Startups Venture

New Joint Venture Seeks To Create Blueprint For US-China Tech Startup Collaboration

U.S.-based RealWear, inc, a developer of industrial wearable computers with $17 million in fresh Series A funding, will announce the formation of a joint venture with China-based RealMax Group. The new group will see monies originally sourced from a Chinese government-affiliated fund, initially invested into a private Chinese company, find a home in a joint venture with an American company. It’s a notable set up, and sources indicate that this is the first of many such investments to come.

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Today, in Sanya, China, a quiet automotive industry conference is the setting for a rather unique set of announcements. Through the formation of a joint venture, two unlikely business partners-turned-close-friends—one from China and one from the United States—hope to create what they called a “blueprint” for cross-border tech startup collaboration.

Here’s Who’s Involved

Andy Lowery is the cofounder and CEO of RealWear, the Washington state-based maker of rugged industrial wearables. Lowery, a retired U.S. Navy Lieutenant Commander, has extensive industry experience, including as the business area chief engineer for electronic warfare systems at Raytheon, and as the president of DAQRI, an augmented reality hardware and software company based in Los Angeles, CA.

Sonny Xin is the cofounder and president of the RealMax Group, a Shanghai-based company building an end-to-end augmented reality “ecosystem” that combines hardware, software, content, services, and venture capital, according to the company’s website. Before his work with the RealMax Group, Xin was the head of Asia-Pacific business for an augmented reality company called Metaio, which Apple acquired in May 2015. After leaving Metaio, Xin started RealMax and began making investments in technology companies on behalf of the State Development & Investment Corporation (SDIC).

SDIC is a Chinese state-owned investment holding company, a kind of quasi-sovereign wealth fund. According to the Corporation’s website, SDIC has “registered capital” of $3 billion, total assets of $68.28 billion in total assets, and nearly $160 billion in assets under management. Xin told Crunchbase News that RealMax raised “one hundred percent” of its $30 million Series A round, which closed in May 2017, from SDIC.

A Quick Note On Names

If you find yourself confused by the startlingly similar names, RealWear on the U.S. side and RealMax on the Chinese side, you’re not alone. It turns out that Andy Lowery and Sonny Xin started their respective companies at around the same time, and had been in close communication almost from the beginning, as both founders told Crunchbase News in a joint interview.

The two met at an industry conference and had interacted with each other off-and-on. According to Lowery’s telling, the two ran into each other once again and ended up spending about half a day together comparing notes.

Xin observed that, in the AR industry, there is a lot of vaporware. But since he wanted to build something real, he opted to call his next company RealMax.

“[Xin] wanted it to be grounded in realism, what could actually be done [with technology] today, what was real and ready to scale” Lowery said.

Lowery, at the time, had called his company WearNext, but he changed the name.

“The name itself is a merging of the two companies,” he said. “We took the name ‘real’ from RealMax, and the ‘wear’ from WearNext, and so that’s how we became this hyphenated company from the start.”

Why China Is Branching Out Into US Tech

The new joint partnership, RealWear China, will be led by Xin. Ownership in the joint venture will be split roughly down the middle. Lowery said he negotiated a 51 and 49 percentage split, with the majority share going to the Chinese RealMax side.

So why is SDIC investing in RealWear in particular? Lowery explained that since 1995, when SDIC was originally chartered, the group had mostly invested in and managed infrastructure projects, primarily in power generation, oil and gas, and mining operations inside of China. However, because China’s infrastructure build-out is beginning to slow, as the country becomes a more established economy, SDIC began to fall short of its traditional 30 percent annual return. So, according to Lowery, in the interest of generating higher returns, SDIC is looking into investments in riskier asset classes, like emerging technology companies.

But Lowery said there was also another motivation here. The Chinese government is hoping to position the country as a technology leader in the global economy, and investing abroad is part of that strategy.

Lowery continued, saying that when SDIC reviewed his company, they said “this is a home run.” He explained their reasoning: “First, it’s a company and product that fulfills all of the requirements that President Xi was looking for his new ambition to create this global economy that would wrap back around and feed into Chinese industry.”

Second, Lowery said, RealWear fits into one of the technology verticals that President Xi was “looking to evangelize.” AR, VR, and wearable computing is the vertical RealWear fits into, but Xi is also promoting investment and development of autonomous vehicles, drones, robotics, and artificial intelligence.

Because RealWear’s technology was co-developed between U.S. and Chinese engineers, manufactured in China and because it fit into broader strategic goals from the Chinese government, the deal saw very little pushback and was allowed to go through.

Building a Bridge, Growing The Pie

Xin told Crunchbase News that the joint venture is, in his view, an opportunity to create a new model of cooperation between U.S. and Chinese technology businesses. He noted that in the past, there was a certain amount of copying going on. There would be a leading U.S. technology company that Chinese entrepreneurs would seek to duplicate in their own market.

“When a company finds success in the US, similar companies emerge in China. For Apple, there’s Huawei. For Google, there’s Baidu. For Amazon, there’s Alibaba. And this causes some problems at the government level,” he said.

Xin believes that this cooperative deal is an indication that the relationship between Chinese companies and U.S. companies operating in China has changed. He believes that the joint venture signifies official recognition of American technology by Chinese officials, and suggested that they’re more likely to protect the company’s intellectual property.

Through this joint venture, says Xin, the cooperative relationship between the U.S. and Chinese governments necessitated by this new agreement bridges a regulatory and intellectual property enforcement gap.

For his part, Andy Lowery says that this joint venture could provide a blueprint for a new kind of cooperative economic relationship between the U.S. and China.

“By collaborating across borders we have an opportunity to create tomorrow’s trillion-dollar pie, rather than squabbling over slices of yesterday’s,” said Lowery. “The more we share globally, the stronger all of our economies become.”

Of course, as with all new ventures—joint or not—well-laid plans are subject to change. No matter how much two business partners like each other and believe in a mission (in this case, bridging the gap between the U.S. and China) countervailing forces abound. Nativism here in the U.S., misbegotten standoffs over tariffs, and pushback against authoritarianism are real geopolitical factors this one company will have to contend with, at least for the short term. Trust between co-founders is all well and good, but it will likely prove insufficient to maintain this particular tie between two superpowers.