Capital Balance Ventures: Championing Early-Stage Investment and Seizing the First Mile of Startup Financing
Early this year, Dynamic Balance Capital completed its investment in Nanjing Xinrui Regenerative Medicine Technology Co., Ltd. This marks another portfolio company added by the Dynamic Balance Capital team since it began venture capital investments in 2013.
From being incubated by local government investment platforms and starting out by managing government guidance funds, to undergoing market-oriented reforms and now making independent direct investments, Dynamic Balance Capital has provided venture capital, policy resources, and multifaceted support in technology and management to over 150 startup teams and early-stage projects.Meanwhile, Dynamic Balance Capital has helped cultivate multiple listed companies for the local region, including Maituo Instrument and Quanfeng Automotive, and took the lead in investing in and identifying a batch of industry-leading enterprises such as Inscinst, Shenxin Bio, Weizhao Semiconductor, and Yi'anlian.
Notably, over 90% of its portfolio companies have secured more than two rounds of financing.Moreover, through the “investment-driven attraction” model,The Dynamic Balance Capital team has also introduced more than 100 sci-tech innovation projects to settle in the local area, facilitating industrial development within the park and nurturing over 40 enterprises in Nanjing designated as “Cultivated Unicorns” or “Gazelles,” including Xin Changzheng, Jiqun Pharmaceutical, and Hairong Pharmaceutical.
Regarding the focus on early-stage markets and the achievements made therein,Xu Ze’an, Partner at Dynamic Balance Capital, believes that“Domestic substitution” has become an unstoppable trend, with innovation serving as the key driver. Both the government and the market are eager for the emergence of more innovative emerging projects and are providing impetus to support their development. Although Nanjing Dynamic Balance Investment & Management Co., Ltd. did not emerge during the period of capital dividends in private equity (PE) investment, it took an early lead in the post-PE era. By adhering to the strategies of “investing early and in small-scale ventures,” “serving local communities,” and “radiating across China,” the firm aims to carve out a distinct path for itself in the highly competitive venture capital landscape.
However, the earlier the stage, the more unstable the industrial development landscape becomes, and the less mature companies’ technologies and business models are. For investment institutions, this translates into higher investment risks and poses a significant test of their industry research capabilities and comprehensive competencies. From this perspective, it is undoubtedly a more challenging path.Why was Nanjing Dynamic Balance Investment & Management Co. Ltd. able to identify opportunities in the early-stage market years ago, and achieve such a high return on investment in that market?
VCBeat recently held a dialogue with Xu Ze’an. During the conversation, Xu shared numerous insights on the value of “early-stage markets.” We have compiled and summarized his key experiences and perspectives in an effort to address the questions posed above.
“At the outset, most investment institutions were reluctant to evaluate early-stage projects. Take the innovative drug sector, which currently attracts the most attention: when we first launched our early-stage fund, we faced substantial fundraising challenges. At that time, these projects lacked exit avenues such as the STAR Market or the Hong Kong Stock Exchange. Due to the high risks and long return horizons, few institutions focused on early-stage novel drug companies. It was not until the implementation of listing policies for pre-profit enterprises in 2018 that momentum in the innovative drug market continued to grow. A significant influx of capital entered the industry, and a wave of emerging biotech companies accessed the capital markets.”
"However, perhaps precisely because long-suppressed market forces were unleashed, this surge in enthusiasm also harbored significant irrationality and valuation bubbles, quickly leading to the market correction and sharp downturn recently observed. After undergoing the trial of a short cycle characterized by nascent emergence, a rapid spike, and a subsequent cool-down and pullback, investment trends in the primary market for new drugs are quietly shifting."Xu Ze’an told VCBeat.
In the face of the high risks and instability inherent in early-stage markets, Dynamic Balance Capital has not only established multiple systems to ensure high returns on projects but also developed its own criteria for identifying “potential stars” among early-stage ventures—the “Three Hard, One Good” standard., namely a strong team, robust technology, solid market presence, and favorable pricing.
Regarding the team, Dynamic Balance Capital adheres to the tripartite evaluation framework of “science + execution + management” to select teams with globally leading technological capabilities.In terms of technology, Dynamic Balance Capital avoids relying on a single product project. It favors enterprises with technological platforms and continuous R&D capabilities that can form a gradient product line, thereby reducing investment risks. Moreover, the enterprise needs to have a first-mover advantage in a specific niche area, being able to lay out innovative potential tracks with forward-looking technology while also possessing the capability to continuously iterate and produce the most advanced technologies.
Following an evaluation of the project team and its technology, Nanjing Dynamic Balance Investment & Management Co., Ltd. believes that a strong technological platform should have a relatively high starting point for entrepreneurship. It must not only possess the capability to adapt to China’s entrepreneurial and market environments but also hold a portfolio of projects with genuine potential for practical implementation.Therefore, investors should select technologies or products with strong application scenarios that can address clinical pain points.During the early-stage investment process, it is essential to maintain in-depth communication with project founders regarding entrepreneurial direction, industrialization goals, and target markets.Meanwhile, it is essential to prioritize return on investment (ROI), maintain a rational perspective on market trends, and favor projects with reasonable valuations.
“Only by pursuing high returns through ‘high innovation + high growth’ can value be delivered to LPs.”Xu Ze'an told VCBeat.
