Why Did BlueRun Ventures, Originally a TMT Investor, Shift Focus to Healthcare? Insights from Chen Weiguang vs. Zhang Yusheng (Xingdong Medical Innovation Open Class Session 7)

Event Name:StarMed HubIssue 1Open Course

Event Date: November 7-8, 2015

Organizers: Legend Star, VCBeat, BlueRun Ventures China

Featured Speaker:

Chen Weiguang
Partner at BlueRun Ventures China
Joined BlueRun Ventures China as a Partner in 2001, based in Beijing, with a focus on early-stage investments in mobile health, mobile internet, big data, and enterprise applications. Currently serves as a board member for several innovative companies, including Ganji.com, Chunyu Doctor, Apricot Forest, Echo, and QingCloud.

Zhang Yusheng
Founder and CEO of Xingshulin
Former Research Manager in the Medical Strategy Department at Wellpoint, the largest health insurance group in the United States. Named one of Fast Company’s 100 Most Creative People in Chinese Business in 2015, and champion of the inaugural China Pharmaceutical Internet Entrepreneurship Competition.

Let’s now dive straight into the engaging dialogue between our two guests. For the full presentations, please follow VCBeat on WeChat (vcbeat) to watch.



Zhang Yusheng: Why did BlueRun Ventures China, which previously focused on TMT investments, turn its attention to healthcare? Why did it invest in mobile health projects as early as 2011?
Chen Weiguang: I began investing in China in 2008. At that time, I fell ill and found the patient experience at tertiary hospitals to be extremely poor, which profoundly impacted me. I devoted considerable time to understanding the root causes of the distortions in China’s healthcare system. Additionally, within the investment community, there are two types of investors: one group focuses on traditional healthcare projects, such as pharmaceuticals and medical devices; the other leans toward internet-based initiatives. I believe that only by integrating these two approaches can high-quality healthcare projects be fostered.

At the time, there were numerous healthcare-related projects. Two-thirds of them focused exclusively on hospital-based initiatives, all generating cash flow, which was highly tempting to us. The remaining one-third resembled models like Chunyu Yisheng and Xingshulin. We believed that the former could only generate profits on a project-by-project basis and lacked the potential for substantial scale, whereas the latter, akin to a Long March, offered profitability despite an unclear business model. Ultimately, we chose the latter path; although the journey was arduous, it held the promise of creating true value.

Zhang Yusheng: Nowadays, it’s executives from Fortune 500 companies who are starting businesses; the competition wasn’t this fierce when I launched my venture. Would BlueRun Ventures China still invest in a project like mine today?
Chen Weiguang: First, avoid investing in companies whose sole purpose is to execute projects for hospitals. However, it may be worth considering those that leverage hospital projects as a gateway to access physicians for other business opportunities. Second, the primary focus should be on the team. The team must integrate expertise from three distinct domains: internet operations, healthcare, and big data. Internet professionals bring strong operational capabilities; healthcare experts typically come from pharmaceutical companies or hospitals; and big data specialists are primarily drawn from the IT sector. Given the significant cultural differences among these three groups, the founder must possess strong team cohesion and integration skills. Additionally, the team needs to demonstrate innovative thinking. Although achieving profitability in mobile health is challenging, the team must have the courage to experiment and learn from failures in order to find the right strategic direction.
Furthermore, we closely monitor whether the CEO can remain resolute in executing the chosen strategic direction. Additionally, the team must possess innovative thinking, as projects capable of accumulating user bases do not necessarily have established profitability models. Therefore, the team must be capable of rapid trial-and-error iteration, breaking through bottlenecks, and establishing new revenue models.

Zhang Yusheng: How should founders choose investors? How can they prevail in the long haul, and what recommendations are there?
Chen Weiguang: It is crucial to find investors who are patient with your project and capable of understanding it, particularly in terms of their ability to explore future profitability models with you. Investor endorsement of the project is paramount, and their capacity to help identify viable revenue streams is key. Therefore, securing a highly compatible investor is essential. Taking Chunyu as an example, the initial model was telephone-based consultations, which presented several challenges: first, it consumed significant physician time; second, patients were unwilling to invest substantial time and money in this format; and third, patient-physician data could not be effectively accumulated through phone calls. After six months, it became evident that this approach was unsustainable. Zhang Rui and I then decided to pivot the service model to voice and text-based interactions. This adjustment made the service more affordable for users while allowing physicians to utilize their fragmented spare time more efficiently.

