5 Top Venture Capitalists Reveal How to Navigate Internet Startups in 2016

After experiencing the extreme volatility of 2015, where will internet healthcare entrepreneurship head in 2016? Recently, Yiou.com hosted the China Internet+ Innovators Annual Conference, inviting numerous tech industry leaders to analyze the trends and opportunities for internet startups in the new year. VCBeat brings you the essential insights on internet healthcare entrepreneurship that you absolutely cannot miss.

Li Feng, Founder of FreeS Fund



Starting in the second half of 2016, RMB-denominated investments will gain increasing momentum.

The fundamental reason for the emergence of so many unicorn companies in both the primary and secondary markets over the past four years is the massive increase in the supply of U.S. dollars. Currently, as the U.S. economy improves and enters an interest rate hiking cycle, returns on low-risk assets are rising, prompting much of the money printed by the United States to flow back home. This has created inflationary pressures, which will lead to further interest rate hikes and a contraction of liquidity. The reduction in U.S. dollar liquidity will have an adverse impact on investment.

The renminbi, by contrast, is in a different cycle. As China’s economy faces challenges, increased liquidity to stimulate growth will lead to an expanding renminbi money supply. At the same time, Chinese households are shifting their preferences from consuming physical assets and purchasing wealth-management products toward higher-risk assets. Coupled with capital market reforms, these factors will result in abundant renminbi liquidity, causing prices of high-risk assets to gradually heat up and form bubbles. In short: in investment terms, the U.S. dollar is cooling down while the renminbi is heating up.

Based on China’s economic stimulus and the transition from the real economy to the virtual economy, the conclusion is that RMB-denominated investments will become increasingly heated starting in the second half of this year.

VCBeat Commentary:The view that RMB-denominated investment will gradually heat up in the second half of 2016 may bring hope to internet entrepreneurs who are currently struggling. However, before the financing environment truly improves, entrepreneurs should focus more on how to survive the current winter.

O2O is fundamentally driven by offline experiences; user needs are stratified, making monopoly extremely difficult.

O2O is fundamentally about addressing issues in the tertiary sector. In light of China’s economic development patterns, it is timely to leverage more efficient operations and superior user experiences to resolve challenges in the service industry. Prioritizing the improvement of user experience is paramount. For instance, JD.com also focused first on enhancing user experience. Specifically, in logistics, it initially adopted a relatively loss-making and inefficient approach to prioritize user experience; after establishing competitive barriers, it then improved profitability. Logically, this cycle has consistently existed within China’s internet industry.

The service industry is fundamentally driven by offline experiences, making it predominantly brand-driven and prone to stratification. From this perspective, in the process of O2O reshaping service experiences, the ultimate business model still relies on individual service providers delivering professional services offline, reflecting service quality through customer experience, and thereby building their brands. Additionally, different user groups have varying needs and purchasing power, leading to segmented user demands and making market monopolization extremely difficult.

VCBeat Commentary:The healthcare industry’s greatest similarity to the O2O (Online-to-Offline) model lies in their shared essence: both are driven by offline experiences, making it difficult to resolve all issues solely through online channels. Another commonality is that user demands exhibit differentiated and long-tail characteristics, which prevents a single player from dominating the market as seen in e-commerce and other sectors. This landscape creates abundant opportunities for startups in the internet healthcare space.

Famous Investor Xue Manzi



Entrepreneurs seek not just capital, but people—a team and complementary resources.

I believe what we currently lack is high-quality angel investors. Do you agree? I don’t think we are short on entrepreneurial efficiency, or even on startup capital. There are so many funds—approximately tens of thousands. What we’re missing now is the ability to provide young founders with resources and experience beyond just funding. This includes helping them design equity option plans and structuring the ownership stakes among founding shareholders. Should one person hold a dominant share? Is a two-person partnership preferable? Or three? How should a four-founder team be structured? These issues are critical for startups.

In the era of “mass entrepreneurship and innovation,” high-quality angel investors are critically important. The rationale is that, beyond securing capital, founders value endorsement, expertise, and resources—which, in a sense, are even more crucial than money itself. Entrepreneurs are not just seeking funding; they are seeking people, a team, and complementary resources.

