Song Longtao of Dachen Venture Capital: Most Advanced Technology Isn't Always Investable—Business Model and Market Capability Matter More

Investor Business Card

Name: Song Longtao

Position:Investment Director, Healthcare Investment Department, Fortune Capital

CV:Graduated from the Law School of Tsinghua University in 2007. Previously worked at the Investment Banking Department of Pacific Securities. Joined Fortune Capital (Dachen Venture Capital) in 2012, where he led investments in Ruipeng Medical, Hotgen Biotech, Beijing Tianjian Yuanda, and Jindou Data.

Areas of Focus:Medical services, healthcare informatization, medical big data, medical devices, and in vitro diagnostics.

Among the winners of VCBeat’s 2015 Internet Healthcare Annual Awards in the category of Best Emerging Investor, one name demands particular attention: Song Longtao, Investment Director of the Healthcare Investment Department at Fortune Capital (Fortune Venture Capital). While his name is already well-known within the venture capital community, his “significant strides” in the healthcare sector in recent years have drawn even greater attention. Since joining Fortune Capital in 2012, Song Longtao led investments in four projects by the end of 2015, including Hotgen Biotech, Tianjian Yuanda, Jindou Data, and Ruipeng Pet Healthcare, and participated in the investment of several other projects.

As one of China’s first domestically established venture capital firms to operate on a market-oriented basis, Fortune Capital transformed itself into a young yet seasoned fund over just 16 years from 2000 to 2016. Over these 16 years, Fortune Capital raised 15 RMB-denominated funds and one USD-denominated fund, growing its total assets under management from RMB 100 million to over RMB 17 billion. Among the more than 300 companies in its portfolio, 50 have gone public, 45 have been listed on the National Equities Exchange and Quotations (NEEQ), and 26 are currently in the pre-disclosure stage awaiting IPO approval from the China Securities Regulatory Commission (CSRC).

For a long time, healthcare has been a key focus area for Fortune Capital. Moreover, Fortune Capital has made early investments in the medical sector, including listed companies such as Aier Eye Hospital and Boji Medicine.

In recent years, Fortune Capital has invested in nearly 30 projects in the healthcare sector, accounting for approximately 10% of its total portfolio companies. These investments span numerous healthcare subsectors, including healthcare informatics, new drug R&D, medical services, in vitro diagnostics (IVD), pharmaceutical CROs, and veterinary care. Notably, medical services encompass both human and animal healthcare. Currently, IVD is the vertical sector with the most significant presence in Fortune Capital’s portfolio, with eight related investments; two of these companies are currently applying for listings on the ChiNext board.

Recently, VCBeat conducted an exclusive interview with Song Longtao, Investment Director of the Healthcare Investment Department at Fortune Capital, to explore the logic behind his investment decisions.

As Investment Director of the Healthcare Investment Department at Fortune Capital, Song Longtao believes that the healthcare industry is characterized by two key features: first, it is highly regulated; second, it encompasses a broad range of fields with numerous specialized segments. These two characteristics require investors to adopt their own systematic logical framework when making decisions in this sector.

“Healthcare is a highly regulated industry, as it pertains to human life and health, impacting every individual’s birth, aging, illness, and death,” mentioned Song Longtao. He noted that regulations are extremely stringent across all aspects of healthcare, including the development, experimentation, approval, and commercialization of medical technologies, as well as the processes and practices involved in delivering medical services.

The most evident manifestation of this stringent regulation is the shift in policy oversight. In the first half of 2016, the “Eight Measures” and the “Notice on Comprehensive Cleanup” issued by the Beijing Municipal Health and Family Planning Commission directly led to the abrupt transformation or partial suspension of operations for certain internet healthcare projects. The recent “Wei Zexi” incident also resulted in a comprehensive halt of immunotherapy treatments.

This policy shift means that, from an investment perspective, it is essential to have a thorough understanding of policies, closely monitor their direction, and align with these trends. Taking the development of medical technologies as an example, “If a technology is not recognized and permitted by government policies, it cannot be commercialized. Without commercialization, it cannot scale up, go public, or even be acquired,” said Song Longtao. However, China’s healthcare policies are also evolving. Therefore, if a technology is highly advanced and holds promise for widespread market adoption, it should remain under close observation, as future policy adjustments may loosen regulatory restrictions on it.

The healthcare industry encompasses numerous specialized segments. “A single hospital may have dozens of departments, each further subdivided by specific conditions. With tens of thousands of diseases worldwide, there are corresponding tens of thousands of pharmaceuticals, medical devices, and treatment modalities.” This necessitates that investors first select the right therapeutic or market segment before identifying promising companies. Song Longtao told VCBeat, “If the chosen segment has limited growth potential, even the most capable company may quickly hit a ceiling.”

