Westly Group Targets Investments In Chinese Clean Tech

Steve Westly — the former California gubernatorial candidate turned Silicon Valley venture capitalist — issued a wake-up call today to U.S.entrepreneurs and venture capitalists who have hesitated to invest in clean tech — especially in China.

“No VC firm should be without a China strategy,” he told an audience of several hundred people at a clean tech conference sponsored by Cooley Godward, a Silicon Valley law firm. “China will pass the U.S. in 20 years as the largest economy in the world. There are only two countries that matter — the U.S. and China. They create 40% of the world’s pollution, and the other 191 countries divvy up the rest….I go to China every 90 days — China knows the big health issues they’re facing.”

Despite the massive investments the U.S. has been making in alternative energy, smart grids and other clean technologies, the Chinese government is moving faster and is pushing the U.S. hard, Westly said. China has ordered stiffer fuel efficiency standards for cars than the U.S. (42 MPG versus 39 MPG), a bigger investment tax credit for solar energy and wind energy (50% versus 30%), and 20% use of renewable energy by 2020.

“The hottest commodity today is a Chinese-speaking CFO with an MBA from an American school –that person is worth a mint,” he said. “The number of Chinese companies going public in the next 10 years is immense.”

Chinese entrepreneurs are also better than Americans at making their companies profitable without $50 million in venture capital, he said, although sometimes their claims have to be examined because of differences in Chinese and U.S. accounting standards.

Still, the Westly Group is seeking Chinese companies to invest in from its new $120 million fund, which just closed last month, although they’ve made no investments yet and have no offices in China, said Westly Group analyst Mike Jackson. He said he joined the Westly Group two months ago to help develop its China practice. The fund invests in B or C rounds and expects to see a return within two to four years, Westly said.

Westly also predicted a dozen clean tech IPOs in the U.S. next year, including Solyndra and Silverspring Networks (“I wish we were in it”), along with breakthroughs for a couple of his own portfolio companies — including Amyris, which is making biofuels, and Tesla Motors, which he said will have a five-seater electric car on the road by 2011 that will sell for less than $50,000.

So far, the firm’s biggest area of investment has been in green building materials — “boring, blue-collar stuff.” But Congress and the EPA are both pushing for rules on carbon, he said, and companies should plan on having to measure their carbon footprints by next year.

Westly also disputed repeated charges that he was “feathering your nest” by becoming a venture capitalist after his years of working in California government. (He served as California Controller for four years and sat on the boards of both CALPERS and CALSTRS. He also helped push through CALPERS’ $1 billion commitment to investing in clean tech, which he said “jumpstarted the clean tech industry”).

“I was running for governor,” he told the audience. “I had a different plan.”

He told me afterward that he likes being a venture capitalist. “It creates jobs, you’re dealing with people with big dreams, and things happen quickly,” he said. “I never had to tell anybody at eBay (where he worked as senior vice president for marketing and business development) to work hard. They all had stock options.”