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How the Long Play Works in Venture Capital: The story of Enwise

The venture capitalist’s eye is always on a distant and uncertain future. Many of the now-famous VC-backed companies, such as Google, Tesla, and Starbucks, might be described as “overnight successes ten years in the making.” To the outside observer, they came out of nowhere and suddenly dominated an industry. But to VC insiders, they grew slowly but deliberately, making good decisions after good decisions, on technology, on market entry, on team building, etc… When an investment is a success, it is satisfying to look back and consider how it all came together.


As VCs, we constantly ask “What if?” questions. We observe the world, we identify things that could be done better, and we chase companies that make the better ways into realities. Mostly, the answers lie far in the future. We must make decisions with partial data and anticipate the future. Identifying a startup with an intriguing vision is just the beginning: There are relationships to build, technologies to polish, markets to identify, customers to convince, timing considerations, and often waiting for markets to develop, to move away from the incumbent less-desirable solution.


To illustrate how these factors play out in real life, I offer the example of Enwise, the world leader in onsite generation of energy from organic waste and one of our portfolio companies. It’s a story of entrepreneurial vision and perseverance, of relationship-building, of timing, and of market forces moving in an even more advantageous direction than originally expected.


Based in Shanghai, Enwise produces clean and affordable energy by converting organic waste byproducts into biogas, which can be used to generate electricity, heat, or whatever form of energy most useful to the customer.


One of Enwise’s key innovations is that the energy is produced on-site rather than at a central location. For example, Enwise has a contract with a world-leading maker of potato chips. Sludge, rotten potatoes, and other byproducts of potato chip production are converted using Enwise’s unique dry fermentation technology. The Enwise equipment produces 20 percent of the entire factory’s energy needs. The digestor occupies about 120 square meters and is monitored and controlled remotely through the cloud.


The Enwise process is cheaper than energy produced by wind or solar. Everything is on a short loop: Energy doesn’t have to be sent back through the grid, and the client is spared the cost of shipping waste to a central processing facility, avoiding waste processing fees as well. The produced energy comes completely free for the client. Instead, waste is turned into profits.


With China and other nations making a big push for a carbon-neutral future, and major corporations following suit, the potential market for Enwise is much larger than we imagined when we first became acquainted with the company. Naturally, we’re delighted. But the roots of this win run deep and grew slowly.


The idea: The story goes back 10 years, when Dr. Stéphane Vernède, who grew up in France, was in Switzerland, employed in the aluminum industry and working on his Ph.D. at the École Polytechnique Fédérale de Lausanne. He became interested in fuel cells. His wife Zhuoya Li (李卓娅) is from China, and they decided to come to Jiangsu and launch their company. When their first effort at biogas technology didn’t work as hoped because of the costs associated with a large, centralized production facility, they stopped for a time. The second iteration of the company began when they realized they could do smaller, onsite energy production.


The relationship: I met Stéphane at an alumni meeting in France, and then connected in China in 2013 when Enwise was working on its first pilot project. I followed the project and discussed it informally with Stéphane and Zhuoya for several years, often when meeting at business events in Shanghai. Together we visited the first pilot plant in Haimen in 2016.


The timing: In any venture capital initiative, timing is critical. Investing too early means committing money to unproven concepts, and potentially running out of time and money before the company can succeed. Investing too late means missing out on potential returns as well as the opportunity to nurture the company during the key initial stages. The timing question is especially critical in the hard-tech space, where core research can take years to develop and prove, and the market can be slow to validate the newer better solution.


Because of our background as scientists, my partner and I saw the potential in Enwise’s onsite dry fermentation technology. But it was quite some time before the technology and circumstances converged. Market conditions were changing in favor of environmentally responsible technologies. For example, Shanghai implemented new laws on waste sorting, especially the sorting of organic waste. Letting organic waste rot outside had always been a problem because of the terrible smell it generates. And sending organic waste to an incinerator is similar to trying to burn a watermelon: very energy consuming and clearly a bad idea! Around that time, Enwise landed a worldwide partnership agreement with a big waste-management company that had vetted the technology. In 2018, we knew the timing was right: CM Venture made its investment in Enwise.


The future: Enwise currently has 12 employees and their equipment operates at eight locations in China. Through its work with large multinational corporations that have aggressive carbon-neutral goals, Enwise has the opportunity to expand globally. To prepare for that growth, there will be another fundraising round next year. It’s incredibly exciting to see how the company is positioned, all the more so knowing that the journey started years ago and hasn’t been rushed. We believe its future is very bright.


In business, there is no such thing as a sure thing, and the extremely long play inherent in hard tech is perhaps the most daunting challenge of venture capital. When everything aligns, however, the long play is precisely what makes venture capital so rewarding and satisfying.