Xiaolu Clinic Secures $20 Million Pre-C Round Led by NGP Capital

VCBeat (WeChat: vcbeat) has learned that Beijing Zichen Zhengyang Technology Co., Ltd. (hereinafter referred to as “Xiaolu Yiguan”) has completed a $20 million Pre-C round of financing, with Nokia Growth Partners (NGP Capital) as the investor.

Since its launch, Xiaolu Medical Clinic has leveraged technological solutions to address the imbalance of resources and inadequate development in the healthcare sector. By providing remote Traditional Chinese Medicine (TCM) consultations and integrating services such as pharmaceutical delivery and post-diagnosis follow-up, it offers patients enhanced intra-consultation treatment and comprehensive post-diagnosis tracking services.

According to data from the VCBeat database, Xiaolu Medical Clinic has secured five rounds of financing over the past five years since 2016, and has currently received investments from multiple firms, including Nokia Growth Partners, Morningside Venture Capital, IDG Capital, Redpoint Ventures, Sinovation Ventures, and Fosun Tonghao Capital.

What has enabled this traditional Chinese medicine (TCM) enterprise to secure five rounds of financing over five consecutive years? What constitutes its core competitiveness in the TCM sector? How will the funds from this latest round be utilized? And why did it attract investment from Nokia Growth Partners (NGP Capital)? To address these questions, VCBeat conducted exclusive interviews with Liu Xinyue, CEO of Xiaolu Medical Clinic, and Deng Yuanjun, Managing Partner at NGP Capital, to hear their insights.

In January 2017, Xiaolu Yiguan established China’s first internet-based TCM hospital in Haidong City, Qinghai Province—the Ping’an Zhengyang Internet Traditional Chinese Medicine Hospital of Haidong City. The hospital specializes in online follow-up consultations for traditional Chinese medicine. To date, the platform has registered 23,000 physicians and served millions of patients cumulatively.

As one of the first internet hospitals specializing in Traditional Chinese Medicine (TCM), Xiaolu Medical Clinic has been committed to strict quality control since its inception, with the aim of enabling patients to more easily find high-quality physicians.

Physicians: All onboarded physicians undergo rigorous verification, including validation of the three required credentials and cross-checking of practice registration information on the website of the National Health Commission. Currently, 60% of the practicing physicians available online at Xiaolu Medical Clinic hold associate senior professional titles or above from Grade A tertiary hospitals.

Drug Quality: Xiaolu Yiguan’s partner organizations have undergone rigorous quality screening. Strategic collaborations have been established with renowned enterprises such as Beijing Tongrentang, Guangzhou Kangmei Pharmaceutical, Guangzhou Yifang Pharmaceutical, Jiangyin Tianjiang Pharmaceutical, and China Resources Sanjiu Pharmaceutical, to provide patients with herbal decoction pieces, granules, and other products. Furthermore, Xiaolu Yiguan has implemented a clear system of unannounced spot inspections. In addition to conducting drug inspections prior to product launch, the platform performs monthly random sampling of medicinal materials to ensure quality optimization and eliminate inferior suppliers.

In addition, to enable more patients to access high-quality medical services, Xiaolu Medical Clinic has chosen to establish its physical internet hospital in Qinghai Province, a region with relatively scarce traditional Chinese medicine (TCM) resources. Liu Xinyue stated that the aim is to leverage new technological means to help patients in economically less developed areas gain access to premium medical resources.

In addition to online follow-up consultations, Xiaolu Medical Clinic has also organized renowned TCM practitioners from developed regions to conduct free face-to-face clinics in Qinghai. In September 2018, more than 10 well-known experts from Grade A tertiary TCM hospitals in Beijing, Shanghai, and Sichuan provided free consultations to nearly 500 local patients at the Ping’an District Traditional Chinese Medicine Hospital. Furthermore, these specialists continued to provide uninterrupted post-consultation management for patients via Xiaolu Medical Clinic after leaving Qinghai, enabling local residents to sustainably benefit from these high-quality medical resources.

As the saying goes, “Traditional Chinese Medicine (TCM) focuses on the practitioner, while Western medicine focuses on the institution.” TCM delivers diagnostic and therapeutic services through in-depth patient-practitioner interactions based on the four diagnostic methods: inspection, auscultation and olfaction, inquiry, and pulse-taking. Since it does not involve surgical procedures or large-scale diagnostic equipment, TCM has a lower dependency on medical platforms compared to Western medicine.

