Bilin Star Ventures on the 'Fast' and 'Slow', 'Smart' and 'Foolish' in Medical Investment

For Proxima Capital, the final quarter of 2022 could be described as a harvest season, with Jian Shi Technology and Kang Feng Bio successfully listing on the stock exchange one after another. Meanwhile, by the end of that year, more than ten companies in Proxima Capital’s investment portfolio were preparing for IPO applications, with multiple firms expected to submit IPO filings each quarter in the coming years. During such a sluggish period, Proxima Capital appears to have carved out a distinct path.

So, what strategies did Proxima Capital adopt in 2022, what achievements were made, and what new hopes will it bring in 2023? VCBeat communicated with Sun Xiaolu, the founding partner of Proxima Capital, and organized the content of the communication as follows for the readers' enjoyment.

Sun Xiaolu, Founding Partner of Proxima Capital

VCBeat: What significant changes do you observe in healthcare investments in 2022 compared to previous years?

Sun Xiaolu:In 2022, the healthcare sector witnessed several notable shifts. First, volume-based procurement and cost-containment measures deepened further, prompting companies and investment institutions to place greater emphasis on product innovation and competitiveness than ever before.

Second, the financing environment has deteriorated, with a significant tightening of capital. Of course, markets naturally experience cyclical troughs and peaks every few years. During such downturns, many funds choose to reduce their investments, and some even halt investing altogether, posing challenges to corporate financing.

Third, exits have become more difficult. The overall secondary market has underperformed, the M&A market has contracted, and exit opportunities are scarce, significantly impacting many investment institutions.

VCBeat: In light of these industry developments, what strategic adjustments did Proxima Capital implement in 2022?

Sun Xiaolu:Investing in the primary market differs significantly from investing in the secondary market. While there are similarities on the exit side, the investment side is quite the opposite. In 2022, we invested in and supported 16 innovative companies, more than in any previous year. We believe that industry downturns often present better investment opportunities for several reasons.

First, when the bubble bursts, investors can gain a clearer view of companies—identifying which teams are more cohesive, united, and stable; which possess superior technology platforms, stronger core competencies, and greater talent appeal; which demonstrate greater resilience in overcoming challenges; and which achieve higher operational efficiency, better cost control, and stronger management. Second, during such periods, investment decisions often become relatively easier, with more ample time available for due diligence. Additionally, corporate valuations tend to be more reasonable.

At Proxima Capital, we not only continued to invest in early-stage ventures in 2022 but also allocated one-quarter of our capital to growth-stage and late-stage companies. When market liquidity is abundant, stock prices are high, and IPOs are booming, valuations often soar, which may lead to shifts in the mindset of some entrepreneurs. In such circumstances, we believe it is even more crucial to exercise caution in investment decisions. Compared to our early days, Proxima now has more ample capital reserves, enabling us to provide additional support for one or two funding rounds to outstanding enterprises. Meanwhile, we have built a stronger circle of investment partners to help companies navigate through industry downturns.

Of course, while current investment opportunities are promising, exit channels remain challenging. Therefore, we have required most of our portfolio companies to consider adjusting their plans and deploying capital more prudently. Additionally, for enterprises that still require financing to support their growth, we are making every effort to assist them in securing funding. This has significantly increased the workload of post-investment management. At the fund level, we have also adopted a more open mindset, actively exploring additional exit pathways in collaboration with various partners.

Furthermore, we have always believed that the establishment of a fund should align with the cycles of the capital market. For instance, we launched a new fund in early last year after recognizing this trend. In practice, one should seize the opportunity to raise capital when the market is performing well; once the fund is established, a subsequent market downturn presents an ideal window for investment. Some general partners (GPs) may overlook the importance of timing their fund launches appropriately.

VCBeat: Has Proxima Capital’s primary investment focus and investment rationale in 2022 changed compared to previous years?

Sun Xiaolu:No changes! We have consistently adhered to our strategy. At our inception, we established nine operational principles and have been implementing them ever since. We firmly believe that time matures into fine wine, making it the entrepreneur’s best friend. If a team remains focused on its positioning and objectives, continuously improving without pause, it can gradually build core competencies that intimidate competitors over the course of several years. The market is filled with various funds, each with its own investment strategies and profit models. Without steadfast conviction and a distinct investment strategy, succumbing to temptations and following the crowd will result in a lack of long-term competitiveness. Managing a venture capital fund also requires resisting short-term temptations, filtering out complex noise, and embracing an approach that may seem “slower” or “clumsier,” yet is extremely focused—“tackling the most difficult challenges to achieve the most ambitious goals.” By systematically investing in a few truly outstanding projects each year and advancing step by step in terms of team, vision, capabilities, and ecosystem, we can accumulate greater strength over several years and make more significant contributions to society.