(Angel Investing) It is an art, not a science. Therefore, the key requirement for angel investors is experience. While young entrepreneurs bring passion and enthusiasm, older investors—seasoned, shrewd, and having navigated every pitfall and paid their dues—deliver value commensurate with that youthfulness and vigor. Training and education in angel investing are highly beneficial.

VCBeat Commentary:In addition to focusing on their respective domains, entrepreneurs in the digital health sector must also devote considerable effort to securing investment. Just as investors place significant emphasis on founders’ personal capabilities and character traits, entrepreneurs should carefully evaluate what value an investor’s experience and resources can bring to their venture.

Zhu Xiaohu, Managing Director of GSR Ventures



Timing of Entrepreneurship: Opportunities Arise Only After the Basic Platform Reaches a Certain Level of Development

With the launch of the first-generation iPhone in 2007 as the starting point, the mobile internet entered its explosive growth phase around 2012. Didi Chuxing was founded in 2012; both the platform’s emergence and broader industry growth required time and depended on the penetration rate of smartphones. In 2012, China’s mobile phone penetration rate exceeded 20%, marking a favorable inflection point.

This offers us many insights. Determining the optimal timing for venture capital investment is crucial. For instance, while the Internet of Things (IoT) sector has recently garnered significant attention, it is essential to carefully consider whether the market has reached maturity and whether this represents an ideal window for startups.

VCBeat Commentary:Entrepreneurs in the internet healthcare sector must also demonstrate precise timing in their ventures, such as assessing whether the penetration of smart terminals among middle-aged and elderly users can support the delivery of mobile healthcare services, and whether the manufacturing costs of smart medical hardware align with the price expectations of mass-market consumers.

Three Indicators for Evaluating Early-Stage Investments: Significant, Scalable, Defensible
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
Later-stage projects are relatively straightforward, with abundant metrics available for analysis. How should one evaluate early-stage investments? I believe assessing early-stage investments is also simple, relying on three key indicators.

First is "Significant": the market must be sufficiently large, with ample market capacity.

The second characteristic is Scalability. In traditional industries, generating RMB 10 million in profit requires an investment of RMB 8 million; generating the next RMB 10 million also requires an additional RMB 8 million, reflecting a linear relationship. However, the internet sector operates differently: achieving the first RMB 10 million in profit may require an investment of hundreds of millions, whereas generating the second RMB 10 million might only require an investment of a few million. This represents a significant difference.

Third, when investing in early-stage projects, we must assess whether the business is defensible. This is particularly crucial in China. In Western markets like the United States, capital is present across every segment of the industry chain. However, in China, this is much more difficult; Chinese companies typically aim to dominate both upstream and downstream sectors. Even in the tourism industry, major players such as Ctrip and Qunar merged. Therefore, after selecting a niche market, the key question is whether you can defend your position even if you become strong. Several ride-sharing apps were performing well, but Didi Chuxing eliminated them almost entirely by offering free services for just two weeks. This is a typical example of an entry point that cannot be defended.

VCBeat Commentary:For internet-based healthcare, there is no doubt about the breadth and depth of the market. The most critical issues are whether users acquired through substantial investment can be effectively retained, how viable the ambition to establish a mobile healthcare entry point is against giants like WeChat, QQ, and Alipay, and whether it is possible to develop products or services that deliver genuine value to users and compel them to pay willingly.

Shao Jun, Founding Partner of Detong Capital



The Rise of Service-Oriented Consumption Will Inevitably Give Birth to a Taobao-Level Service Platform

We believe that the e-commerce transformation of the entire goods-based retail sector has largely solidified its landscape, whereas consumption in service-oriented sectors is just beginning to rise, leaving substantial room for growth.

With the rise of mobile internet, we have seen a new wave of companies emerge that standardize services within niche industries. For instance, on-demand home services leverage new mobile internet platforms to standardize previously non-standardized or highly fragmented offerings, making them easier to disseminate and promote.

In the future, merely standardizing services will not be sufficient, as many services remain highly personalized. Following this trajectory over time, a platform akin to Alibaba’s Taobao in the era of physical goods will inevitably emerge, enabling the provision of diverse personalized services.

