Background introduction
At present, government-guided funds are influencing the development of the medical and health market through innovative venture capital. On March 10, 2023, Artery Network published a special article titled “How do investors who manage 13 trillion yuan invest in medical and health?” As one of the interviewees, Zheng Jie, founder and chairman of Vivis Medical, shared the support and influence of government-guided funds on innovative equipment companies such as Vivis.
“It is not easy to develop new products and open up new fields. It is difficult for a single company to promote it. Government endorsement can increase our advantages. – Zheng Jie”
The following content is excerpted from the original text:
Innovative equipment company Vivis Medical completed its Pre-B round of financing in 2022, and founder Zheng Jie also felt the activeness of the government-guided fund. “In the Suzhou Industrial Park where we are located, more and more institutions with government-guided fund backgrounds have come to see projects since the second half of 2021.”
In the latest round of financing of Weiweisi Medical mentioned above, investors include the National Emerging Industry Venture Capital Guidance Fund managed by Guotou Chuanghe; the company’s core product semi-automatic external defibrillator (AED) has obtained CE and NMPA registration certificates, and the wearable fully automatic defibrillator (WCD) is about to enter the human clinical stage. Under the trend of population aging, the product application scenarios are rich and the prospects are promising.
In addition to obtaining investment from national funds, Weiweisi Medical has also obtained investment from the guidance fund of Anji County, Huzhou, Zhejiang, and has established an Anji subsidiary. In fact, the establishment level of government-guided funds has shown a downward trend, and district and county-level government-guided funds are active, using direct investment to achieve more efficient investment promotion.
“Before making an investment decision, the government-guided fund has very strict requirements for market research, enterprise due diligence and other stages; the compliance management requirements for enterprises after investment are also very high.” However, in Zheng Jie’s impression, once the investor makes an investment decision, the subsequent actions are very fast. “In the past two years, social capital has been affected by the economic environment, and investment has become more conservative and cautious; for start-ups, time is money and life.” Zheng Jie said that there are no mature technical standards in the sub-sectors where Weiweisi is located. With the investment of national funds, it will have the opportunity to connect with national projects and explore the establishment of technical standards, application scenario standards, and data management standards. “It is not easy to develop new products and open up new fields. It is difficult for a single enterprise to promote it. Government endorsement can increase our advantages.” Scroll down to read the full text Striving for “upstream” has become an industry consensus: the industrial chain seeks breakthroughs in core raw materials and source technologies; innovation focuses on scientific and technological achievements and transformation. What changes are happening in the “upstream” of another key industry element-funds? According to the “2022 Mother Fund Panorama Report” of the Mother Fund Research Center, there are 113 newly established mother funds in 2022, including 10 market-oriented mother funds with a management scale of 76.4 billion yuan; 103 government-guided funds with a scale of 470.9 billion yuan. In other words, government-guided funds account for 91% of the number of mother funds and 86% of the fund scale.
Whether in terms of quantity or fund scale, government-guided funds have become an important force in domestic venture capital investment, and the medical and health field is no exception. “Except for the funds managed by the newly established GP, there is almost no RMB fund that the government-guided funds do not participate in.” GP described the penetration of government-guided funds in this way.
So, how do government-guided funds invest in medical and health? With the help of their administrative resources, how do government-guided funds affect the allocation of factors in the medical and health industry? Artery Network made observations through interviews with many innovative venture capitalists.
With a scale of 13 trillion yuan,
Government-guided funds are also keen on medical and health
Government-guided funds are an important means to adjust the industrial structure, promote industrial upgrading, and accelerate technological innovation. In particular, in recent years, local governments have become increasingly aware that government-guided funds have a strong energy in attracting precise investment.
According to statistics from Qingke Research, as of the end of 2022, my country has established a total of 2,107 government-guided funds, with a target scale of about 12.84 trillion yuan and a subscribed scale of about 6.51 trillion yuan; among them, the newly established government-guided funds in 2022 are mostly industrial-oriented funds, mainly focusing on strategic emerging fields such as high-end manufacturing, new materials, information technology, and biomedicine.
The big health industry has long been an important part of the national strategy, and its status will continue. At the ongoing 2023 National People’s Congress, the government work report proposed that it will promote the accelerated development of emerging industries such as high-end equipment, biomedicine, new energy vehicles, photovoltaics, and wind power.
It can also be found in the 2023 government work reports of various places that biomedicine, high-end medical devices, and smart medical care are frequently mentioned and included in the list of key industries in the new year and even the next five years.
Government-guided funds will also be more active in the field of medical and health. In 2023, various places have newly established a number of large-scale government-guided funds, and listed biomedicine and high-end equipment as key investment areas.
In January 2023, Beijing Economic and Technological Development Zone announced the establishment of a government investment guidance fund with an initial scale of 10 billion yuan to guide social capital to invest in areas that are in line with the industrial layout and strategic positioning of the Economic and Technological Development Zone, including high-end manufacturing, biomedicine, digital economy, urban renewal, etc., with a focus on supporting the growth of innovative enterprises, mergers and acquisitions of advantageous enterprises, and the attraction of key projects.
In February 2023, the Guangzhou Industrial Investment Fund with a scale of 150 billion yuan was established, focusing on investments in semiconductors and integrated circuits, new energy, biomedicine and health, advanced manufacturing, new generation information technology, new consumption and other fields.