The foremost principle of our fund’s investment strategy is innovation. We engage in rigorous, iterative discussions with clinicians and industry experts to assess whether a technology is ready for immediate clinical adoption. Once this is confirmed, we provide unwavering support. To date, we have backed 51 global-first products, a distinction that is relatively rare among Chinese funds. Many of these products have initiated registrational clinical trials, and a significant number have already received regulatory approval, reflecting the rewards of our steadfast commitment to innovation.

Early-stage investing is challenging, and supporting transformative innovations is particularly arduous. This is especially true in China, where most investors tend to favor projects with high certainty and established overseas benchmarks. Many friends in the investment community have asked us how we have managed to persevere. In truth, our approach has been relatively simple and pure: we believe that by staying committed, proceeding at a steady pace, and collaborating with like-minded individuals, we can achieve our goals.

Compared to other funds, Proxima Capital has a distinctive feature: all six of our partners and managing directors have previously served as CEOs of startups. Our investment team largely possesses industrialization experience, which enables us to better understand entrepreneurial enterprises and entrepreneurs, and to assist founders in gradually building their businesses. This year, five of the companies we supported were jointly established with our assistance. Among the 55 companies we have supported to date, 17 were founded by entrepreneurs with our help. Both figures account for nearly one-third. In recent years, we have also assisted our portfolio companies in recruiting more than 300 senior executives and core key personnel.

Furthermore, we have a strong preference for investing in and developing platform-based enterprises. This is because the domestic M&A market has not yet matured; unlike in Europe and the United States, there are few leading single-product companies available for acquisition by larger corporations. However, this also presents an opportunity: many of our specialized sectors currently lack dominant market leaders. We can leverage their technologies as platforms for continuous expansion, or use their therapeutic areas as benchmarks to broaden our reach, thereby establishing leadership in each niche segment and sustaining the creation of greater clinical value.

In terms of investment approaches, we employ a variety of models, including direct investment, co-founding companies, forming joint ventures with leading international enterprises, and assisting entrepreneurs in licensing technologies from overseas academic institutions (where we typically secure global rights). Our portfolio includes six joint ventures, and we have invested in innovative companies across the United States, Germany, the United Kingdom, France, Japan, Israel, and Singapore.

We place particular emphasis on openness and collaboration, engaging in comprehensive cooperation with our Limited Partners (LPs), clinicians, industry experts, peer funds, and industrial partners. Our LPs have participated in investments in more than 20 of our portfolio companies, accounting for over 40% of all our portfolio companies—a proportion that is relatively rare among domestic funds. Together, we identify more truly outstanding entrepreneurial teams and provide them with full support, making the industrialization of innovative medical technologies easier, faster, and more successful.

VCBeat: What changes do you anticipate in healthcare investment in 2023 compared to 2022? How will Proxima Capital adjust its investment strategy for 2023?

Sun Xiaolu:We will make minor adjustments based on market conditions, but our core convictions and investment strategy will remain unchanged. We aim to reach new heights each year, strengthen our team’s capabilities, expand global collaborations, and support more high-performing teams.

We anticipate a significant improvement in the capital market in the second half of the year. U.S. interest rate hikes will be adjusted, China’s economy will return to a fast growth track, and the government will provide greater stimulus and support for the economy. Corporate financing and fund project exits are also expected to improve.

Despite numerous challenges, including volume-based procurement, cost containment, and medical insurance payment reforms, we firmly believe that China’s healthcare industry remains in a golden period of development. This is driven by a vast patient population, extensive cross-disciplinary innovations, growing health awareness and purchasing power among Chinese consumers, as well as strengthening capabilities in scientific research, medical-engineering integration, and pharmaceutical industrialization. Opportunities and pressures will inevitably drive policy rationalization and market optimization.

VCBeat: From an investor’s perspective, what advice would you offer these companies on how to navigate the changes in 2023?

Sun Xiaolu:In fact, we are entrepreneurs as well. I believe that by setting clear goals, resisting certain temptations, focusing on the long term, dedicating ourselves to creating value, working together with unity, and persevering—while continuously learning and improving—we can achieve better results. If what you do delivers clinical value, it will generate greater economic value.

At all times, even during significant downturns in the capital market, numerous institutions continue to seek out high-quality enterprises. The most critical factors are the magnitude of value your work creates, the strength of your team building, the trajectory of your company’s development, your professional demeanor, and the stage of growth achieved by you and your team. Once you reach a certain level and maturity, you will undoubtedly garner greater support. In particular, the funding landscape is highly likely to improve substantially in the second half of this year, presenting more opportunities for outstanding entrepreneurs like yourself.