiyin has organized, some of them giving talks to Haiyin's network like one next week in Beijing by a test pilot of XCOR's private space tech.

China's Stock Runs High In A New YearHANGZHOU, CHINA - JANUARY 05: (CHINA OUT)Investors watch a digital screen displaying the prices of China's stock marketon January 5, 2015 in Hangzhou, Zhejiang province of China. China's stock surged to a high position on the first trading day of 2015, with Shanghai Composite Index climbing 3 percent to 3,350.52 at the close in the afternoon trading session on Monday. (Photo by ChinaFotoPress/ChinaFotoPress via Getty Images) Photograph by ChinaFotoPress via Getty Images 

What's the purpose of all this, other than to show off Haiyin's portfolio? The trip underlies the venture firm's investing thesis: Take some of the more daring high tech intellectual property in the U.S. and help the entrepreneurs work closely with China to develop their manufacturing and deployment chops.

If the companies can deploy and scale their technologies commercially through Chinese partners it could mean higher valuations for the startups, and could turn the companies into important customers and partners for local Chinese business executives. Many of these Chinese manufacturers are innovating and trying new types of production that are more modular and at smaller scale (but still efficient and low cost). Chinese local governments are also highly interested in establishing Chinese manufacturing regions as a place where more nimble innovation can happen.

Haiyin Capital founding managing partner Yuquan Wang (pronounced "Yee-chwan") uniquely straddles the U.S. and Chinese tech worlds; he teamed up with consulting firm Frost & Sullivan early on in his career and as a consultant helped China Mobile grow from almost nothing to the mobile juggernaut it is today. He started investing in both Chinese and U.S. tech startups about a decade ago.

Wang told Fortune in an interview that there are many promising young startups in the U.S. that can make really complicated high tech products, but have a problem reaching mass production. When startups are small and only at the R&D stage, their valuation is small and the big capital they need to get to the next level can't be raised, he says. But they often need a big investment to reach that large manufacturing scale and to reach a big global market, which will eventually lead to a much bigger valuation. "It's like a chicken-and-egg problem," says Wang.

Haiyin is hoping to help ease the gap between those book ends. He calls connecting Chinese manufacturing entrepreneurs with U.S. tech entrepreneurs "building block innovation." It's innovation more like a Lego than a lab: "Plug it in and it works," says Wang.

LightSail Energy's Crane says because the company has been in the R&D stage, it has had very little contact with China to date, so the trip for them is largely introductory and a way for them to learn about the market for energy storage in China. But now that LightSail is looking to move past the R&D phase, they're looking for manufacturing partners, customers, and investors in China. "I wouldn't be at all surprised if China turns out to be our biggest market," says Crane.

A worker inspects solar panels at a solar farm in Dunhuang, 950km northwest of Lanzhou, Gansu Province Photograph by Carlos Barria — Reuters 

Solar startup 1366—which sells solar cell manufacturing technology—on the other hand, has been working with Chinese companies for awhile and has a sales office in Shanghai. The majority of the world's solar cell manufacturers are located in China; 1366 is in the process of customers trials with some of them. "China has done a lot of things right in manufacturing. We stand to learn from that," 1366's van Mierlo wrote in an email from the road.

Of course, all of the help that the startups will get, also helps Haiyin. The firm will soon start raising its fourth fund, which Wang says could be double the size of its third fund, though he also says he doesn't want the fund to be "too big." In addition, the firm is also interested in partnering more deeply with AngelList to help Chinese investors fund AngelList companies. There's also a plan to work with a U.S. private equity firm to invest in later stage pre-IPO tech companies.

Shortly after the entrepreneurs from the ten or so companies return to the U.S., Haiyin's Wang will make his own journey to the East Coast, looking to connect with his U.S. network on the new fund. While Haiyin is operating on a pretty small scale right now (it usually puts just a few million into each company), if it can successfully act as that connection point—between the Chinese market and U.S. early-stage tech—there could be a lot of money made on both sides the Pacific Ocean.

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