Behind the Surge in MedTech Hard-Tech Investment: The Rise of Scientist-Entrepreneurs

Investment in Medical Hard Tech is Heating Up.

After掀起 a热潮 in the TMT field, VC firms have also turned their attention to the healthcare sector. The reason is simple: despite several breakthroughs in China's medical technology innovation in recent years and rapid development, there are still significant gaps in high-end equipment and various upstream and downstream industries.

The rise of the manufacturing industry, the country's attention to and investment in key technologies and core components, as well as the listing of companies such as BGI, United Imaging Healthcare, and Nearshore Protein, have also driven the primary and secondary markets to value medical hard technology.

Taking Baidu Ventures as an example, data from VCBeat shows that between 2019 and 2022, Baidu Ventures participated in 41 intended investments in hardcore medical technology, with hardcore medical technology projects accounting for 68.29% of the investments. Moreover, the proportion of hardcore medical technology investments increased each year.

Yunfeng Fund, under Alibaba Group, began to show interest in the medical hard technology field in 2020. During that year, the fund not only invested in two new drug research and development companies but also expanded into three areas: laboratory animals, high-end medical devices, and medical robots. In the following two years, Yunfeng Fund continued to make investments in new drug research and development, high-end medical devices and surgical equipment, innovative drugs, vaccines, and other directions.

Tencent Investment has currently invested in five companies in the medical technology field, covering areas such as high-end medical devices, surgical equipment, and novel vaccines. However, in the TMT sector, Tencent's early-stage investments in hard technology were booming, with strategic layouts across multiple tracks including artificial intelligence, semiconductors, chips, and robotics.

The concept of "Hard Technology" was first proposed by Dr. Lei Mi, founding partner of Zhongke Innovation Star. It refers to key core technologies based on scientific discoveries and technological inventions, formed through long-term research accumulation. These technologies have high technical barriers and clear application scenarios, represent the most advanced level of global technological development, lead a new round of technological revolution and industrial transformation, and play a significant supporting role in economic and social development.

In the medical field, medical hard technology mainly refers to high-end medical devices with Chinese manufacturing advantages and core technologies; self-reliant and controllable drug research and development and chemical reagents, upstream and downstream equipment and consumables that ensure supply chain security and reduce costs for upstream and downstream customers; as well as independently innovated scientific research equipment and reagents that overcome "bottleneck" risks and achieve high-level technological self-reliance.

In the wave of hard technology entrepreneurship, scientists and university professors are an important force that cannot be ignored.

High educational background and high technical barriers are the characteristics of founders in the hard technology industry. Behind these project teams, the founders include veteran experts with years of experience in the industry, as well as numerous senior professors and researchers from universities and scientific research institutions. For example, Professor Wei Wensheng from Peking University, the founder behind Yuan Bio and EdiGene; Professor Jia Yichang from Tsinghua University, the scientist behind Shengji Changhua; Professor Qian Feng, the initiator of Xunji Bio and also the Vice Dean of the School of Pharmaceutical Sciences at Tsinghua University; and Dr. Huang Niu, a senior researcher at the Beijing Life Science Institute, who is one of the initiators of ChemMind....

Driven by market and capital benefits, as well as strong policy encouragement, an increasing number of researchers are venturing into entrepreneurship. In terms of capital, early-stage investments are often technology-driven, where R&D capability is the core competitiveness. Scientists, who represent cutting-edge technology, possess the ability for original innovation. Consequently, the medical deep-tech investment sector has witnessed a phenomenon of "professor hunting."

VCs Began Testing the Waters Frequently Since 2019 and Came Rushing In by 2021. Even Popular Investment Managers Have Experienced Losing a Professor to a Last-minute Snatch During Investment Decisions. Some VCs Would Spend More Than Half a Year Traveling Across China, Discussing Technology and Transformation Ideas with These Professors and Leading Experts to Gain an Edge.

After all, investing in hard-core medical technology ultimately relies not only on technology and products but also on the breakthroughs of core technologies behind them. "Securing" scientists means securing the technology. As a result, scientist-entrepreneurs are becoming the backbone of innovation in hard-core medical technology.

When it comes to hardcore technology, people often think of "chokepoint" key technologies. Technological innovation has become the main theme of great power competition. At present, China's manufacturing industry is moving towards high-end sectors. However, in the field of core technologies, China's technological innovation still faces challenges in mastering core and key technologies, with relatively weak self-sufficiency across the entire industrial chain. Perhaps for this reason, Sheng Xitai, founder of Hongtai Fund, frankly stated that, strictly speaking, among the world’s most valuable technology companies in 2022, there was not a single truly hardcore technology company from mainland China.

