VBS Issue 15 Report: Yang Chengkui of Tongdu Capital Highlights Two Critical Weaknesses in China's Pharmacies and Cosmetic Clinics, Predicting Industry Shakeout

PENNY Featured

“I believe a team must always have its own strengths and unique advantages; only then can it stand a chance of prevailing when competing against others. At the same time, we need to assess our competitors’ strengths, identify who else is operating in this field, and understand the current landscape. With a clear picture in mind, we then select a partner that aligns well with our profile. This is essentially the underlying logic.”

——Yang Chengkui, Vice President of Investment at Tongdu Capital

On April 7, co-hosted by VCBeat and the Tsinghua x-lab Health & Medical Innovation CenterTsinghua Medical & Health Professionals Series: Thought-Sharing SalonHeld at the Tsinghua campus.Yang Chengkui, Vice President of Tongdu Capital; Lin Zhengwei, Deputy Investment Director at Fortune Venture Capital; and Guo Na, Co-founder of Huiyi HuiyingDelivered a keynote address as a guest speaker, with nearly 100 attendees from the healthcare industry in attendance and a highly interactive atmosphere.

Yang Chengkui, Vice President of Investment at Tongdu Capital. With years of investment experience in the TMT sector, he focuses on investments in healthcare, internet finance, consumer internet, and enterprise services/B2B. He has invested in high-growth innovative companies such as Duocai Shijia, Yaogeli, and Leya.com.

Based on Yang Chengkui’s remarks, VCBeat has compiled the following key insights for our readers:

1. Tongdu CapitalThe positioning of investment in the medical and health sector is encapsulated in four words: “Smart Health.”

As investors, we must focus on our strengths by developing a systematic understanding of our investment sectors. We define our investment strategy in the healthcare sector with four words: “Smart Health.” We aim to invest in companies that leverage next-generation information technologies—such as the internet, mobile internet, and IT-enabled Internet of Things (IoT)—to drive transformative changes in healthcare services. These changes may include cost reduction or efficiency improvement. Ultimately, through technological innovation, we strive to make medical and health services more intelligent, delivering enhanced service experiences to our users.

2. Before investing, it is essential to clearly identify the opportunities at each stage of the value chain, thereby providing a solid reference for investment decisions.

Investment decisions are grounded in fundamental assessments of an industry and require in-depth research. Therefore, after establishing our analytical framework, we aim to identify the opportunities present at each link of the value chain within this sector, examining which institutions are active in these areas and how well they are performing. We also strive to organize and present these findings to provide a reference for practitioners and entrepreneurs.

3. There are two key distinctions in the investment logic between smart health and non-medical health sectors: market dynamics and policy frameworks.

First, regarding the market, it is essential to assess market size. We seek greater market potential, as only a large pond can sustain big fish.

Second is policy, which may have a very significant, even crucial, impact in the field of smart health, particularly in medical services. For instance, during the recent “White-Coat Woman Adding Appointments” incident, the government halted the practice of adding appointments due to immense public opinion pressure, which would significantly affect certain business models.

When launching a startup, policies vary across different sectors, making it essential to have a forecast, typically covering a two-year horizon. Entrepreneurs must determine the optimal timing for launch and anticipate the future direction of regulatory policies. For instance, sectors such as third-party diagnostics and third-party laboratory testing were initially subject to restrictive policies. However, investment institutions need to exercise foresight by predicting whether these restrictions will be lifted within two years. The current success and large scale of some third-party testing centers are essentially a testament to accurate policy forecasting.

Entrepreneurship and investment follow the same logic: it is essential to make forward-looking judgments and maintain frequent communication with relevant government authorities to understand their perspectives, which is crucial.

 4• The Three “Fundamentals” of Venture Capital: User Value, User Switching Costs, and Willingness and Ability to Pay.

First is user value, which frankly means the problem you have solved.

Second is user switching costs, which include time, efficiency, and more importantly, monetary expenses.

Third is the willingness and ability to pay. The reason for investing in the maternal and infant sector is that mothers hold decision-making power within the household and are willing to spend on their children; therefore, this group demonstrates a strong willingness to pay.

Regardless of whether you are making investments or starting a business, you must clearly consider the three points mentioned above. Next, a comparative analysis is necessary. Since every niche sector has participants, including many highly intelligent individuals, it is imperative for investors to gain as comprehensive an understanding as possible. The rationale for choosing you lies in your potential to succeed within these fields. It does not matter if you were not the first mover or if you are not currently the largest player; what matters is that you possess the greatest potential.

5．Angel round focuses on the team, Series A on the product, and Series B on the data.

There is a saying in the industry: “Angel investors bet on people, Series A focuses on products and market conditions, Series B prioritizes data—specifically how your metrics compare with those of competitors—and Series C may hinge on revenue.” Therefore, it is essential to establish a comprehensive data system.

When you secure angel or Series A funding, it is essential to comprehensively document your backend, user, and operational data. Analyzing this data can help identify deficiencies in operations and marketing, which is critically important.

6. Investment risks are divided into two types,One is red-line risk, and the other is controllable risk.

Risks are categorized into two types: red-line risks and controllable risks.

"Red-line risks" refer to activities that are prohibited in the healthcare sector, both currently and over the next two years. Investing in companies involved in such activities carries significant danger, and we firmly refrain from engaging in them.

The second category involves controllable risks and affordable risks. "Controllable" means that weaknesses or deficiencies can be addressed through resource allocation, potentially even transforming them into strengths. "Affordable" indicates that the investment amount falls within our risk tolerance. For example, we might be willing to try a RMB 5 million investment, but asking us to commit RMB 50 million for trial-and-error purposes would exceed our capacity to bear the loss.

Assuming all the aforementioned factors are sound, acceptable risk levels will be reflected in the valuation. The valuation at which investors are willing to invest in a company is closely tied to their risk awareness and risk tolerance.

Regarding the amount of funding for startups, I personally believe it should be just enough to meet needs, as fundraising dilutes the equity of the founding team and incurs costs. Currently, startup fundraising emphasizes taking small, rapid steps. Companies can set strategic objectives and tailor their fundraising plans accordingly—raising smaller amounts more frequently throughout the year—with the primary goal of achieving their strategic milestones.

7．Entrepreneurs in the healthcare sector must have a deep understanding of the industry and maintain an embracing and open attitude toward new developments, talent, and the internet.

I believe that a defining characteristic of the current landscape is the evolving identity of entrepreneurs. Founders in the healthcare sector must possess a deeper understanding of the internet and maintain an embracing, open-minded attitude toward emerging trends, talent, and digital technologies.

Entrepreneurs in the healthcare sector must have a deep understanding of the industry. Only by truly understanding healthcare can one identify where the needs lie and how to drive change. However, expertise in the industry alone is insufficient; lacking knowledge in other areas makes one vulnerable to accepting others’ assertions uncritically, which creates significant challenges. Therefore, the founders we seek are those who not only possess industry expertise but also embrace new developments, particularly the internet, with an open mindset, and maintain an open approach toward talent acquisition.

Founders must first possess the ability to assemble a core leadership team, as no individual can master every skill—especially in cross-disciplinary fields like smart health. Only by integrating professionals well-versed in traditional sectors with those who have an internet DNA can a company achieve rapid growth.

8．Chinese TraditionMedicalOffline system costs are too high.、Low Efficiency, a reshuffle is inevitable。

The Internet is not omnipotent; it cannot solve all problems.

China’s traditional offline system, encompassing services such as plastic surgery hospitals and medical aesthetics clinics as well as pharmacies, is fraught with issues. The core problems are excessively high costs and low efficiency. Substantial sums are spent on advertising, only for consumers to be exploited one by one upon arrival.

I believe the offline healthcare system will inevitably undergo a consolidation process, in which only the most efficient players will survive. Take pharmacies, for example: labor and rent account for 80% of their offline operating costs. With over 400,000 pharmacies across China, does the country truly need such a large number? Can online platforms enhance the operational efficiency of pharmacies? Will it become possible to obtain medications without visiting a physical pharmacy?

Xiao Peiling (Penny)

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