“Hairong Pharmaceutical“Haifeng Pharmaceutical” is one of the earliest companies invested in by Dynamic Balance Capital, and it is a domestic enterprise specializing in the development of active vitamin D drugs and novel analgesics. Based on this set of criteria, Dynamic Balance Capital completed its angel investment in “Haifeng Pharmaceutical” in 2013 and helped the team establish roots and develop in the Nanjing Life Science Town. Ten years later, Dynamic Balance Capital remains a shareholder, continuing to support the company’s growth. Meanwhile, “Haifeng Pharmaceutical” has maintained a steady pace of having 1–2 products approved for market launch each year, with its latest financing valuation reaching RMB 2.5 billion.
mRNA vaccine and drug projects are currently hot topics, but they received little attention before the outbreak of the COVID-19 pandemic. Nanjing Dynamic Balance Investment & Management Co. Ltd. recognized the value of this sector early on and made forward-looking investments in it. As one of the leading companies in China's mRNA drug sector, "Shenxin Biotech"As the earliest investor, we have accompanied the company’s growth and made three additional rounds of investment during its development. Currently, 'Shenxin Bio' is not only growing rapidly but has also established deep industrial collaborations with Zhifei Biological Products and BeiGene, reaching a valuation of nearly RMB 4 billion."
“Qinhao Medicine”It is also one of the projects favored by Dynamic Balance Capital.
According to Xu Ze’an, the company’s founder, Wang Kuifeng, holds a Ph.D. from the Shanghai Institute of Materia Medica, Chinese Academy of Sciences. However, due to limited initial capital, the company had to pursue new drug development while simultaneously providing technical services. Furthermore, as the team was relatively young and lacked experience at major multinational pharmaceutical companies or the prestige associated with overseas-educated returnees, it faced significant challenges in securing financing. Based on this assessment, Nanjing Dynamic Balance Investment & Management Co., Ltd. conducted thorough due diligence and determined that this was a highly promising startup, decisively investing in Qinhao Pharmaceutical. After several rounds of financing, Qinhao Pharmaceutical has seen smooth progress in its product pipeline, with its market valuation increasing more than tenfold, reflecting strong market recognition.
From a macro perspective, “innovation” has become a major driving force for the current development of the healthcare industry. In the 14th Five-Year Plan for the Development of the Pharmaceutical Industry, relevant national authorities have elevated innovation to the new strategic height of “innovation-led development” at the policy level, further spurring the emergence of innovative projects.
From the perspective of supply and demand, China’s healthcare utilization and total health expenditure have continued to rise in recent years, while medical resources remain scarce, resulting in a persistent imbalance between supply and demand in the domestic healthcare market. The introduction of supply-side policies in the healthcare sector—such as the “Two-Invoice System,” “Consistency Evaluation,” and “Volume-Based Procurement”—has significantly narrowed the value space available for mature products. To address the shortage of high-quality medical resources, the healthcare industry must extend into high-tech domains and leverage innovative technologies.
The early-stage market has undoubtedly entered its “golden age.” According to data from VBInsight, China’s healthcare sector witnessed 180 early-stage financing rounds (including seed, angel, and Pre-A rounds) in the first half of 2022, with total funding reaching nearly $900 million. Both the number of financing deals and the total amount raised are approaching the full-year figures for 2021 (296 deals totaling over $1.194 billion, approximately RMB 7.76 billion).
At the micro level, Dynamic Balance Capital has made projections on future development trends.and holds that:
First, the upstream core supporting industries will focus on tackling key technologies, core equipment, and new materials, promoting digital transformation and green, low-carbon development of the industry;
Second, the out-of-hospital market on the diagnosis and treatment side, including primary healthcare and home-based care segments, will usher in new opportunities. Payment systems and sales channels are correspondingly expanding and evolving. Stakeholders will more rationally return to the fundamental logic of commercialization, placing greater emphasis on product implementation.
Third, against the backdrop of China’s aging society, there will be more breakthroughs in therapeutic areas that have long seen a lack of new drug approvals, such as psychiatric disorders and neurodegenerative diseases. Chronic conditions requiring long-term medication (e.g., cardiovascular and autoimmune diseases), rare diseases, as well as niche sectors including veterinary healthcare and medical aesthetics for anti-aging, will also garner significant attention.
In the future, Dynamic Balance Capital will focus on the development direction of biopharmaceutical investment and firmly adhere to investing in early-stage and small-scale ventures.Immersed in the profound transformation of the industry, we aim to become a “Flagship” with Chinese characteristics, serving more outstanding scientists and entrepreneurs through the “Investment + Incubation” and “Fund + Base” models.
Meanwhile, continue to leverage institutional advantages by integrating and allocating government and market resources to projects, and channeling project resources into specialized industrial parks, thereby generating greater economic and industrial returns for the parks, limited partners (LPs), and portfolio companies., enabling Dynamic Balance to achieve dual improvements in both social and economic benefits.
“As a new round of reshuffling unfolds in the healthcare investment sector, the development space for startups is set to expand further. Early-stage projects centered on innovative technologies and the commercialization of scientific research outcomes are garnering increasing attention, with investing early and investing in small enterprises becoming a trend driven by policy guidance. For early-stage funds, this represents both entry into a golden era and arrival at a critical juncture demanding fierce competition and proven strength. At such a pivotal moment, an institution’s foundational DNA, long-term accumulation of expertise, and patience are severely tested.”
As a fund manager, we have earned the trust of the government and investors. We aim to overcome challenges and seize more opportunities as the early-stage market experiences explosive growth in the future, cultivating a “forest of sci-tech innovation” and joining the ranks of top-tier institutions. Through our efforts, we hope to deliver strong industrial and investment returns to the government, industrial parks, and enterprises, thereby making greater contributions to the development of local emerging industries.“Facing the early development of the fund market,” Xu Ze’an stated at the end of the conversation.