Beyond Capital: The Evolving Role of VCs in Early-Stage Hard Tech and Biotech Commercialization

Early-stage, small-scale, and hard-tech enterprises are often a vital force driving market innovation. With broad market prospects and government support, the investment returns generated by such companies should not be underestimated. Of course, risk and return always go hand in hand; therefore, early-stage innovative enterprises naturally carry higher risks.

However, risk does not imply losses; rather, it underscores uncertainty. Hence, a common saying in the VC community is:“Success in VC still hinges on luck.”

But in fact, there is a second half to the sentence—“Luck is the result of risk control taken to the extreme.”

Risk control not only requires a discerning eye to identify companies with the potential to withstand risks, but also demands leveraging one’s own experience to help startups avoid potential pitfalls during their growth journey—This is also one of VCBeat's competitive barriers.

During the R&D phase, few venture capital firms are able to commit to investment, with most remaining on the sidelines.To gain a first-mover advantage, many VCs still choose to engage with researchers at this stage, and the projects they engage with mostly share one common trait—The school or hospital provides transformation support for it.

Langyu Capital, which focuses on early-stage investment in innovative drugs, stated: “We are not optimistic about university professors directly engaging in the operational management of companies., but instead look forward to leveraging the university’s abundant platform resources to facilitate early-stage validation and exploration of new projects for the company, while continuously delivering new technological innovations.”

Significant industry barriers exist between scientific research and the market. Many researchers who have not yet formally entered the translation phase often oversimplify this process, believing that commercialization merely entails partnering with enterprises to materialize their projects. In reality, numerous factors must be considered, such as whether the R&D project addresses genuine unmet clinical needs, the technical feasibility of scaling up for mass production, and the presence of homogeneous products in the market. Relying solely on researchers’ assessments of market prospects from a technical perspective is inaccurate; this requires the expertise of professional market specialists.

Technology transfer offices at universities and hospitals provide researchers with market guidance, as well as financial, platform, and spatial support to varying degrees. In contrast, researchers who venture out independently must assemble their own marketing teams, a move that carries obvious risks. This is likely one of the reasons why venture capital firms are skeptical about researchers pursuing commercialization on their own.

In practice, the market-oriented support provided by technology transfer offices (TTOs) at universities and hospitals remains limited. Given the high volume and diverse nature of projects handled daily by TTOs at research institutes, it is difficult for staff to develop customized commercialization pathways for each project on a one-on-one basis. Instead, they primarily establish external platforms and provide limited funding, leaving researchers to navigate the rest of the commercialization process largely on their own.

Overall, technology transfer offices can only provide market-oriented support during the initial stages of a project; beyond that, their capacity becomes limited, and only venture capital firms or corporate entities can take over to drive the project forward.

A VC remarked, “At this stage, we typically serve as the deal conveners.”

Although formal collaboration agreements have not yet been signed with researchers, venture capital (VC) firms will still lend a helping hand to promising projects by assisting researchers in identifying suitable commercialization teams. This serves both to lay the groundwork for future partnerships and as a “trial run” for the project’s market entry.

When matching research teams with commercialization partners, venture capitalists tend to favor business professionals who align with the team’s scientific vision and recognize its market potential, rather than endorsing the much-coveted “professional CEO” model popular overseas.

“To be honest, professional CEOs are not well-suited for startups in China.”

In terms of service capabilities, “professional CEOs” are actually quite rare in China. Chinese companies tend to prefer co-founding partners as CEOs, which lowers trust costs and makes it easier to achieve alignment on the company’s future direction. In contrast, “professional CEOs” often lack a sense of ownership, making it difficult to establish a deep, binding relationship with the company.

Furthermore, from an economic perspective, startups require substantial capital investment in research and development during their early stages, while hiring professional CEOs entails high compensation costs, thereby imposing significant financial pressure on these nascent enterprises. Therefore, when scientific researchers select partners,VCs prefer “co-founders” over “company managers.”

Having passed the R&D stage, projects must then navigate a series of complex procedures, including preclinical applications, regulatory filings, and certification. For researchers immersed in laboratory work, this presents another significant challenge. Determining the appropriate application category, the number of required clinical trials, and the necessary validations can be daunting. Expecting researchers to thoroughly master these regulatory requirements before submitting applications is impractical, both in terms of time and effort.

However, when it comes to regulatory filings, venture capitalists (VCs) find it difficult to be directly involved. Given the complexity of the filing process, only professionals specializing in technology transfer can provide tailored advice to help companies avoid unnecessary detours. Furthermore, the choice of which certification to pursue is closely tied to a company’s future development strategy.

