Don't Fall for These Three Myths About Startup Fundraising: Insights from a Chinese-American Angel Investor

Editor’s Note: The author of this article, Michael Jin, is a renowned Chinese-American angel investor who studied at Tsinghua University and Stanford University. He is also the co-founder of the TEEC Angel Fund (TAF). Recently, Jin published an article on techcrunch.com, arguing that three major myths surrounding startup financing should be debunked. Given his Chinese heritage, Jin has deep insights into both Eastern and Western markets, particularly internet healthcare startups in China and the United States. His perspectives are highly valuable for practitioners in China’s internet healthcare sector.

It is well known that in the past few years, the development of the healthcare industry has brought numerous innovation opportunities to startups, many of which are now truly changing the world. Unfortunately, for other startups, typical buzzwords such as “disruption,” “big data,” and even “globalization” have oversimplified the barriers to entry for healthcare startups.

Over the past five years, my colleagues and I have reviewed countless pitch decks from startups and helped 18 TAF-funded healthcare startups raise over $115 million in funding. We have also witnessed the failure of numerous promising ideas and technologies that ultimately fell short of their goal to transform the healthcare industry.

In the following text, I will help these struggling healthcare startups debunk the three major myths in their minds, assisting them in securing better financing to change their fate.

Myth 1: The Industry Entry Barrier Is Lower Than Before
Over the past five years, the landscape of the healthcare industry has undergone significant transformation. Some argue that emerging healthcare startups can enter this field and thrive without relying on intellectual property (IP) or licensing. Although certain emerging healthcare companies, such as those in the wearable devices sector, have demonstrated substantial growth potential by leveraging innovative business models, they still account for only a small fraction of the overall healthcare industry.

Significant barriers to entry remain for both emerging and traditional healthcare startups. Although many founders believe they can always secure sufficient funding, it is highly dangerous to overly optimisticly assume that each round of financing will yield stable cash flow. We have witnessed cases where startups, despite having interesting products, ultimately failed due to insufficient working capital to sustain operations.

Therefore, it is crucial to identify early-stage investors who are aligned with the company’s long-term fundraising objectives. This presents a significant challenge, as the return on investment (ROI) horizon for healthcare startups tends to be extended, which may deter some investors or lead them to adopt a highly cautious approach.

The future remains highly promising for the healthcare industry and medical startups. Unlike basic wearable technologies, some startups spawned from university research laboratories have also achieved success. For instance, Ginkgo Bioworks, spun out of the Massachusetts Institute of Technology (MIT) in 2008, raised $45 million in its recently concluded Series B financing round. Kolo Medical, which began as a laboratory project at Stanford University, had already secured more than 40 revolutionary medical technology patents prior to its angel financing round.

Although these projects benefit from national funding and years of research advantages, their primary investors have remained involved since the early stages of their establishment and continue to play significant roles on their advisory boards.

Strong patent portfolios and sustained R&D capabilities are the two key factors ensuring the success of startups, and investors should pay particular attention to them.

Myth 2: Big Data Is the Key to Success for Healthcare Startups
The traditional healthcare sector has accumulated vast amounts of data. Unfortunately, much of this data is of low quality and unstructured. Privacy remains a significant challenge, as governments have enacted regulations to protect patient information, prohibiting its disclosure to third parties such as other healthcare institutions and pharmaceutical companies.

Challenges in data collection and sharing have compelled some emerging healthcare companies to gather user feedback data by providing services, as exemplified by wearable device company Fitbit and personal genomics company 23andMe. Startups that possess high-quality data—and can leverage such data to establish a profitable business model—will hold a competitive advantage in the market and stand a greater chance of achieving higher valuations.

For the pharmaceutical industry, collecting high-quality, structured data has never been an issue. However, integrating biotechnology with data mining algorithms, artificial intelligence, prediction, and applications has become the core force enabling today’s startups to stand out.

With the widespread adoption of “precision dosing” and advances in sequencing technologies, we have good reason to believe that big data will play a significant role in the development of new drugs and novel therapeutic approaches. For example, Numedii has effectively leveraged big data to accelerate the drug development process by forming strategic partnerships with data source providers to overcome data acquisition challenges.

Myth 3: The Globalization of Healthcare Is Still a Long Way Off
Leveraging the unique advantages of the internet, many healthcare startups can easily scale their solutions globally. Globalization has become unstoppable; for instance, MyHealthTeams, which has built social networking communities for patients with chronic diseases, has expanded to eight countries worldwide.

In addition, globalization also involves integrating diverse health concepts from around the world to drive technological breakthroughs. For instance, startups like PhysioCue have developed core technologies deeply inspired by the Chinese concept of acupuncture, which has helped PhysioCue gain recognition in international markets such as China and South Korea.

To achieve global success, ambitious entrepreneurs must also take note of significant international differences. Unlike Western healthcare consumers, who rely heavily on health insurance, Chinese consumers are more willing to use their household income to purchase healthcare products and services. It is precisely for this reason that many high-performance drugs have been able to gain rapid adoption in the Chinese market.

In addition, sales of healthcare products targeting suboptimal health status have also shown rapid growth. China’s vast population has demonstrated high market acceptance and significant early-stage product tolerance for startups’ offerings. Therefore, collaborating with local investors and/or business development teams is a smart strategy to quickly understand market demands and overcome market entry challenges.

In conclusion, the future of healthcare startups and the healthcare industry is promising. As more startups flood the market, I hope they will all be backed by strong patents and proprietary technologies, fully leverage the power of big data, and maintain a global perspective at all times.

For investors, the future holds even greater promise as they face a diverse array of startups dedicated to solving medical mysteries.

Compiled by Chen Xin
Edited by: Mo Renying