Investors Talk: Lenovo Star's Lu Gang in Dialogue with Northern Light's Deng Feng on Healthcare Investment Strategies

As 2015 came to a close, internet healthcare entered a new phase after two years of fervor: larger-scale investments, more rational deliberation, and a future held in greater anticipation.

Hundreds of investment firms and investors have left their mark on the digital health sector in recent years, whether by making significant commitments or dipping their toes in the water. Only through love does one realize the depth of affection; only through investment does one grasp the true risks and realities.

In 2016, VCBeat officially launched [VB Interviews ◇ Investors Speak], in which we specially invited outstanding investors focusing on healthcare, particularly internet healthcare, for interviews.

We believe that healthcare carries profound weight, rooted in its history and its responsibilities. It is a challenging yet noble endeavor, intimately tied to human life and well-being. Amidst the hype, it is all the more important to heed the voice of reason. We welcome leading investors to join us for insightful discussions on the landscape of 2016.

We are honored that, at the launchVB InterviewAt this time, we invited Lu Gang, Partner at Legendstar Capital, to serve as our interview guest. The first interviewee was Deng Feng, Founder of Northern Light Venture Capital, a leading figure who is both a serial entrepreneur and a top-tier investor.

Meanwhile, Lu Gang and Deng Feng remain good friends, and their witty exchanges are truly captivating.

More investors and investment institutions are welcome to participate in [VB Interview Series ◇ Investors’ Voice]. Please contact the editor at mr.liu@vcbeat.top.

[Interviewer: Lu Gang, Partner at Legendstar Capital]

Joined Legend Holdings in 2004, engaging in venture capital investment and management. In 2009, joined Legend Star to oversee angel investment operations. Healthcare investments include Sunyard E-De, Tianjin Micro-Nano Core, Suzhou Paige, and Burning Rock Biotech.

[Interviewee: Founder of Northern Light Venture Capital]: Deng Feng

Deng Feng founded NetScreen Technologies in 1997. The company went public on NASDAQ in 2001 and was acquired by Juniper Networks for $4.2 billion in 2004. He received honors such as “Entrepreneur of the Year 2002” and “Innovator of the Year 2003” in the United States. Upon returning to China, Deng Feng established Northern Light Venture Capital. His current portfolio and post-investment managed companies include Spreadtrum Communications, CITIC Pharmaceutical, Meituan.com, Baihe.com, and Anquanbao, among others. He plays dual roles as a successful entrepreneur and investor.

[Interview Host]: Bu Yan, Deputy Editor-in-Chief of VCBeat

Before we officially begin, please allow me to provide a brief introduction to the backgrounds of the interviewer and interviewee. Lu Gang and Deng Feng have known each other for many years and have collaborated on multiple investment projects. They share significant similarities in their understanding and approach to investment.



Why Is Aurora VC Making a Major Bet on the Healthcare Sector?

Bu Yan: Aurora’s initial impression to the outside world may be that it focuses on the TMT sector. In recent years, it has begun to invest frequently in the healthcare and medical field. How do you view and strategize your layout in the healthcare industry?

Deng Feng: I believe that the strategic formulation of any investment institution stems from two aspects: one is your team’s DNA, namely the backgrounds, experience, and resources of its members; the other is the broader trends in social development, identifying where significant long-term opportunities lie.

Several of my co-founders originally came from the IT industry, specializing in computing and electronics. Therefore, we naturally began our investment activities in the TMT sector, with a particular focus on internet-related ventures.

As we have grown, our team has expanded and our strategic focus has broadened. In 2007, we began to establish a presence in the energy, environmental protection, and precision manufacturing sectors. In 2008 and 2009, we entered the healthcare sector. We believe that China presents a massive, long-term opportunity in healthcare that is even greater than that of the United States.

The investment results over the past years have proven that our judgment was correct.

Bu Yan: After deciding to enter the healthcare sector, a field relatively unfamiliar to you, what methodology and investment strategies did you adopt?

Deng Feng: Once the general direction was set, our first step was to recruit personnel and experts, as well as to seek partners, such as Legendstar Capital.

Additionally, our initial strategy was to allocate less capital to early-stage investments and more to late-stage ones; for instance, our first investment was in CITIC Pharmaceutical. As we gained deeper familiarity with the healthcare sector through the investment process, our subsequent investments shifted progressively toward earlier stages, reflecting greater confidence in making such bets.

Bu Yan: So, let’s discuss your understanding of the healthcare sector, which differs significantly from TMT.

Deng Feng: Indeed, there are many significant differences.

1. The healthcare industry has a vast market;

Second, the healthcare industry is highly regulated. The market launch of a product may require approval from the CFDA, making explosive growth akin to that seen in the TMT sector difficult to achieve; however, healthcare demonstrates stronger sustained growth potential than the internet industry.