VCBeat Commentary:Healthcare is, at its core, a service industry, and medical services encompass a wide array of specialized needs, constituting a typical long-tail market. Building a platform that offers a comprehensive range of medical services presents a significant opportunity for internet healthcare. However, every internet healthcare company with platform ambitions must remain wary of the two giants, Tencent and Alibaba, which control monopolistic mobile entry points.

Four Questions Returning to the Essence of Venture Capital: Efficiency, Subsidies, Coverage, and Valuation

Any entrepreneurial venture and investment should return to their essence, which requires asking oneself four questions. The first is efficiency: Have you truly addressed the pain points? By how many folds have you improved the efficiency of the industry through your product, service, or technology?

The second factor is subsidies. I strongly agree that for the new economy, achieving economies of scale is essential. You can trade time for space, and subsidies may be acceptable in the early stages. However, you must clearly assess whether the so-called demand will persist once subsidies are reduced or eventually eliminated. Will the user base sustained by these subsidies disappear along with the subsidies? This issue is fundamentally linked to the first point regarding efficiency.

The third factor is coverage. Much of today’s discussion centers on O2O (Online-to-Offline) models. Given the substantial need for offline integration in O2O, should we still pursue the broad coverage that characterized the early internet era? If coverage is expanded too widely at the outset, density in local areas often proves insufficient, leading to various issues, including suboptimal efficiency. Therefore, in the O2O era, how should we approach coverage? When should expansion begin? Is it true that effective expansion can only occur once sufficient density has been achieved, rather than simply assuming that this is how the internet economy ought to operate? These are questions we must carefully consider.

The final question concerns valuation, a key focus for venture capital (VC) investors. Given that O2O models inherently involve offline operations, the pace and rhythm of expansion are critical. If expansion is too rapid and leads to an inflated valuation, it must be remembered that there is no such thing as a free lunch in the market. Investors who assign high valuations impose correspondingly higher expectations. If these expectations do not align with the fundamental nature of expansion, they may lead to counterproductive outcomes akin to “pulling up seedlings to help them grow,” rendering the valuation hollow. Thus, while high valuations offer certain advantages and may sometimes be necessary, they can also become a fatal burden. Therefore, from both entrepreneurial and investment perspectives, it is essential to reflect critically when evaluating any business case or model.

VCBeat Commentary:After the hype and frenzy of 2015, internet healthcare startups should indeed take time to reflect on these fundamental questions: Have they addressed the real pain points in the healthcare industry, or merely followed trends by imitating others’ models? Following substantial subsidy campaigns, how many users were effectively retained, and how many churned? In their specific entrepreneurial domains, should they prioritize breadth of coverage or depth within vertical niches? Should they focus on high-frequency, low-margin services or low-frequency, high-margin ones? What type of valuation would be most beneficial for the company’s future development?

Huang Yuanpu, Co-founder and Editor-in-Chief of YiOu.com



The Rise of Middle-Class Consumption Brings About a Massive Shift in the Logic of Offline Business

(Demographic Structure of China) Behind the shift in age structure lies the rise of middle-class consumption. According to Credit Suisse, China’s middle class numbered 109 million in 2015. Other data suggest that China already has a middle-class population of 300 million. In 2014 and 2015, cross-border e-commerce was the fastest-growing segment within the e-commerce sector, bringing high-quality foreign brands into China and emerging as the best-performing e-commerce category over the past year. If the size of the middle class at least doubles, what might the landscape look like by 2020?

The state advocates “supply-side” reform, largely because Chinese products and services can no longer meet consumers’ demands for quality. One statistic illustrates this: in 2002, per capita online shopping expenditure was over RMB 3,000, whereas by 2020 it had risen to RMB 30,000. We are becoming increasingly reliant on online channels and placing greater emphasis on product quality. This shift reflects a profound transformation in the underlying business logic of offline commerce.

VCBeat Commentary:One of the significant opportunities arising from the rise in middle-class consumption is the vast development space it creates for high-quality medical services. As domestic hospitals are overcrowded and high-net-worth individuals frequently travel abroad for premium medical care, can China’s internet healthcare entrepreneurs successfully retain these consumers—who are price-insensitive but highly discerning about quality—within the country?