Chen Penghui: More Unicorns Expected to Emerge in Digital Healthcare

Event Name: Day 2 of the StarVation Medical Public Lecture SeriesEvent Date: November 7–8, 2015Organizers: Legend Stars, VCBeat, BlueRun VenturesFeatured Speaker: Chen Penghui, Partner at Sequoia Capital ChinaFocus Area: Healthcare and medical industry. Joined Sequoia in 2014. Previously served as Managing Director and Head of the Healthcare Fund at China Everbright Limited. His investment portfolio includes BGI Genomics, Amcare, Zhejiang Beta Pharma, and Kunming Jida Pharmaceutical.Mobile health was once a hot sector, but by mid-year, the capital winter arrived. As mobile health projects failed to generate profits, investors tightened their belts, making fundraising increasingly difficult. Nevertheless, major internet healthcare projects still secured substantial funding. For entrepreneurs, is fundraising now easier or harder? Will mobile health fall into a downturn due to the lack of a viable business model?

In 2000, Chinese internet companies were the first to go public, with Sina, Sohu, and NetEase quickly reaching market capitalizations close to $1 billion. In 2001 and 2002, the stock prices of these companies plummeted, as investors believed they lacked viable profit models and relied solely on advertising revenue. Later, BAT (Baidu, Alibaba, and Tencent) gradually rose to prominence, becoming the largest internet enterprises today. However, the market valuations of Sina, Sohu, and NetEase have since rebounded. NetEase’s market cap has exceeded $10 billion, while the stock prices of Sina and Sohu have not only returned to their IPO prices but have also far surpassed them.

An investor remarked that during the first two years after any new technology emerges, both the public and investors tend to overestimate its adoption rate and its impact on the world. Later, it becomes apparent that the technology does not wield such significant influence. I believe this observation is equally applicable to the internet healthcare industry.

Internet healthcare began to take shape in 2013, gained significant momentum in 2014, and by 2015, it became apparent that viable business models were lacking and patient care patterns had not undergone substantial changes. This led to pessimistic outlooks, including predictions of a "capital winter." However, taking a longer-term perspective, we believe that internet healthcare is one of the most challenging sectors for the internet to transform, characterized by high barriers to entry. Nevertheless, it will ultimately significantly alter physicians' practice habits and reshape the relationship between doctors and hospitals. It remains unpredictable who the ultimate winners will be. In the future, more unicorn companies are certain to emerge. Enterprises with strong rapid-learning capabilities, those that can quickly identify new business models, and those that efficiently address user pain points are destined for success.

Whether building a platform or focusing on a vertical niche, there will be opportunities to succeed in the future. The changes brought by internet healthcare include: patients can more easily register for appointments, receive treatment, and obtain post-discharge guidance; for doctors, the greatest benefit is mobility. In traditional healthcare, more than half of patient visits are driven by the hospital’s reputation rather than the doctor’s. If doctors can become mobile in the future, numerous business opportunities will emerge.

First, improve hospital efficiency. Many smart hospitals now allow patients to make payments directly via their mobile phones.

Second, in addition to improving hospital efficiency, the relationship between hospitals and physicians is also changing. Currently, public hospitals dominate the landscape, while private hospitals lack renowned specialists and expert physicians. In the future, a model may emerge where hospitals and physicians operate independently. Through internet-based platforms, physicians can directly connect with patients. This approach may even bypass the need for long-term accumulation of patient reputation, enabling healthcare providers to engage well-known physicians to treat patients.

Third, there is no need to be overly pessimistic about internet healthcare. It may not be too late to find the right direction in three to five years. Entrepreneurs should not worry about how investors view internet healthcare; it is entrepreneurs, not investors, who change the world.

Q: Do you advocate investing in asset-heavy or asset-light mobile healthcare models? What is your view on physicians practicing independently?

Chen Penghui:None of the mobile health projects we have invested in are currently preparing to independently establish offline hospitals or clinics. Many physician groups consist of doctors who remain employed within the public healthcare system and have not resigned from their hospital positions, operating instead on a part-time basis. Truly independent medical practice remains relatively rare in China. In addition to structural constraints within the healthcare system, another contributing factor is that many clinics lack suitable physical locations for offline operations, and their development requires time.

Question: How do you view the future development path for private primary-care hospitals?

Chen PengHui:From my personal perspective, if we look at the current patient volume in China, private hospitals account for approximately 10%, while public hospitals account for 90%. However, in terms of the number of hospitals, private institutions make up around 30% (though these figures may not be entirely precise). This reflects two characteristics: first, private hospitals in China are relatively small in scale; second, their academic standards are perceived to lag behind those of public hospitals. How can this situation be changed? First, renowned physicians are not made overnight. If private hospitals rely solely on their own efforts to cultivate such talent, it will take a very long time. Therefore, greater policy-driven support is essential. Whether through multi-site practice, physician groups, or mobile health initiatives, these measures will inject significant new momentum into the development of private hospitals. I cannot predict exactly what percentage of China’s total healthcare services private hospitals will account for in the future, but it will certainly exceed 10%. My hope is that it will reach 50% or higher.