In the medical field, China's scientific and technological innovation has achieved many accomplishments this year, but the shortcomings are also very obvious: lack of core patents, lack of high-end products, and incomplete upstream and downstream industrial chains. For example, there are industrial gaps in viral vectors and culture media in the gene therapy field; some experimental consumables and laboratory animals in drug research and development still rely on foreign investment; and the medical device sector lacks the ability to manufacture core components. In terms of these key technologies for application and underlying technologies, China’s core technology and patent capabilities are still relatively weak.

But the investment logic in the medical field has locked onto "innovation." The results achieved in medical investments in previous years have already proven the value of technology investment. The internal driving force of investment has gradually shifted from the market value of technology to the drive of technology itself. And the driving force of technology itself is innovation.

Highly innovative, disruptive innovations often imply high industry barriers. In such cases, the first choice for investing in medical hard technology is products and technologies with monopolistic advantages. Precisely because of this, investment in medical hard technology has gradually begun to return to the degree of technological innovation and industrial adaptability itself.

At the policy level, the state's encouragement of hard technology began in 2010. The State Council reviewed and approved the "State Council's Decision on Accelerating the Cultivation and Development of Strategic Emerging Industries," identifying energy conservation and environmental protection, information, biotechnology, high-end equipment manufacturing, new energy, new materials, new energy vehicles, and other hard technologies as key strategic emerging industries for development at this stage. Since then, the state has introduced a series of policies to encourage the development of hard technology.

The guidance and support of national policies have allowed capital to see the favorable macro environment. In the internet era, the disappearance of traffic dividends and the lack of growth brought by original model innovations have made hard technology innovation a new opportunity for venture capital.

In addition to policy encouragement, government-guided funds are also playing a boosting role.

Since 2018, government-guided funds in China have become more standardized, and fund management has gradually improved. Giant government-guided funds at the billion-yuan level, such as those in Xi'an, Yangzhou, and Hefei, have entered the market. In addition to more flexible and policy-oriented management methods, these government-guided funds share a common trend — moving towards lower-tier cities.

First, it is reflected in the source of funds. Apart from first- and second-tier cities and provincial capitals, districts and counties in various provinces and municipalities are also participating. Secondly, there is a noticeable下沉of the industry. Some government-guided funds have gradually increased the intensity of direct project investment, introducing a "direct project investment +母fund" combination strategy.

The investment direction of government-guided funds is also in line with the "State Council's Decision on Accelerating the Cultivation and Development of Strategic Emerging Industries." Therefore, in the field of hard technology investment, government-guided funds are becoming increasingly active.

In the innovation of hard technology, universities and scientific research institutions are the supply side. In recent years, the importance of the transformation of scientific research achievements has been greatly enhanced at both the national and university levels. Since the promotion of the 2016 Law on Promoting the Transformation of Achievements, various measures to promote the transformation of achievements have also been introduced by universities and research institutes in China.

Speaking of hard technology, how can we not mention Xi'an. The Xi'an Institute of Optics and Mechanics has boldly practiced and explored solutions to the chronic problem of separating science and technology from the economy, forming a series of experiences that can be promoted and replicated. Some innovative concepts and methods have been incorporated into the national law promoting the transformation of scientific and technological achievements, creating a profound social impact. This innovative model has been named the "Xiguang Model" by Shaanxi Province and has been included in the provincial government work report for five consecutive years.

In its early years, Xiguang Institute proposed the innovative mechanism of "removing walls and running the institute openly" and the principle of "state-owned participation and timely withdrawal." By adopting a new model of integrated development through "technology + finance, technology + service, technology + market, technology + society," it has created a full-chain incubation carrier consisting of "co-working space + incubator + accelerator," establishing a close incubation soft environment for Xiguang Institute that combines "research institution + angel investment + incubation services + science popularization and education."

Specifically, in addition to "Zhongke Chuangxing," a national one-stop hard technology startup investment and incubation platform that integrates "high-tech industrial incubation + venture capital," Xiguang Industry has also established the first angel fund in China focused on the industrialization of hard technology achievements — the "Xike Angel" Fund. It has also created the first optoelectronic industry incubator in China dedicated to "hard technology" and initiated the Hard Technology Startup Camp, which focuses on hard technology entrepreneurs.