In vitro diagnostics (IVD) is the “promising sector” selected by Song Longtao. Hotgen Biotech, in which he invested, and Hybribio, previously invested in by Fortune Capital, are typical representatives in the fields of immunodiagnostics and molecular diagnostics, respectively. In terms of market size, China’s diagnostic reagent market was valued at RMB 16.5 billion in 2012, with immunodiagnostic reagents accounting for RMB 5 billion. Over the next decade or more, the market is expected to maintain a growth rate of 15%–20%, reaching over RMB 20 billion by 2015. Since formally investing in Hotgen Biotech in the first half of 2014, the company has transformed from a loss-making team into a profitable enterprise with net profits exceeding RMB 30 million this year within just two years. Song Longtao explained, “At the time, my assessment was that the diagnostics industry offered substantial market potential. Moreover, Hotgen’s products provide both qualitative and quantitative capabilities, featuring high specificity, sensitivity, and accuracy. In the domestic market, their product performance is on par with Roche’s offerings. The founder, Mr. Lin, is highly diligent and demonstrates strong execution capabilities.” It is understood that Hotgen Biotech has filed 10 patent applications, received 4 grants, and holds exclusive rights to use 10 authorized patents. At the end of 2015, the company was awarded the “National Science and Technology Progress Award,” making it the only enterprise in the IVD field to receive this honor to date.

In Song Longtao’s view, while advanced technology is crucial for a company, it does not necessarily make the company an attractive investment opportunity. The healthcare industry is cross-disciplinary in nature. “In this sector, projects relying solely on technology often struggle to scale,” as the industry inherently possesses consumer-oriented attributes. Therefore, beyond technological prowess, replicable and sustainable business models, along with a sufficiently broad market, are also critical for healthcare ventures.

However, missing out on truly cutting-edge technology would be regrettable. “Investing in the most advanced technologies may not yield profits in the short term, but such strategic positioning is essential. In the future, these technologies are highly likely to gain market recognition; therefore, such projects can be invested in as early-stage ventures.”

Following this logic, Song Longtao’s ultimate goal is for his invested projects to achieve rapid commercialization while also contributing to society—a principle known as “helping others to help oneself.”

Taking Ruipeng Pet Healthcare as an example, the pet medical market is currently substantial. As the role of pets in people’s lives has shifted from “guarding homes” to “life companions,” the growing pet population has spurred the rapid rise of the pet economy. With the number of pet owners in China increasing rapidly, pet-related services have evolved beyond merely enhancing pets’ quality of life. Dogs, in particular, carry the highest risk of transmitting zoonotic viruses, parasites, and bacteria to humans, such as Nipah virus, Leptospira, Brucella canis, and rabies. Veterinary hospitals serve as critical healthcare facilities that provide preventive care and help reduce cross-species infections between humans and dogs. In terms of surgical procedures and oncology treatment, costs for pets are relatively high compared to other segments of the pet industry, with some expenses comparable to human medical costs. In Beijing alone, the number of registered pets has exceeded 3 million, and the unit cost of pet medical care remains significant.

As a chain of pet hospitals, Ruipeng Pet Care boasts high replicability. When Fortune Capital invested in 2015, Ruipeng already operated 60 branches, primarily located south of the Yangtze River. Following Fortune Capital’s entry, it assisted Ruipeng in acquiring numerous pet hospitals and establishing a presence in Beijing. It is projected that Ruipeng’s chain network will exceed 100 locations by 2016. “Currently, there are no particularly large pet hospital chains in China. However, given the immense size of this market, the emergence of a branded, high-quality pet hospital chain is inevitable.”

For its invested projects, Fortune Capital has consistently adhered to the philosophy of “investment is service” in its post-investment management.

“Investing is demanding, but without that effort, companies won’t recognize your value.” In response to a question from VCBeat, Song Longtao stated that after investors commit to a project, they must fully engage and provide robust post-investment services. “If you don’t actively contribute, the project’s success will have little to do with you, while the risk of failure significantly increases.”

Introducing talent to portfolio companies, facilitating business channel connections, designing IPO roadmaps, and providing policy guidance are all part of Song Longtao’s responsibilities.

Beijing Tianjian Yuanda is a company specializing in hospital informatization services and products. Currently, its solutions have been deployed in over 1,000 hospitals, the majority of which are Grade A tertiary hospitals. Compared with mobile health, hospital informatization is a relatively traditional sector, yet it still presents opportunities for “new growth from old roots.”

Following his investment in Beijing Tianjian Yuanda, Song Longtao invested in Wuhan Jindou Data, a company specializing in medical big data. By acquiring hospital data and structuring it, the company provides services for areas such as hospital management and health insurance cost control.

Compared to Beijing Tianjian Yuanda, Wuhan Jindou Data was a relatively early-stage project. When Fortune Capital decided to invest in Jindou Data, it was a company with virtually no revenue. However, Song Longtao judged that the project’s strategic direction toward big data was correct, and furthermore, its team was highly professional, comprising several experts in the field of big data.

Following the investment decision, Song Longtao promptly advanced the collaboration between Beijing Tianjian Yuanda and Jindou Data by integrating the resources of over 1,000 hospitals managed by Beijing Tianjian Yuanda with Jindou Data for big data analytics. Currently, Jindou Data has generated revenue and completed its next round of financing.

For Beijing Tianjian Yuanda, the company possesses hospital resources and holds vast amounts of data but lacks effective channels for utilization. In contrast, such hospital data is precisely what Jindou Data urgently needs. “My role in facilitating this connection is part of our post-investment services; we are delighted to see collaboration among our portfolio companies,” said Song Longtao. In his view, when invested companies “band together” to generate synergies, the security and stability of these projects are significantly enhanced.