Third, healthcare is not as easily disrupted as the internet; a product’s lifecycle can be exceptionally long.

Fourth, in the realm of specialized medical devices, the sector aligns with the concept of modest initial returns. Although growth may not be rapid, it is sustainable, leading to high return multiples. With favorable performance, returns of dozens or even hundreds of times the investment are possible, making it well-suited for venture capital.

The Investment Logic of Aurora Capital

Bu Yan: What do you see as the investment characteristics or advantages of Northern Light Venture Capital?

Deng Feng: The first characteristic is probably our patience. Within the TMT sector, we also invest in early-stage enterprises, as our philosophy is to grow alongside the companies.

The second characteristic is that we invest in companies with a strong technical focus. In this regard, IT and healthcare share many commonalities. For instance, medical imaging is fundamentally supported by IT systems. Many modern medical devices are embedded systems, incorporating electronic design, medical sensors, and data analytics.

Therefore, our past investment experience in the IT sector, combined with our own background in the industry, has been significantly beneficial to our healthcare investments, which demand a high level of technical expertise. Aurora Venture Capital has always focused on projects with substantial technological content, and this principle applies equally to the healthcare sector.

"In this regard, we may be quite similar to Legendstar Capital. We tend to invest at relatively early stages, exercise patience, take a long-term view, and focus more on technology-driven opportunities."

Lu Gang: Agreed. I also have a strong preference for projects with high technical content.

Deng Feng: In addition, we focus on post-investment support. We believe that while startups are largely similar at the outset, those with strong self-learning capabilities can accelerate their growth and improve their performance with the assistance and support of venture capital firms. This approach is quite similar to that of Legendstar Capital.

The third characteristic is similar to that of many venture capital firms: the key to investment ultimately lies in the people. The most painful aspect for investors is human risk. It is most distressing when the timing is right and the technology is sound, but the entrepreneur is not aligned with you. However, if the entrepreneur shares your vision and path, even if the technology ultimately fails, we accept it as part of the investment landscape. As investors, we understand that success and failure are inherent to the process; it cannot be all success. Yet, once they get it right, they can become industry leaders.

Lu Gang: Over the past eight years, we have invested in more than 100 projects. From a probabilistic standpoint, if you are concerned that a particular issue may arise with someone, it will most likely materialize; there is little room for luck.

Deng Feng: Yes, the company has even gone public, yet you find that the concerns you had early on still materialize—just at a slightly later stage.

How Aurora Views Internet Healthcare

Lu Gang: In recent years, the spotlight has been on mobile internet. By 2012 and 2013, the term “internet healthcare” gained significant traction, giving rise to star enterprises such as Guahao.com and Chunyu Doctor, whose market valuations rose rapidly. How do you view the trend of internet healthcare?

Deng Feng: We have debated internally for quite some time. While “Internet + Healthcare” is a hot topic, our team was previously divided into separate internet and healthcare units, making it challenging to integrate the two.

Lu Gang: This is common among many investment firms, where two teams have significant conflicts in their philosophies.

Deng Feng: Because you view internet healthcare from an internet perspective, you may consider it too nascent, too early-stage, and not growing fast enough. Yet from a healthcare perspective, conventional internet-based solutions are also inadequate, remaining in a marginal state.

As of today, I believe this debate is still ongoing. However, from my perspective, despite the differing opinions, history has shown that consensus is not a prerequisite for making sound investment decisions; many successful investments were made amid significant disagreement.

From a strategic positioning perspective, you should still proceed, but with careful risk management. Currently, there is no definitive consensus on which end of the internet healthcare ecosystem will achieve success first—whether it will be driven by physicians, hospitals, or patients. I truly cannot provide a conclusive answer at this moment. To be frank, if the path were clear, one would have already invested.

Bu Yan: So, what do you think is the most unclear aspect of internet healthcare at present?

Deng Feng: Take light consultations as an example; the biggest issue is the future monetization model, given that diagnosis and prescription are not permitted. Therefore, when major institutional frameworks remain largely unchanged, the path to monetization for such services remains unclear. However, this is not to say there are no opportunities. In China, progress often requires taking the initiative first, potentially forcing policy changes—a possibility demonstrated by Didi and Kuaidi. Thus, my view on mobile health is that the curtain has yet to rise.

Case Study Review: How Traditional Healthcare Can Transform

Lu Gang: If the outlook is unclear, start by reviewing past investment cases to summarize key lessons.

Deng Feng: Indeed, venture capitalists themselves are also experimenting and learning. Let me talk about a project we invested in, called Yi Xinli.

