Chongshan Capital's Lu Dongcheng: Selecting 20 from 2,000 Projects to Build a 'Super Hospital'

In the spring of 758 AD, Li Bai was implicated due to his association with the staff of Prince Yong, Li Lin, and was exiled to Yelang (in present-day western Guizhou Province). When he reached Baidi City in Fengjie, news arrived that the imperial court had granted him a pardon. Overjoyed, the Poet Immortal composed the widely celebrated poem “Departing from Baidi City in the Morning,” which reads:

“The gibbons on both banks keep crying without cease, while my light boat has already passed ten thousand mountains.”

Two lines of extravagant imagination, magnificent and brilliant, are a stroke of natural genius.

More than a millennium later, Chongshan Capital adopted the name “Chongshan” (Heavy Mountains) to signify both the profound complexities and challenges inherent in industrial investment, and the role of investment as a “light boat” that carries industries across myriad mountains.

Recently, VCBeat (WeChat ID: vcbeat) interviewed Dr. Lu Dongcheng, Founding and Managing Partner of Chongshan Capital, to discuss the firm’s industrial investment logic and current portfolio, as well as to outline its development plan for 2018.

Dr. Lu Dongcheng, Founding Executive Partner of Chongshan Capital

Lu Dongcheng, Founding and Managing Partner of Chongshan Capital, is widely recognized in the industry as a true insider. He graduated from Peking University Health Science Center with a Ph.D. in Cardiovascular Medicine and practiced as a physician for a period. Later, he joined Yale School of Medicine as a visiting scholar. At Yale, he engaged with numerous scholars from Yale School of Management, which sparked his interest in healthcare investment. Consequently, he transitioned to full-time study at Yale School of Management (SOM), where he earned an MBA.

Subsequently, Lu Dongcheng served as an Executive Director at US-based Hornbill Venture Capital Group and as a China Region Partner at Israel-based Infinity Investment Group. In 2012, Lu Dongcheng co-founded Chongshan Capital with other partners.

Chongshan Capital has completed fundraising for two funds, with assets under management totaling approximately RMB 2 billion. The first fund focuses on healthcare and consumer sectors, while the second is a specialized early-stage healthcare fund, namely the Chongshan Yuanzhi Healthcare Venture Capital Fund.

Lu Dongcheng told VCBeat that, in terms of investment philosophy, Chongshan Capital will focus on the domestic market, seize industry transformations, and seek sustainable business models and technological innovations. By fully integrating industry resources, professional networks, government resources, and medical resources from the United States and Israel, the firm aims to provide value-added services to enterprises.

In terms of project scale, Chongshan Capital favors outstanding teams in the growth stage—specifically at the angel, Pre-A, Series A, and Series B rounds—providing them with optimal support in funding, market access, talent, and technology.

The fund’s capital is sourced from the industry, with a focus on delivering both investment returns and business expansion benefits to its investors. Through phased exits, mergers and acquisitions, and independent IPOs, the fund aims to cultivate a cohort of star enterprises within three to five years, thereby maximizing investment returns for its investors. Simultaneously, it seeks to deliver optimal strategic layout benefits to its Limited Partners (LPs) and industry partners.

“By closely integrating industry with capital and fully leveraging resource sharing among LPs and partners, we are building an international platform for innovation and entrepreneurship in the healthcare sector, growing alongside entrepreneurs and jointly witnessing the profound transformation of China’s healthcare industry,” said Lu Dongcheng.

Lu Dongcheng told VCBeat that industrial investment is a process of sifting the wheat from the chaff. Since the establishment of its specialized healthcare fund, Chongshan Capital has evaluated nearly 2,000 projects, but has ultimately invested in only slightly more than 20.

Data shows that between October 2015 and December 2016, Chongshan Capital evaluated more than 1,200 projects. The majority of these fell within the fields of mobile health, precision medicine, medical devices, and healthcare services, with each subsector accounting for over 10% of the total projects reviewed.

From January to June this year, Chongshan Capital evaluated 611 projects, with precision medicine, health management, and medical devices emerging as hot sectors.

The classification of projects engaged by Chongshan Capital also reflects the shifting trends in healthcare entrepreneurship over the past two years. While precision medicine and medical devices have maintained sustained momentum, startups and investments in mobile health have entered a mature phase, whereas health management projects are emerging as a new hotspot for investment.

Notably, Lu Dongcheng holds a perspective on the currently surging field of medical artificial intelligence that diverges from industry norms.

He stated that the current hype surrounding investments in medical artificial intelligence is heavily inflated, and this divergence between value and price may intensify in the short term.

“It is not that medical AI projects lack value, but rather that their value has been overstated. We hope to see products that align with the actual needs of hospitals and physicians, instead of being developed in isolation from a purely technical perspective.” Lu Dongcheng, a former physician, believes that medical AI products must be practical, address genuine clinical needs, and avoid conceptualization and idealization.

Furthermore, regarding the implementation of AI products, Lu Dongcheng believes that the most challenging issues lie in industry standards and profitability models. He stated, “Currently, standards for AI products are not yet clear, and regulatory frameworks remain inadequate. Profitability models and payment mechanisms are also urgent issues that need to be addressed.”

By strategically aligning its investments along the industrial chain, Chongshan Capital aims to establish a comprehensive healthcare ecosystem and build a “Super Hospital.” An analysis of its existing portfolio reveals that Chongshan Capital’s investment strategy adheres to this “Super Hospital” theme, covering sectors such as innovative drugs, contract research organizations (CROs), medical devices, third-party medical services, and health tech, thereby encompassing the entire healthcare industry chain.

Chongshan Capital also emphasizes post-investment management of its portfolio companies. “We will assist our investee companies in establishing standardized operational, financial accounting, and talent management systems through a specialized, systematic, and modular management framework, thereby laying a solid foundation for their next round of financing.”

Currently, Chongshan Capital has four main lines of management for its portfolio companies.

Investment Manager: Responsible for the development of business lines and liaising with various stakeholders;

Financial Controller: Responsible for corporate financial security and compliance, assisting with financial accounting and budgeting;

Administrative & HR: Assist enterprises in optimizing internal management processes and formulating talent incentive policies;

Investment Banking Manager: Responsible for corporate refinancing and capital market liaison.

Lu Dongcheng told VCBeat that, bolstered by a robust post-investment management system, multiple companies invested in by Chongshan Capital have now entered their next round of financing.

Yinglian Technology: AI-powered remote imaging diagnosis, covering 600+ hospitals; Series B funding round initiated

Yihe Cloud Innovation: AI-powered remote pathology center covering over 60 hospitals, launches Series A funding round;

Shankang Technology: Health insurance revenue has reached hundreds of millions of yuan, initiating Series C financing;

Weilizhibo: Launches Series B Funding for R&D of Anti-Cancer Antibody Drugs.

Chongshan Capital is not merely a venture capital firm; rather, it positions itself as an industrial ecosystem. Within this ecosystem, companies do not operate as isolated entities but instead engage in collaborative synergy. This model of mutualistic symbiosis enables each enterprise to access the maximum available growth resources.

Lu Dongcheng concluded by stating, “Industrial investment is a process of natural selection; this applies to capital as much as it does to entrepreneurs. Merely chasing hotspots is not the optimal mindset for industrial investment. Chongshan will adhere to the ‘Super Hospital’ logic, aligning its layout with the healthcare industry chain and actual medical needs, thereby returning to the essence of healthcare. We aim to foster synergy across various sectors, ultimately establishing an ecologically collaborative system characterized by resource sharing and benefit sharing.”