How Internet Healthcare Companies Maintain Vitality Amid Capital Winter: Insights from Industry Leaders

Lu Gang

Partner, Beijing Legend Star Venture Capital Co., Ltd.

In the second half of 2015, the secondary market in the capital markets underwent significant adjustments, and the mobile internet sector also faced challenges, with broken funding chains pushing some companies into crisis. However, being mired in crisis is merely a superficial phenomenon; there must be underlying causes. Lu Gang, a partner at Legend Star, stated that the main reasons are as follows:

Since the launch of China’s new healthcare reform, numerous policy dividends have supported the development of the medical industry. Startups have tended to focus on the advantages brought by these policies while overlooking the time cycles required for their implementation. To survive during a capital winter, entrepreneurs must closely monitor the latest policy guidelines and integrate them with considerations of the industry ecosystem. Only by abandoning short-sighted, quick-profit mentalities can they truly leverage these trends to achieve sustainable growth.

Currently, major startups are being forced to build closed-loop ecosystems. While investors do encourage the development of such closed loops, they place greater emphasis on entrepreneurs carefully considering the core problems their projects solve and the value delivered to customers.

So, in the face of a capital winter and numerous challenges, how should entrepreneurs manage their startup pace to remain resilient? Lu Gang stated that every industry must go through cycles of bubbles before achieving stable development. As entrepreneurs, only by weathering the winter can one achieve true success; smooth sailing is not necessarily a good thing. Currently, China’s healthcare industry is undergoing a significant turning point, with substantial opportunities in both technology and business models. Moreover, healthcare is an “evergreen industry,” indispensable to social development. For startups, surviving the winter requires achieving the following three points:

Reform in the healthcare sector is a protracted struggle. Entrepreneurs must possess sufficient wisdom and patience to prevail in this long-distance race; maintaining a steady pace and avoiding short-sighted pursuit of quick gains are crucial.

Startups need to identify the right profit model, return to the essence of business in their approach, and address user needs by resolving industry pain points. Currently, investors are focusing more on new healthcare services, prioritizing service delivery to differentiate from the old ecosystem. The specific approach involves leveraging new business models or technological services to tackle pain points in the healthcare industry, using mobile internet as an intermediary means, and adopting a more comprehensive perspective on the “Internet + Healthcare” dimension.

First, the “barriers to entry” in Traditional Chinese Medicine (TCM) are lower compared to Western medicine. TCM does not rely on large-scale hospital equipment, and it places greater emphasis on physicians’ reputation and actual clinical outcomes rather than their professional titles. This lays a solid foundation for multi-site practice and the implementation of mobile healthcare in TCM. Meanwhile, the resurgence of TCM culture has led to increasing patient acceptance of TCM. Furthermore, as the core of TCM’s syndrome differentiation-based therapy is holistic care, it holds a natural advantage in tapping into the incremental market at the primary care level.

Zhu Tianyu

BlueRun Ventures Partner

BlueRun Ventures was founded in Silicon Valley, USA, in 1998. In 2005, BlueRun Ventures China was established, investing in nearly 100 companies over the past decade.It was one of the earliest investors in Chunyu Yisheng.

Zhu Tianyu, a partner at BlueRun Ventures, stated that in the field of Traditional Chinese Medicine (TCM), as an early-stage investor, they do not prioritize a startup’s operational model or app content. Instead, they focus on whether a team can truly address fundamental issues; in other words, investors are seeking entrepreneurs capable of solving core problems. For early-stage investors, the simplest way to evaluate entrepreneurial opportunities is to collaborate with founders in exploration and trial-and-error processes, identify more efficient solutions, and thereby pinpoint pathways to scalable markets.

Traditional Chinese Medicine (TCM) currently holds a relatively weak position in terms of discourse power. As TCM relies on superior clinical efficacy to enhance its reputation, the key to driving the entire industry lies in establishing a mechanism capable of identifying truly outstanding practitioners. Furthermore, systematizing TCM therapies is a crucial component of advancing this field. In addition, monetization potential and problem-solving capabilities are of paramount importance. Finally, leveraging new technologies to improve diagnostic and treatment efficiency is an indispensable element.

Traditional Chinese Medicine (TCM), characterized by its dialectical and systemic thinking, has its own areas of expertise. It should form a harmonious ecosystem with Western medicine, marked by mutual inclusivity and co-development. For entrepreneurs, market entry should target the industry’s weak links, identifying opportunities to leverage existing momentum. More importantly, projects must genuinely address consumer needs. The solutions to these problems create a top-down force that builds bargaining power within the industry. Startups can continuously expand their industrial influence across the upstream and downstream sectors, ultimately shaping the entire industry.

As modern technology continues to advance, investors hope that the ideas and concepts driving this progress can expand the possibilities within the field of Traditional Chinese Medicine.

Zheng Wei

Board Secretary, Zhongjing Ketou

In 2005, total outpatient visits to traditional Chinese medicine (TCM) departments accounted for 19% of all outpatient and emergency visits nationwide. This figure rose to 21% in 2009, reached 22.48% in 2011, and climbed to 24% by 2013. By the end of 2014, the number of TCM medical institutions across China had reached 3,732, up from 3,232 in 2010, representing a compound annual growth rate (CAGR) of 3.66%. Zheng Wei, Board Secretary of Zhongjing Ketou, noted that these figures indicate the relatively small number of TCM medical institutions, and he expressed confidence that the sector is poised for significant explosive growth.

Meanwhile, by the end of 2014, the number of TCM practitioners (including assistant physicians) reached 398,000, up from 85,200 in 2010, representing a compound annual growth rate (CAGR) of 47.01%. The existing number of TCM hospitals has become insufficient to accommodate the rapidly growing workforce of TCM physicians. Another set of data shows that the average cost per visit at public Grade-A tertiary TCM hospitals is approximately RMB 200, whereas it is around RMB 60 per visit at community outpatient clinics. If experienced TCM practitioners were to provide consultations at community clinics, it would help reduce overall healthcare costs for society. Currently, although the state has made substantial investments in community health centers, the returns have been limited, resulting in a mismatch between input and output. Furthermore, community health center staff lack income-based incentive mechanisms, leading to low work motivation, and the policy allowing multi-site practice remains difficult to implement effectively.

In light of the current situation, Zheng Wei proposed two recommendations for improvement:

When Tier-3A public traditional Chinese medicine (TCM) hospitals collaborate with private TCM clinics, a benefit-sharing mechanism can be established. Community patients can receive basic diagnosis and treatment services at community TCM health service centers. In cases of complex, rare, or severe conditions, community TCM clinics can facilitate two-way referrals to public hospitals, enabling specialists to engage in multi-site practice.

Junior TCM practitioners can train at community TCM clinics, where experts can also impart their experience and provide clinical skills training to these junior practitioners.

For the Traditional Chinese Medicine (TCM) industry, Zheng Wei provided three conclusions:

First, the localization of health management involves TCM preventive care for disease prevention plus TCM management of chronic diseases.

Second, the TCM preventive care and chronic disease management system should be independent of public Grade 3A TCM hospitals.

Third, the carrier of this system is community-based TCM clinics.

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