Yixinli is a project highly relevant to internet healthcare, delivering psychological services via the internet, with a primary focus on B2C and a secondary focus on B2B.

China is placing increasing emphasis on mental health. Although there is a large population in need of psychological services, the scale and reach of traditional offline services have been insufficient. The internet has now aggregated this demographic and provides targeted solutions.



Lu Gang: This particularly reminds me of a project I invested in back in 2007, called Sunshine Yide, which provided traditional mental health services, including psychological quality assessments as well as stress management and training. This represents a relatively conventional approach, though the company has recently been transitioning toward internet healthcare. What advice would you offer for such traditional healthcare companies undergoing this type of transformation?

Deng Feng: First of all, this is easier said than done. I think the first step is to determine whether it leans more heavily toward the internet or traditional industries. Whether we are talking about “Internet Plus” or “Plus Internet,” the key lies in which aspect carries more weight. If the DNA of traditional industries is dominant, then it is feasible to proceed with traditional industries as the main driver. However, if the internet component is dominant, it becomes very difficult for traditional industries to transform, and a disruptive approach may be required.

For instance, in the e-commerce sector, traditional industries generally find it difficult to pivot. JD.com was built entirely on an e-commerce model, whereas Suning has struggled to transform, and Gome has faced even greater challenges. E-commerce has demonstrated that an internet-centric mindset is more likely to achieve disruptive innovation and success in this field, making transformation from a traditional model considerably more difficult.

However, the trajectory of internet healthcare is hard to predict. If it remains heavily rooted in traditional medicine, a pivot toward core medical services could prove highly effective, allowing pricing to gradually revert to sustainable levels. Conversely, if the internet component dominates, it may be better to disrupt the model entirely and start from scratch.

Several Key Timing Points for the Healthcare Boom

Lu Gang: In fact, during the years of internet-driven transformation of traditional industries, sectors such as catering, education, finance, and tourism have all undergone changes. However, in healthcare, it appears that this industry is more resistant to disruption and more complex than other traditional industries.

Deng Feng: Ultimately, it depends on your perspective. As a highly regulated industry, finance is certainly more traditional than e-commerce. The debate over whether “finance-driven internet” or “internet-driven finance” carries more weight remains a topic of discussion.

Education was once considered a heavily traditional industry, always dominated by offline operations with online serving merely as a supplement. However, only in the past year or two has it suddenly become apparent that online education can actually perform very well, suggesting that the issue may have been one of timing.

Indeed, compared to education, I believe the finance and healthcare sectors have a stronger traditional industry character, with higher and more stringent regulation. Therefore, they are undoubtedly more entrenched as traditional industries. It is possible that one day, when the timing is right, they will undergo a sudden transformation.

Lu Gang: Yes, on that day, I wanted to mention an idiom: “cherishing money as one’s own life.” Finance represents wealth, while healthcare represents life; these two industries are closely intertwined.

Deng Feng: Therefore, greater caution is warranted.

Lu Gang: Which directions do you see becoming breakthrough points in healthcare in the future?

Deng Feng: We consider diagnostics a significant strategic direction, exemplified by genetic testing, also known as precision medicine. Another area is POCT (Point-of-Care Testing), in which Legendstar Capital has invested, such as in Tianjin MicroNano Chip. With the concept of POCT, we can perform diagnosis and treatment at the bedside or in community healthcare settings. In the future, if you feel unwell, you may no longer need to go to a hospital, wait in line, register, undergo laboratory tests, and wait a week for results. Instead, you could simply provide a drop of blood or another sample downstairs and immediately determine whether your condition is caused by a virus or bacteria, along with the appropriate course of action. This is not something decades away; it could become a reality within the next five years or so.

Of course, the rise of POCT is underpinned by a comprehensive suite of technological advancements, which we refer to as IT Cloud, connecting everything.

Lu Gang: Now, when it comes to IT cloud, there is another term called smart healthcare, which uses big data to assist in clinical decision-making, such as IBM's Watson. Do you think the timing for this in China has arrived?

Deng Feng: I believe the timing is as follows. First, it depends on the perspective. For patients, the time has not yet come, but for investors, the timing is already here—especially for early-stage investment, where I need to look at least five years ahead. Furthermore, this kind of timing does not emerge suddenly; such technologies are constantly accumulating and evolving.

For example, regarding the area you just mentioned, we can envision developing diagnostic robots similar to Baymax in the future. The key lies in two aspects: first, advancements in sensors, and second, the accumulation of big data.

Regarding the gradual evolution of this technology, we must consider both the developments of the past two to three years and those projected over the next five to ten years. We have indeed invested in some highly forward-looking and innovative projects.