Currently, the Xi'an Institute of Optics and Precision Mechanics has led the incubation of more than 300 "hard technology" enterprises, forming three major industrial clusters: photon manufacturing, photon information, and biophotonics. These have cumulatively attracted over 5 billion yuan in social investment, achieving nearly a 100-fold increase in state-owned assets. Additionally, the successful hosting of two consecutive "Global Hard Technology Conferences" has effectively established a new city brand for Xi’an as the "Capital of Hard Technology."

In 2022, the "Annual Report on the Transformation of China's Scientific and Technological Achievements 2021," compiled by the National Science and Technology Evaluation Center and other institutions, was released. The list provides a statistical summary and ranking of the total amount of technology transfer achievements from universities in China last year, with Tsinghua University ranking first.

The transformation of scientific and technological achievements at Tsinghua University has long been a model among universities in China. From 2015 to 2020, Tsinghua University completed the transformation of 2,889 patents, signed 516 transformation contracts with a total value of 2.998 billion yuan (including an actual payment of 848 million yuan), and gave rise to 218 spin-off enterprises.

Tsinghua University has a complete set of management and operational systems for the transformation of achievements.

In terms of management systems, the university has introduced nearly 11 relevant policies, including "Tsinghua University's Regulations on Promoting the Transformation of Scientific and Technological Achievements," "Tsinghua University Intellectual Property Management Regulations," and "Detailed Rules for the Implementation of Tsinghua University Patent Management." These policies comprehensively cover all key aspects such as the registration, promotion, business negotiations, internal approval, transaction disclosure, contract signing, and revenue rewards of scientific and technological achievements, forming a complete policy system.

In terms of the working system, the school manages its intellectual property and technology transfer work under the unified leadership of the School Intellectual Property Management Leading Group. This group consists of the school leader in charge of scientific research, technology transfer, and school-local cooperation, the chief accountant, the dean of the Research Institute, the dean of the Technology Transfer Institute, the secretary-general of the Business Asset Management Committee, the director of the Asset Management Department, the director of the Principal's Office, and the director of the Office of Achievements and Intellectual Property Management (OTL). To promote the transfer and transformation of various achievements, the school has established the Office of Technology Licensing (OTL) and set up异地research institutes in collaboration with local governments across China.

In addition, based on the integration of Tsinghua University's industry, Tsinghua Holdings, a state-owned sole proprietorship platform, was established in 2003 with the approval of the State Council. Through Tsinghua Holdings' deep involvement in the research and development and transformation of the university's scientific research achievements, it has greatly promoted the disciplinary development and innovation and entrepreneurship of Tsinghua University.

Not only that, but apart from Xi'an Institute of Optics and Tsinghua University, more universities and research institutes are exploring the transfer and transformation of their achievements. Quite a few universities and research institutes have made remarkable progress. By establishing holding platforms, allowing researchers to value their shares or even leave their posts to start businesses, and authorizing the use of research outcomes to startups founded by researchers, universities and research institutes are flexibly transforming mechanisms and motivating researchers to enthusiastically pursue the transfer and transformation of their results, unleashing the vitality of scientist entrepreneurs in hardcore technology investments.

Support from multiple fronts has made the surge in investment in medical hard technology inevitable, indicating that China's medical technology innovation is heading towards a new historical juncture.

Currently, these medical hard technology innovations can be mainly divided into three levels.

The first type is substitution innovation, which refers to import substitution based on independent intellectual property rights; the second type is synchronized innovation, which involves research and development and innovation that keeps pace with international standards; the third type is leading innovation, which means taking the lead in a particular field globally. Among these, substitution innovation can be further divided into partial substitution and full substitution. The former may involve product substitution based on partially imported components or the substitution of certain product parts, while the latter encompasses comprehensive innovation covering all components.

Local substitution is the starting point of substitution innovation, but current medical hard-tech innovation has moved from substitution innovation to full substitution. Companies like TowardPi and捍宇医疗, which represent full substitution in medical innovation, have gained significant market attention. Among them, TowardPi has just announced the completion of a nearly 300-million-yuan Series C financing round.

Compared with the first type of innovation, the second and third types of innovation are relatively fewer but have gradually emerged. For example, the transformation achievements of Academician Gu Xiaosong in the field of tissue-engineered nerve conversion are already at the world's leading level. Substitution innovation is the starting point of China's innovation and also the inevitable trajectory of industrial innovation based on the scientific research foundation at that time.

However, one thing is certain: China's medical innovation is moving towards a more advanced, more independent, and more international direction. In the upcoming development, the transformation of scientific research achievements will be essential, and the participation of scientists is also a historical inevitability. Encouraged by policies, the collaboration of research, capital, and industry will lead to China’s innovation soon taking the global stage.