Specifically regarding the field of mobile healthcare in traditional Chinese medicine, Liu Xinyue identified two major directions for future development:

1. Issues in Quality Control of the Entire Production Process of Traditional Chinese Medicinal Materials. The mobile healthcare industry can facilitate the implementation of monitoring for this process through technological upgrades, thereby ensuring the quality of TCM decoction pieces.

II. Exploring Smart Hardware in the Field of Traditional Chinese Medicine. Regarding Xiaolu Clinic, Liu Xinyue stated that the funds from this round will be primarily allocated to two areas:

1. Further integrate online and offline services, improve the supply chain system, and enhance the patient medical experience. Introduce more suppliers to further refine the supply system. On one hand, given the wide variety of traditional Chinese medicine (TCM) products, Xiaolu Medical Clinic will strengthen the provision of region-specific medications, which should be gradually supplemented; on the other hand, a multi-point layout facilitates patients in receiving medications quickly.

2. Further expand the scale of the AI team to build up technical reserves for the next phase. Thanks to the efforts of Xiaolu Clinic’s existing AI team, it is now possible to accurately locate the tongue coating from photos, better classify its types, and provide corresponding guidance to patients. In the next step, Xiaolu Clinic will further research tongue coating and facial diagnosis, integrating them with intelligent consultation. By leveraging AI-driven data collection, big data mining, and deep learning, the clinic aims to enhance patient-doctor matching and achieve intelligent triage. On this basis, the ultimate goal is to realize AI-assisted diagnosis and treatment in Traditional Chinese Medicine (TCM).

Xiaolu Medical Clinic ultimately selected Nokia Growth Partners (hereinafter referred to as “NGP”) as its exclusive investor. Liu Xinyue stated that, on one hand, NGP is a global independent venture capital firm with abundant strategic partnership resources; on the other hand, digital healthcare is a key business focus for NGP, which recently acquired a company specializing in smart health devices, thereby supporting the long-term development of Xiaolu Medical Clinic.

However, Liu Xinyue emphasized that Xiaolu Yiguan is currently steadfastly focused on optimizing follow-up consultations and enhancing patient services.

NGP Capital is a globally operating venture capital firm that currently manages over $1 billion in investment funds. NGP Capital has invested in more than 80 innovative companies worldwide, 10 of which have become unicorns. Its portfolio in China includes Xiaomi, UC Web, and Ganji.com.

Deng Yuanjun stated that NGP focuses on investments in the healthcare and wellness sector, having invested in a total of ten projects both domestically and internationally. The domestic portfolio includes KuaiYiJian, Yuedongquan, and Xiaoxun, while the overseas portfolio comprises VIDA, yogaia, Netpulse, egym, Lifesum, and Clue.

In deciding to invest in Xiaolu Medical Clinic, NGP primarily focused on three core factors:

1. Vast Potential in Lower-Tier Markets. Xiaolu TCM Clinic provides comprehensive mobile traditional Chinese medicine (TCM) medical services, including online follow-up consultations and medication delivery, which are in demand in lower-tier markets. The 13th Five-Year Plan projected that the scale of the TCM market would reach RMB 1.6 trillion by 2020.

2. The company’s inherent strengths. Xiaolu Clinic is the first company in China to obtain a practicing license for an Internet hospital specializing in Traditional Chinese Medicine (TCM), positioning it as a domestic leader in TCM internet diagnosis and treatment services.

3. Professionalism of the Team. The founding team comprises professionals with both medical and technical backgrounds, and demonstrates strong execution capabilities.

Deng Yuanjun emphasized that Traditional Chinese Medicine (TCM) has a history of thousands of years in China and is a healthcare service highly valued by the domestic population. However, the TCM sector still faces many pain points, such as inconsistent service quality, making it difficult for residents in third- and fourth-tier cities or remote areas to access high-quality TCM services. The lack of standardized models results in significant variations among practitioners in terms of prescription ratios and the medicinal materials used.

These issues can be addressed through technological means such as AI, 5G, and big data. Such technologies can further facilitate the transition of the traditional Chinese medicine (TCM) industry from a human-dependent model to one where artificial intelligence assists human practitioners.

From a technical perspective, NPG possesses inherent advantages. With Nokia as its limited partner (LP), NPG has access to a vast pool of AI and big data experts, as well as strengths in 5G technology, which will further support Xiaolu Medical Clinic in realizing remote treatment capabilities in the future.

“In addition to providing financial and technical support, Deng Yuanjun stated that NGP has a deep understanding of lower-tier markets and can further assist Xiaolu Clinic from a market perspective.”