Chen Weiguang: Many projects need to raise Series B or C funding before becoming profitable, so whether investors can endorse entrepreneurs and help them secure next-round investors are considerations that founders of early-stage ventures should take into account.
Zhang Yusheng: Two recommendations are proposed. First, when selecting early-stage investors, entrepreneurs must carefully review the investment terms to ensure alignment of interests. For instance, BlueRun Ventures China’s core terms are aligned with founders’ interests, demonstrating a willingness to share both hardships and successes during the early stages. This indicates that the investor trusts you and is committed to a long-term partnership. Second, entrepreneurship demands significant personal growth and breakthroughs in character. Founders need continuous self-improvement; therefore, it is crucial to assess whether investors can support this journey—by pointing out your weaknesses and connecting you with additional resources—as entrepreneurship represents one of the steepest paths to personal growth.

Question: During the investment process, investors may impose certain conditions when signing term sheets; if the agreed-upon terms are not met, the principal must be redeemed. Should such an agreement be signed?
Chen WeiguangI understand your question. Since each fund has vastly different return requirements, there is no right or wrong answer here; it ultimately depends on the level of risk one is willing to take. Such clauses are relatively uncommon in early-stage investments because the investment amounts are smaller, and as Yusheng mentioned, the failure rate for early-stage ventures is high. Even if such a clause were in place, the capital would likely be unrecoverable. Therefore, these clauses tend to become more prevalent from Series B onwards. This is especially true in favorable market conditions, when founders have high expectations and investors commit at elevated valuations. Investors may perceive the company’s valuation as high, yet the underlying risk remains akin to that of an earlier stage. In such scenarios, investors will demand redemption clauses to ensure that, if an exit is not achieved by a certain stage, they can at least recover their principal. This practice is indeed more common in later-stage financing. Again, there is no right or wrong; it simply depends on how many investors are competing to invest in your company during the fundraising process. If there is strong investor demand, you have greater leverage to negotiate terms.

Question: Mr. Chen, what are your investment criteria? What is the most important basis for making the final investment decision?
Chen Weiguang: I just emphasized that the team is crucial. It is vital for the CEO to effectively manage a diverse team, possessing the charisma and leadership to guide every member well. Furthermore, founders and founding teams do not pursue this endeavor solely for financial gain, as healthcare differs significantly from the internet sector. In industries like internet services or game development, revenue can be generated quickly. However, I believe the journey in mobile health will be long. Whether it is Zhang Yusheng, Zhang Rui of Chunyu Doctor, or the CEOs of other projects we have invested in, they all share a deep commitment: to accomplish something meaningful for the healthcare industry and for users, rather than chasing short-term substantial profits. This is very important to me.

Question: During the investment process, investors may impose certain conditions when signing the term sheet; if the agreed-upon terms are not met, the principal must be redeemed. Should such an agreement be signed?
Chen WeiguangI understand your question. Since each fund has vastly different return requirements, there is no right or wrong answer here; it ultimately depends on the level of risk one is willing to take. Such clauses are relatively rare in early-stage investing because the investment amounts are smaller, and as Yusheng pointed out, the failure rate for early-stage investments is high. Even if such a clause were in place, the capital would likely be unrecoverable. Therefore, these clauses tend to become more common from Series B onwards. This is particularly true in favorable market conditions, when founders have high expectations and investors commit at elevated valuations. Investors may perceive the company’s valuation as high, yet the underlying risk remains akin to that of earlier stages. In such scenarios, investors will demand redemption clauses to ensure that, if an exit is not achieved by a certain stage, they can at least recover their principal. This practice is indeed more prevalent in later-stage financing. Again, there is no right or wrong here; it depends on how many investors are competing to invest in your company during fundraising. If multiple parties are interested, you have greater leverage to negotiate terms. However, if there is only one investor offering such a clause, you may have little choice but to accept it.

Question: Mr. Chen, what is the most important basis for your final investment decision?
Chen Weiguang: As I mentioned earlier, the team is critically important. A key factor is whether the CEO can effectively manage a diverse team, possessing the charisma and leadership skills to guide each member successfully. Furthermore, founders and founding teams do not embark on this journey primarily for financial gain, as the healthcare sector differs significantly from the internet industry. In sectors like internet services or game development, revenue can be generated quickly. However, I believe the path for mobile health will be long. Whether it is Zhang Yusheng, Zhang Rui of Chunyu Doctor, or the CEOs of other projects we have invested in, they are all driven by a sense of mission. They aim to accomplish something meaningful for the healthcare industry and for users, rather than pursuing short-term substantial profits. This is very important to me.

 

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