Lu Gang: Since we just discussed the biotech sector, which has recently gained significant traction from the US to China, investments like ours in Burning Rock have sparked considerable market attention. Meanwhile, Berry Genomics has already touted a valuation of tens of billions of RMB. How do you view the development of this industry in China?

Deng Feng: In the field of biotechnology, I personally feel that the overall direction is correct, and the broader timing for its emergence is approaching. However, it is difficult to predict exactly which year a breakthrough will occur, through which specific approach, or whether it will be driven by gene sequencing. Nevertheless, the biotech sector—including antibody drugs and the various DNA-related fields we just discussed—is indeed making continuous progress. We have also devoted significant effort to this area. From BGI to Burning Rock, plus two other companies, we have invested in a total of four firms, including Annoroad Gene Technology, which you may also be familiar with.

Including Burning Rock, which we both invested in. At the time of our initial investment, they were facing significant fundraising challenges. They had been searching for over six months without success. When we stepped in, they were quite relieved to have secured the funding. However, within a year, their valuation skyrocketed. Our strategic direction was correct, but we truly did not anticipate such a rapid increase in valuation.

Aurora's Investment Map and Post-Investment Management

Lu Gang: Judging from Aurora’s investment projects, there is a strong interconnection among them. Does Aurora also have its own investment map?

Deng Feng: Yes, as you can see, we started with medical devices and then gradually expanded into healthcare services. These services include the community healthcare projects we have invested in, as mentioned earlier, as well as e-commerce services, sequencing services, and more. Now we are further extending our reach into pharmaceuticals and have begun developing drugs.

Pharmaceuticals are, in fact, the most critical segment. To date, we have avoided investing in very early-stage drug projects, as this area demands highly specialized expertise. Our investment in CITIC Pharmaceutical has been instrumental in deepening our understanding of this sector. As a company engaged in both pharmaceuticals and medical devices, with a strong presence in distribution, CITIC Pharmaceutical has essentially helped us gain comprehensive insights into the industry.

Lu Gang: A logical investment roadmap facilitates post-investment management and serves as a key attraction for portfolio companies.

Deng Feng: Every year, we hold an annual conference to bring everyone together for mutual exchange. Communication is easier within the same industry. For instance, pharmaceutical sales representatives often share insights on how to engage with hospital departments, which departments are more important, and whether decision-making authority lies primarily with the department, the hospital administration, or both. These topics are widely discussed and shared among participants.

Of course, I believe that collaboration between enterprises cannot be forced by an investor. What investors can do is to build platforms, enhance mutual trust, and provide coordination mechanisms; the ultimate decision to collaborate rests with the companies themselves.

There Is No Winter for Capital: Advice for Entrepreneurs

Lu Gang: There has been much talk recently about the “capital winter.” What is your view on this?

Deng Feng: From my perspective, the current environment may be more realistic. While there have been shifts in capital sentiment, China’s innovation has not deteriorated. Meanwhile, a substantial number of Chinese venture capital (VC) and private equity (PE) firms remain well-capitalized. Therefore, given the presence of both high-quality ideas and available funding in the market, this should be an opportune time for investment.

For high-quality enterprises, it used to be the case that they could secure funding regardless of how other companies performed, a competitive landscape that was deeply concerning. Today, many underperforming firms are unable to raise capital, which is actually beneficial for strong companies, as it reduces market disruption caused by reckless players.

Therefore, on a macro level, the current situation may represent the new normal; the past was characterized by an excessive bubble, which is now undergoing a correction.

Bu Yan: One final question from my side: Could you please offer a few pieces of advice to entrepreneurs?

Deng Feng: I used to be an entrepreneur myself. My view is that entrepreneurship should be driven by a vision that transcends financial returns; only then can you avoid treating it as a grueling ordeal, and instead embrace it as a lifestyle for realizing your life’s value.

If you approach entrepreneurship with a tragic mindset, you are unlikely to endure; difficulties will quickly overwhelm you. Perseverance is crucial when facing challenges in business. However, if your persistence is driven solely by the prospect of future financial gain, you may easily abandon your venture when more lucrative opportunities arise.

Of course, this does not mean stubbornly sticking to one path until the bitter end, refusing to leave even when it fails. Business judgments must be accurate, and you must have the courage to make decisions. Whether it is hiring, acquiring customers, or adjusting the business model, speed is essential. Do not fear making mistakes; if you do, simply correct them quickly.

Furthermore, founders must adopt a strategic mindset from the outset, rather than merely acting as product managers. Our goal is not simply to build a product, but to establish a company. Therefore, in the early stages, we must focus on how to build a battle-ready team and define the appropriate organizational structure and corporate culture.

In 2016, VCBeat officially launched [VB Interviews ● Investors’ Perspectives], aiming to understand and analyze the internet healthcare sector from the viewpoints of investors and investment firms. Having experienced