Sequoia Capital's Chen Penghui: No Need to Be Too Pessimistic About Internet Healthcare

Event Name:Xingdong Xiangyi HuiIssue 1Open Course

Event Dates: November 7–8, 2015

Organizers: Legend Star, VCBeat, BlueRun Ventures

Guest Speaker:

Chen PenghuiPartner at HongShan
Focuses on the healthcare and medical industry. Joined HongShan in 2014. Previously served as Head and Managing Director of the Healthcare Fund at China Everbright Limited, with investments including BGI Genomics, Amcare, Zhejiang Beta Pharma, and Kunming Jida Pharmaceutical.

Below are highlights from the guest speakers’ remarks. For the full presentations, please follow VCBeat on WeChat (vcbeat).



1. As an investor, it is entrepreneurs and business leaders who truly change the world. Therefore, the perspective should be reversed: investors ought to understand the entrepreneurial mindset.

2. How to Attract Capital Investment: Quality Investors Bring Not Only Funding but Also Valuable Resources. As mobile health evolves, is it enjoying a golden autumn or facing the chill of late fall? Mobile health was once a hot sector, but by mid-year, a capital winter set in. With many mobile health projects failing to generate profits, securing the next round of financing has become difficult as investors tighten their purse strings. Nevertheless, major internet healthcare projects have still raised substantial funds.

3. Is fundraising now easier or harder for entrepreneurs? Will mobile healthcare fall into a trough due to the lack of a viable business model, or is this great endeavor just beginning? In 2000, Chinese internet companies were the first to go public, with Sina, Sohu, and NetEase quickly approaching market capitalizations of nearly $1 billion. By 2002, their stock prices plummeted as investors believed these companies lacked profitable business models, relying solely on advertising revenue. Later, BAT (Baidu, Alibaba, and Tencent) gradually rose to prominence and have since become the largest internet enterprises. The market valuations of Sina, Sohu, and NetEase are also recovering.

4. In the first two years after any new technology emerges, the public and investors tend to overestimate its adoption rate and its impact on the world; later, it becomes evident that the technology does not wield such significant influence. I believe this observation also applies to the internet healthcare industry.

5. Internet-based healthcare began to take shape in 2013, gained momentum in 2014, and by 2015, it became apparent that viable business models were lacking and that patient care patterns had not undergone significant changes. This led to pessimistic narratives, such as the notion of a “capital winter.” However, taking a longer-term perspective, we believe that internet-based healthcare is one of the sectors most resistant to digital transformation, characterized by high barriers to entry. Nevertheless, it will ultimately profoundly change physicians’ clinical practices and reshape the relationship between doctors and hospitals. It remains unpredictable who will emerge as the ultimate winner. In the future, more unicorn companies are certain to appear. 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 sector, there will be opportunities to emerge successfully in the future.

6. Future changes will make it easier for patients to schedule appointments, receive treatment, and obtain post-discharge guidance. For physicians, the greatest benefit is mobility. Currently, most patients choose hospitals rather than specific doctors. If physicians can become more mobile in the future, numerous commercial 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 separately. Through internet-based platforms, physicians can directly connect with patients. This approach may even bypass the need for long-term accumulation of patient word-of-mouth reputation, enabling patients to access consultations from sought-after physicians more readily.
Third, there is no need to be overly pessimistic about internet healthcare. It may not be too late to find the right direction in another three to five years. Entrepreneurs should not worry about how investors view internet healthcare; it is entrepreneurs, not investors, who change the world.

 

Question: Regarding mobile health, do you advocate investing in asset-heavy or asset-light models? What is your view on physicians practicing independently?

Chen Penghui: Among the mobile health projects we have invested in, none 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; they participate in these groups on a part-time basis. True independent medical practice is still relatively rare in China. In addition to objective systemic constraints, another contributing factor is that many clinics lack suitable physical locations for offline operations, and their development requires time.

Question: What is your perspective on the future development path of private hospitals at the primary care level?

Chen Penghui: From my personal perspective, if we look at the current patient visit volumes 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 generally perceived to lag behind those of public hospitals.
How can this be changed? First, renowned physicians are not made overnight. If private hospitals rely solely on their own training programs, the process will be exceedingly time-consuming; 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 will be provided by private hospitals in the future, but it will certainly exceed 10%. My hope is that it will reach 50% or higher.

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