One of Silicon Valley’s oldest and best known investment firms, Sequoia Capital, has funded a Chinese rival to Tesla called NextEV.
The investment, which Bloomberg first reported, is unusual for Sequoia Capital, which has taken a conservative and arguably relatively successful approach to investing in cleantech startups. The firm has invested in relatively few cleantech companies and avoided some of the overhyped sectors. Electric car startups, in particular, can require huge amounts of money to get off the ground, and can be very risky.
It’s unclear how much money Sequoia Capital has invested into the Chinese electric car maker. Sequoia, which opened a China office in 2005, currently has 50 people there. Sequoia Capital China confirmed the investment with Fortune, and a spokesperson said, “We think [the] EV sector has great potential and NextEV has a very strong founding team.”
Shanghai-based NextEV has raised about a half billion dollars and is looking to raise another $1 billion to make a high-performance electric car in 2016, says Bloomberg. Producing a new electric car typically requires a minimum of $1 billion.
In addition to Sequoia Capital, NextEV’s investors include Chinese Internet giant Tencent, Hillhouse Capital, (which also backed Uber) and Joy Capital, which has invested in Chinese car services company Tuhu.
NextEV was created by a group of Chinese Internet entrepreneurs, including William Li, the founder of Internet content provider Bitauto.com, as well as Xiang Li, the founder of automotive website autohome.com.cn, and Richard Liu, the founder of e-commerce site JD.com. Li tells Bloomberg that the company, which already has 300 employees, plans to work with carmakers later this year to outsource manufacturing. According to Silicon Valley Business Journal, NextEV has a new 85,000-square-foot research and development center in north San Jose, Calif.
A decade ago, Sequoia Capital’s venture capital peers — like Kleiner Perkins, Khosla Ventures, and NEA — started to make audacious bets on cleantech. Many of those large and risky investments, like electric car company Fisker Automotive, lost money.
Sequoia, founded four-decades ago, is known mostly for its investments in Internet, software, and hardware companies. Successful investments include tech industry pillars Apple (AAPL), Cisco (CSCO), Electronic Arts (EA), and Oracle (ORCL).
On cleantech, Sequoia Capital took a more modest approach that has paid off with some successes. Venture capitalists make money when a startup they’ve invested in either goes public or is acquired.
Sequoia Capital’s successful investments in energy tech include solar developer Sunrun (RUN), which went public earlier this year; battery maker A123 Systems, which was the largest IPO of 2009, and eMeter, which Siemens acquired in 2011.
Electric car company Tesla (TSLA), which was backed early on by venture capitalists Draper Fisher Jurvetson, DBL Investors and Technology Partners (among others), is the rare electric car startup that has gained traction. The company went public in 2010, making its investors a lot of money.
Tesla’s success has inspired a new breed of startups to compete against it. The market for electric cars is still relatively small, but it has grown considerably since Tesla’s founding in 2003.
That some of these electric car startups are in China is not particularly surprising. China’s government is looking to grow a domestic electric car industry, and is offering support for battery and auto companies that are willing to build factories in the country. China also has been discouraging gasoline powered cars in certain regions, as well as car ownership in general, to reduce its infamously bad air pollution.
The Chinese government has reportedly decided recently to encourage non-automotive companies to invest in electric cars. That’s one reason why Internet companies and the entrepreneurs who build them may be interested in creating new electric car companies. Chinese Internet giant Alibaba and smartphone maker Xiaomi Technology have both considered investments in electric cars, according to Reuters.
However, because China is willing to heavily subsidize domestic technologies and markets, Chinese tech companies can face a constant boom and bust cycle. China’s solar industry soared, and later hit a wall, because of too much government support.
Similarly, Chinese electric car startups that gain fame could potentially crash and burn from this government-supported roller coaster ride. In the end, NextEV may be a very risky investment.
Updated at 6:52 PM PST on September 17 with confirmation and comment from Sequoia Capital.
To learn more about cars that could rival Tesla watch this Fortune video:
