IDG Partner Zhang Suyang: Medical Investment Remains Hot in 2016

Keynote Speaker: Zhang Suyang, Partner at IDG Capital

[VB Interviews ◇ Investors Speak]

As 2015 came to a close, the internet healthcare sector, after two years of fervent activity, entered a new phase characterized by larger-scale investments, more rational deliberation, and heightened expectations for the future.

Hundreds of investment firms and investors have left their mark on the internet healthcare sector in recent years, either by making significant bets or by dipping their toes in the water. Only through love does one realize its depth; only through investment does one gauge the risks involved.

In 2016, VCBeat officially launched [VB Interviews ◇ Investors’ Perspectives], in which we specially invited outstanding investors with a focus on healthcare, particularly internet healthcare, for interviews.

We believe that healthcare carries profound weight, rooted in both its history and its responsibilities. It is a challenging yet noble endeavor intimately tied to human life and destiny. Especially amidst the clamor of excitement, we must heed the voice of reason. We welcome leading investors to join us for candid discussions on the landscape of 2016.

 

IDG Capital Partner Zhang Suyang: The Healthcare Investment Boom Continues in 2016

When it comes to the development of China’s internet industry, IDG’s position is virtually unrivaled. This is not only because IDG has successively launched highly influential industry media outlets since 1980, including Computer World, IT Manager World, Network World, Electronics World, and Communications World; but also because its affiliate, IDG Capital, introduced the venture capital model to China as early as the 1990s, investing in numerous internet companies, including giants such as Baidu and Tencent.

IDG Capital has also closely monitored and deeply engaged in the healthcare sector, a RMB 10 trillion industry whose market size and potential rival those of the internet, while witnessing accelerating technological innovation. Since 2006, IDG’s investments in healthcare have spanned multiple mainstream and niche segments, including biopharmaceuticals (Taibang Biological Products, Shuangcheng Pharmaceuticals, Scitech), medical devices (Andon Health, Baihe Technology), medical imaging (Magnex), gene technology (OriGene), oral health (Ivymed, Beyond Dental & Implant), orthopedic implants (Kanghui Medical), medical aesthetics (Peng Ai), maternal and child health (Meihua Women’s and Children’s Hospital), health check-up services (Ruici Healthcare), chronic disease management (Zhangshang Tangyi), elderly care services (Yada International), and industry media (39 Health Network).

Zhang Suyang, who joined IDG in 1994, is a first-generation venture capitalist in China with over 20 years of extensive investment experience. His portfolio includes well-known companies such as EachNet, Ctrip, Home Inn, Hanting Hotel, and Tudou.com. In the healthcare sector, his notable investments include Kanghui Medical, Andon Health, and Taibang Biological Group. The $15 million Series A financing for Palm Sugar Doctor (Zhangshang Tangyi), led by IDG in October 2015, underscores Zhang’s optimism about the niche segment of chronic disease management.

Zhang Suyang will attend the “Summit on Innovative Payment for Diabetes Education and Management” to be held in Beijing on February 25. Attendees will have the opportunity to hear his insights on why healthcare investment is expected to remain robust in 2016, why chronic disease management must be integrated with commercial insurance, and how gene technology will transform the world in five years.

2016 Healthcare Investment: Liquidity and Industry Expectations Drive Continued Momentum

In 2015, the venture capital industry experienced a roller-coaster ride, with valuations soaring in the first half of the year and the bubble bursting in the second half. However, Zhang Suyang pointed out that unlike many other sectors where valuations dropped significantly, the valuations of healthcare projects did not see a notable decline, nor did investment enthusiasm wane.

In Zhang Suyang’s view, while there is indeed an excess of capital in China, investors are currently reluctant to channel funds into the real estate or stock markets due to the prevailing economic conditions. Ultimately, this capital will find its way into direct investment sectors, including venture capital, through various avenues.

Compared with other “Internet Plus” sectors, the healthcare industry is characterized by highly authentic and relatively stable demand, without significant fluctuations. This provides a comparatively solid foundation for venture capital investment in healthcare. Furthermore, Zhang Suyang judges that, due to the gradual relaxation of policy regulations and the widespread application of various high-tech innovations, market expectations for the development of the healthcare industry will remain at a high level. Since market expectations play a crucial role in investment, the healthcare sector is poised to sustain its investment momentum amid favorable outlooks.

However, the fervor for investment in the healthcare sector does not equate to a boom in internet healthcare. Zhang Suyang holds a calm and profound understanding of the boundaries of internet capabilities, bluntly stating that “the internet improves efficiency” is actually a pseudo-proposition in the healthcare industry.

Zhang Suyang reviewed the development of the internet both domestically and internationally, pointing out that industries where the internet has achieved success are typically characterized by excess supply. In contrast, the healthcare sector is defined by a shortage of supply relative to demand. The entry of the internet into the healthcare field has failed to effectively increase medical supply; instead, it has intensified competition for limited high-quality medical resources (such as renowned physicians), thereby raising the cost of accessing medical care for patients.

Zhang Suyang has categorized China’s physician community into a pyramid structure, with the apex comprising 3,000 top-tier physicians and 20,000 renowned physicians. Currently, most internet healthcare companies are vying for these 23,000 physicians, but this approach does little to resolve the myriad contradictions plaguing the current healthcare industry.

According to Zhang Suyang, the internet should fully activate the 300,000 outstanding doctors beyond the initial 23,000, and comprehensively optimize the allocation efficiency of medical resources and reduce healthcare costs by integrating various measures such as insurance, policy support, and patient education.

Integrating diabetes management with commercial insurance is precisely the direction of internet healthcare development that Zhang Suyang favors.

Diabetes + Commercial Insurance: The Optimal Entry Point for Chronic Disease Management

Chronic disease management, including diabetes, is a hot area for internet healthcare startups. However, as capital becomes increasingly rational and cautious, only a few projects will truly survive.

It has become an industry consensus that insurance will play an increasingly important role in the field of internet healthcare. So, could "diabetes + commercial insurance" be the optimal entry point for chronic disease management?

Zhang Suyang’s answer is affirmative. From the perspective of diabetes, the vast patient population, rising incidence rates and complications, and rapidly escalating medical costs all indicate that it is imperative to seek a sufficiently efficient and low-cost solution. Currently, advances in blood glucose monitoring and smartphones have laid a solid foundation for diabetes management; the challenge lies in changing patients’ behavioral patterns to foster regular monitoring and healthy daily habits.

Zhang Suyang believes that commercial insurance can play a crucial role in this process by designing incentive-based benefit mechanisms to guide changes in patient behavior, ultimately achieving the goals of health management and medical insurance cost containment.

There are two additional compelling reasons for commercial insurance to enter the diabetes management sector. Zhang Suyang pointed out that while mature communication and collaboration mechanisms exist between the insurance and healthcare sectors abroad, the relationship between insurance—particularly social insurance—and healthcare in China is complex, making commercial insurance a more practical and viable partner. Furthermore, among all chronic diseases, diabetes is associated with the most numerous and severe complications. By targeting diabetes as an entry point for chronic disease management, commercial insurers can effectively achieve the goal of preventing and controlling a wide range of chronic conditions.

Investing in the Future: How Genes Are Changing the World

The healthcare industry is undergoing rapid transformation driven by various high-tech innovations, with Zhang Suyang placing the greatest emphasis on gene technology, which has been gaining increasing prominence in China in recent years.

Regarding the original intention behind focusing on gene technology, Zhang Suyang stated that it is inextricably linked to IDG Capital’s investment philosophy, which centers on industries that prioritize long-term development over short-term gains and genuinely enhance societal operational efficiency.

Although gene technology has only recently entered the public eye and clinical applications, Zhang Suyang is deeply confident in its development and application, believing that it will bring about faster and more profound global transformation than the IT revolution of the past three to four decades. If the momentum driving global progress through IT technology prior to 2020 continues, then by 2025, biotechnology (BT), led by gene technology, will replace IT as the core force propelling human society forward. It will not only dominate the healthcare sector but also extend broadly into fields beyond medicine, significantly impacting all aspects of social life.

Standing at the juncture of 2016, much like the global sweep of IT technology in the 1990s, a “tornado” of large-scale social application of gene technology is gathering momentum.

IDG: Providing Strategic and Tactical Support to Startups

In recent years, China’s venture capital industry has experienced explosive growth, with VCs emerging in large numbers. High-quality startups are no longer concerned about “whether there are investors,” but rather focus on “whether the investors are a good fit.”

Although IDG Capital is one of the earliest venture capital firms in China, and its group’s businesses in media publishing, conferences and exhibitions, and market research often synergize with venture investment, Zhang Suyang did not boast about the immense help and value IDG could offer to startups. Instead, he cautioned entrepreneurs to treat investors’ various pre-investment “promises” with prudence, emphasizing that the startup team’s own efforts constitute the greatest value.

Certainly, drawing on IDG’s accumulation of experience and resources over more than two decades, Zhang Suyang believes that IDG is better positioned than typical venture capital firms to provide startups with strategic-level assistance, as well as advice on corporate governance, finance, and team building tailored to their rapid growth needs. At the tactical level, leveraging IDG Capital’s own expertise and the in-depth healthcare industry research conducted by IDC, a market research firm under its group, IDG can also offer significant support to startups in specific areas such as product development, business operations, and financing and M&A.