Taking the IVD sector as an example, if the product is intended for tumor marker detection, a Class III registration certificate must be obtained; however, if it is merely for the detection of various substances, a Class II registration certificate may be applied for. Given that the application difficulty and procedural complexity for Class III are significantly higher than those for Class II, some early cancer screening projects can “take an alternative approach” by emphasizing substance detection to secure a Class II registration certificate. Nevertheless, in terms of future development and subsequent product promotion, a Class II registration certificate will impose greater restrictions than a Class III certificate.

Therefore, when selecting the type of application documents, corporate management must plan ahead for the company’s future development direction and growth pace; venture capitalists (VCs) can hardly do this on their behalf:“In the early stages of a startup, the correctness of managerial decisions can be more decisive for the company’s survival than the level of its scientific research capabilities.”

Of course, as declaration-related issues have become increasingly common, many institutions have established internal advisory departments for declarations. However, these departments only provide recommendations and do not directly assist enterprises with the actual declaration process. This approach is designed not only to maintain the professionalism of the institutions’ core services but also to avoid unnecessary risks.

In contrast, incubation-focused venture capital firms such as BioGenesis Labs, CAS Star, and Sinovation Ventures provide more meticulous “registration services” to assist companies in completing their applications. Such VCs tend to maintain closer ties with startups. As one industry insider remarked, “Investing is like picking apples; the ripe fruit on the low-hanging branches has been nearly exhausted, forcing VCs to start ‘planting trees’ instead.”Only by accompanying enterprises through the “Valley of Death” can one ensure that more ripe fruits fall into their own basket.

Each stage of venture capital (VC) has its own mission. When a company reaches the stage where it can enter the market, it means that early-stage VCs can choose to exit and pass the baton to others.

Once a company has entered the market, with its general pipeline and strategic objectives largely defined, the risks for venture capital (VC) firms taking over at this stage are significantly reduced. Consequently, securing lead investment rights in high-quality projects has become a key priority for VCs during this phase. Meanwhile, post-investment services have emerged as a critical criterion for many companies when evaluating and selecting investors, compelling numerous VC firms to engage in intense competition to enhance their post-investment support offerings.

The essence of VC is an information and intelligence hub.Those who can provide more valuable intelligence are more likely to gain favor with enterprises. Nowadays, post-investment services extend beyond conventional practices such as brand image planning and market positioning; they also encompass critical activities like helping companies innovate drug pricing strategies, secure inclusion in national medical insurance reimbursement lists, and participate in hospital tendering processes.

Once a VC firm assumes the lead investor role, it gains certain discretion in selecting co-investors. Typically, lead VCs invite their frequent investment partners or “sister firms” sharing the same capital background to participate in the deal. This approach minimizes cooperation risks due to mutual familiarity and facilitates the resolution of any disagreements regarding the portfolio company’s future development.

Markets are constantly evolving. Although a company’s late-stage development trajectory is largely set, strategic approaches should still adapt to shifting market trends. Therefore, at this stage, venture capital firms must help companies identify the next window of opportunity to capitalize on emerging momentum.

For innovative enterprises,Winning a sufficiently large “niche market” is crucial. At times, the choice of direction also determines the height of a company’s development.

Take Mindray Medical, a comprehensive domestic medical device enterprise, as an example. Prior to 1998, Mindray Medical adhered to the strategic philosophy of “developing what customers need.” It was not until 1999, after securing a total of $8 million in investment from three venture capital firms, including Goldman Sachs, that Mindray shifted its strategy to “filling market gaps through original innovation.” This breakthrough shattered the “ceiling” constraining Mindray Medical’s growth and enabled further expansion of its R&D pipeline. Undeniably, this transformation was driven by the advice and support of venture capital investors.

At every stage of a company’s development, the support of venture capital (VC) firms is indispensable. Leveraging their market experience, VCs can provide entrepreneurs with strategic advice and decision-making support. Nevertheless, VCs play only an auxiliary role; the ultimate trajectory of a company’s growth depends on its own decisions.

During the collaboration, mutual trust is paramount. Once the partnership is established, venture capitalists (VCs) must place unconditional trust in the company’s scientific research capabilities, while the company must also have confidence in the resources provided by the VCs. Only by integrating the respective strengths of both parties can the company’s development be advanced efficiently.

This “wager” on luck requires joint efforts from both sides to succeed.