Liu Yun of Guanghe Capital and Jiang YanYe of Honghui Capital on Internet Healthcare: Vertical Focus, Specialization, and Building Barriers

On Zhihu, a user asked, “How do venture capitalists (VCs) view internet healthcare?” A leading figure from a social media platform in the healthcare sector remarked, “Few truly understand it.” Some voices described the sentiment as “heightened caution amid excessive expectations,” while others noted, “It’s too specialized for VCs to clearly assess.”

Is this really the case? Here’s what two top investment firms have to say.

▌ Liu Yun, Partner at Guanghe Capital: Focusing on “Vertical Specialization”

▌Jiang Yanye, Executive Director at Honghui Capital: You Must Have a Clear Understanding of What You Are Doing

● How to View Internet Healthcare
Liu Yun:
On one hand, mobile internet has not only transformed our lives but also revolutionized healthcare. On the other hand, although China’s internet healthcare industry started late, it is characterized by a significant bubble. Currently, there are 2,000 to 3,000 highly homogenized apps in the market. The rapid expansion and excessive bubbling of this sector imply that it must undergo a large-scale consolidation to achieve healthy and sustainable development.

Jiang Yanye:
Since the first half of 2014, there has been a rapid surge in startups and financing transactions in the internet healthcare sector; however, beneath this boom lie homogeneous business models and unclear revenue streams.

● Which internet healthcare projects will be invested in
Liu Yun:
We acknowledge that we are extremely stringent. In terms of investment criteria in the internet healthcare sector, Guanghe Capital places the greatest emphasis on “vertical specialization,” which refers to developing one or two small yet distinctive applications within specific vertical niches, as these projects hold potential for mergers and acquisitions.

Jiang Yanye:
Honghui Capital is itself a fund focused on investments in the healthcare industry. Internet healthcare is a sector that appears deceptively simple but is, in fact, extremely challenging to execute; delivering genuine medical services rather than mere consultation is no easy feat. Our selection criteria require not only a strong team but also unique proprietary resources and a leading position within specific niche segments.

● Some argue that the boom period for internet healthcare has passed, with the industry now reverting to traditional healthcare practices. What is your perspective on this?
Liu Yun:
The hype cycle for internet healthcare has passed—a perspective that varies depending on the industry’s developmental stage. Investment firms inevitably adjust their strategies as the industry evolves. While early-stage projects dominated last year, Series B and C rounds are now and will continue to be the primary focus. Healthcare remains one of the sectors most resistant to disruption by the internet. We all hope this trend gains greater momentum and sustains itself over a longer period.

In the long run, the concept of “internet healthcare” may cease to exist, as every healthcare subsector will integrate with the internet. Internet technology has become an inevitable trend in healthcare, rather than a distinguishing factor between traditional and emerging models. From an investment perspective, applications that rely solely on the internet or mobile internet to transform healthcare are no longer favored by capital. This conclusion is evident from both industry reports and feedback within the investor community. In contrast, so-called “traditional healthcare sectors,” such as in vitro diagnostics (IVD) and medical devices, have returned to the mainstream of venture capital investment in healthcare.

Jiang Yanye:
It is not entirely accurate to say that the window of opportunity has closed, but for new entrepreneurs entering the internet healthcare sector, the optimal time to launch a startup may indeed have passed. The reason is that a large number of new companies emerged last year, many of which successfully secured financing. These companies span various subsectors of internet healthcare. Unless latecomers possess novel business models or highly unique resources, they will face substantial challenges in launching their ventures and raising capital. To date, the vast majority of internet healthcare companies we have observed remain in a cash-burning phase, relying on continuous capital infusion to sustain growth. Consequently, the fundraising capability of newly established companies has become particularly critical.

● How to View the Prevalent "2VC" Phenomenon in the Internet Healthcare Industry
Liu Yun:
This is determined by the characteristics of the industry. In China, at this stage, the profitable business models that work in the United States—where commercial insurance companies, doctors, patients, and hospitals pay for services—are not feasible. The only viable path currently lies in E-Marketing for medical enterprises, but this remains a fragmented model that has yet to achieve scale. For this phase, and indeed for a considerable period thereafter, internet healthcare will truly have no choice but to rely on a “2VC” (to Venture Capital) strategy. There is nothing inherently wrong with this; during the early adoption phase of many emerging industries in the mobile internet era, reliance on capital was common, eventually giving rise to great companies and mature industries. As mobile healthcare is still healthcare, carrying the social mandate of saving lives and healing the wounded, capital should bear greater responsibility. In healthcare venture capital, successful investments yield financial returns, while unsuccessful ones serve as public welfare.

Jiang Yanye:
This may not merely reflect the current state of internet healthcare. From angel rounds to Series A, B, and C funding, continuous capital injection is critical for entrepreneurs in the internet healthcare sector. This reality often compels founders to cater to investors in terms of both business models and data metrics. However, we believe that an exceptional founder must possess the courage and determination to adhere to their own vision; founders who blindly cater to venture capitalists may not necessarily achieve long-term success.

● Advice and Words of Encouragement for Entrepreneurs in Internet Healthcare
Liu Yun:
Rationally speaking, the hype around internet healthcare has faded; strategic choices now matter more than ideals. In the internet healthcare sector, it is currently difficult for new major applications to emerge. Abandon the illusion of building heavy-weight platforms; instead, focus on “vertical specialization.” Even a small application in a niche field can be an attractive acquisition target if it offers distinct advantages.

On an emotional level, it is truly not easy to be an entrepreneur, especially in the field of internet healthcare, where a viable profit model has yet to be established. To encourage fellow entrepreneurs, I would like to quote a line from The Shawshank Redemption: “Hope is a beautiful thing, maybe the best of things, and no good thing ever dies.”

Jiang Yanye:
We advise entrepreneurs in this field to carefully and thoroughly consider the following: What makes your company truly unique? Where do your competitive moats lie? What specific pain points can you actually resolve? Is your position within the entire ecosystem conducive to a win-win relationship? This is particularly crucial for projects involving physicians: How will you motivate their active participation? What will your revenue model look like? And what are your future cash flow plans? If you can think through these issues clearly, you are welcome to join the entrepreneurial community in internet healthcare.