The Quiet Wave Of Corporations Funding Chinese Healthcare Startups
“Trade war and censors blow chill wind through China’s giant tech scene,” reads this Reuters headline from last month. “China startups brace for ‘capital winter,'” says this Forbes contributor. Meanwhile, SCMP goes full Game of Thrones: “‘Winter is coming’ for China’s private market investors as economies slow.”
If you’ve been reading about the startup space in China these past few months, you could be forgiven for thinking the forecast is all gloom and doom, as analysts bemoan China’s national deleveraging (or debt reduction) campaign, tightening regulations, and tensions with the U.S.
But it’s not that simple.
China-focused venture capital firms continue to close new funds, adding new investor commitments to their pools of capital to invest into startups. Recent examples across a wide range of funding stages include Hillhouse Capital, GGV Capital, and Insight Capital. The partners at Seqouia Capital and Zhen Fund refute the idea of “capital winter” in China. Others hypothesize a herd-like “flight to safety” of investors or just a much-needed correction of overly high startup valuations.
That said, what matters to individual entrepreneurs is not the overall funding environment, but what specific resources exist in their immediate sector. And Chinese startups are seeing a surge of new support in at least one industry: healthcare.
Interestingly, it is not venture firms who are providing this new support, but rather established multinational corporations (MNCs). For a few reasons, big healthcare companies are increasingly keen to engage innovators in China:
Many healthcare corporations seem be enjoying flush balance sheets and stock prices outperforming the market. Healthcare corporations have made record acquisitions this year, reflecting the cash boost of the U.S. Tax Cuts and Jobs Act of 2017. These companies’ strong financial positions gives them the stability to explore startup innovation in the first place.
China as a market, with 1.4 billion people, cannot be ignored, especially as lifespans increase (China recently overtook the U.S. in a stat called “healthy life expectancy at birth”). And the Chinese are getting richer every passing year, with average disposable income per capita increasing in 2017 to nearly 26,000 yuan ($3,800). In parallel, healthcare needs are increasing due to multiple factors — aging, for instance. The proportion of Chinese over 60 is expected to double by 2050 when it will comprise over a third of the population. A bigger, richer, and older Chinese population represents a significant healthcare business opportunity.
For better or worse, it is cheaper, easier, and faster to test new health technologies in China. Talent, whether from fresh graduates domestically or experienced overseas returnees, is available. Evolving regulations, combined with the recently announced Healthy China 2030 campaign, create a relatively supportive environment. And everything in China happens faster, allowing for quicker iterations and rapid technology development.
The previous factors are all positive for corporates; this last one is a threat. Competition in China is fierce and multifaceted. Ping An Insurance spun off its online healthcare platform Ping An Good Doctor, which has since grown to IPO this year in Hong Kong. Internet giants Alibaba and Tencent are each exploring multiple healthcare businesses in China, not to mention making their own investments into healthcare startups. As for healthcare startups, some are so promising that they are poaching talent away from corporations. With the multitude of new entrants entering their space (and not just in China), MNCs increasingly feel an urgency to innovate.
As a result, the number of healthcare corporations reaching out to engage startups in China has been quietly yet steadily growing. In the last few months, no less than four different multinationals — Merck, Johnson & Johnson, Sanofi, and GlaxoSmithKline (GSK) — have announced new programs that support startups addressing health problems in China. This is in addition to existing efforts from Bayer and Philips and previous experiments from Astrazeneca and Pfizer.
Not all corporate innovation programs are created equal. The sudden proliferation of these programs can be overwhelming. One basic way to distinguish programs is by their focus area: digital health or life sciences.
Digital health is the application of information technologies to achieve better healthcare outcomes. Solutions include mobile apps for patients or hospital software. Four currently active programs focused on digital health in China:
Bayer’s Grants4Apps global startup program landed in China in 2016 and provides mentorship, access to partners through organized events, and 30,000 yuan ($4,360) grants.
Philips Healthworks Startup program has included China since early 2018 and gathers startups based on themes; the current cohort’s theme is artificial intelligence (AI) in healthcare.
Sanofi set up an Innovation Hub in Shanghai in 2018, from which it implemented its first Accelerate Program, providing startups with space, expertise, and pilot projects.
GSK teamed up with semiconductor design company Arm in late 2018 to launch its Digital Health Accelerator to provide relevant startups with Arm Accelerator’s program, ecosystem resources from both MNCs, and potentially investment.
Life sciences is a catch-all term for pharmaceuticals, biotechnology, or utilizing living systems for health applications. Solutions can range from proprietary drugs to diagnostic assays. A few notable actors in this area include:
Merck China Accelerator is currently recruiting for its 2019 program and seeks to support startups with coaching, networking through events, and up to 395,000 yuan ($57,500) in funding at Merck’s discretion. Their scope is not restricted to life sciences, but also includes performance materials and other search fields.
Johnson & Johnson is launching a new JLABS location in Shanghai in 2019, a facility capable of accommodating 50 life science startups. JLABS provides lab equipment, R&D expertise, commercialization training, and more to help entrepreneurs turn ideas into products.
Astrazeneca has a global open innovation platform as well as an innovation center in Wuxi from which they have engaged startups.
Pfizer has a global network of Healthcare Hubs which run startup programs, but it has yet to establish one in China.
These two categories are imperfect but a good first step. Any serious founder will more deeply consider (1) what concrete support a program offers, (2) how it addresses their startup’s most pressing needs, and (3) what it will cost the startup in terms of bandwidth, equity, and/or independence. If there is a fit, these corporate startup programs can be a boon to startups who take advantage of them.
In healthcare at least, as established companies seek out external innovators, startups in China are witnessing a growing wave of support from major healthcare companies. Perhaps in this particular niche, it is not winter but spring that is coming?