Some regions have also explored the establishment of special funds for the big health industry to achieve a more professional focus.
For example, the Shenzhen Biomedicine Industry Fund has a target scale of 5 billion yuan, and will focus on investments in biomedicine, cells and genes, and has selected management institutions.
In January 2023, Henan established the Zhongyu Biomedicine Industry Investment Fund, with a total fundraising scale of no less than 5 billion yuan. It will coordinate the establishment of industrial sub-funds by the existing industrial investment funds, municipal state-owned enterprises, industry leaders, and professional investment institutions.
In addition, the “Zhejiang Province “415X” Advanced Manufacturing Cluster Construction Action Plan (2023-2027)” proposes to establish four industry cluster special funds such as new generation information technology, high-end equipment, modern consumption and health, green petrochemicals and new materials, and one “specialized and new” mother fund, with the scale of each fund not less than 10 billion yuan.
Some government-guided funds newly established since 2023, source: China Securities Investment Fund Industry Association, local government official websites
“From a macro perspective, China’s fiscal system is shifting from the previous land finance to equity finance, so the government investment model represented by government-guided funds will be increasingly valued.” Wang Haijiao, executive partner of Gaotejia Investment, said that from the perspective of specific investment business, government-guided funds have certain requirements for the registered capital, senior management qualifications, and successful cases of cooperative GPs. It is difficult for newly established GPs to apply for government-guided funds to participate in investment; in addition, among the newly established funds in the past three years, there is almost no fund that government-guided funds do not participate in, and the same is true in the medical and health field.
At the beginning of 2023, Gotejia completed the fundraising of a 500 million yuan industrial fund. The LP includes the government-guided fund. Suzhou Xiangcheng District and Xiangcheng District Huangdai Town invested. The fund will focus on biomedicine, medical devices, smart medical and other sub-sectors.
Innovative equipment company Weiweisi Medical completed the Pre-B round of financing in 2022, and founder Zheng Jie also felt the activeness of the government-guided fund. “In Suzhou Industrial Park where we are located, since the second half of 2021, more and more institutions with government-guided fund backgrounds have come to see the project.”
Obviously, the government-guided fund is influencing the development of the medical and health market through innovative venture capital.
Regional requirements, income evaluation,
How does the government-guided fund invest in medical and health?
Government-guided funds usually need to recruit and entrust GPs to manage them, and operate through models such as investing in sub-funds and directly investing in enterprises. In the past, government-guided funds mainly invested in sub-funds as LPs. In recent years, the proportion of direct investment has increased, and they have gradually developed into a comprehensive model such as direct investment, investment in sub-funds and direct investment.
Since government-guided funds are operated in a market-oriented manner by cooperative GPs, overall, the sub-sectors they focus on investing in are not much different from the preferred areas of social capital. However, government-guided funds at different levels have different investment demands, and project selection and investment progress also have their own special features.
In terms of levels, national-level government-guided funds focus on investing in national strategic emerging industries, covering a wide range of sub-sectors and without specific regional requirements.
In 2016, the Ministry of Finance, the National Development and Reform Commission and the State Investment Group jointly initiated the establishment of the National Emerging Industry Venture Capital Guidance Fund, which mainly invests in innovative enterprises in the start-up, early and middle stages of strategic emerging industries and high-tech industries with original innovation, integrated innovation or digestion, absorption and re-innovation attributes. Therefore, the fund can also cover enterprises in the medical and health field that meet the above conditions.
In the latest round of financing of Weiweisi Medical mentioned above, investors include the National Emerging Industry Venture Capital Guidance Fund managed by SDIC Chuanghe; the company’s core product, semi-automatic external defibrillator (AED), has obtained CE and NMPA registration certificates, and the wearable fully automatic defibrillator (WCD) is about to enter the human clinical stage. With the trend of population aging, the product application scenarios are rich and the prospects are promising.
Local-level guidance funds have a strong demand for supporting local enterprises and accurately attracting investment: either setting a return ratio when investing in sub-funds, or directly investing in local key enterprises and key projects.
“In order to meet the return requirements, we will give priority to arranging local projects to attend the investment project meeting, and will also recommend other invested projects to land and set up subsidiaries.” Wang Haijiao introduced that when Gotejia cooperated with the government guidance fund in Zhejiang, it invested in companies such as Annouda, Anbiping Pharmaceuticals, and Hehe Diagnostics. These companies have settled laboratories or subsidiaries in Zhejiang.
In addition to receiving investment from national funds, Weiweisi Medical also received investment from the guidance fund of Anji County, Huzhou City, Zhejiang Province, and has established an Anji subsidiary. In fact, the establishment level of government guidance funds has shown a downward trend, and district and county-level government guidance funds are active, using direct investment to achieve more efficient investment promotion.
In the process of establishing and operating government guidance funds, all localities have corresponding guidance fund management methods, which require the source of funds, operation methods, management institutions and systems, and exit systems, so as to enable the funds to operate within the framework of the document.
“Before making an investment decision, the government guidance fund has very strict requirements for market research and enterprise due diligence; the compliance management requirements for enterprises after investment are also very high.” However, in Zheng Jie’s impression, once the investor makes an investment decision, the subsequent actions are very fast. “In the past two years, social capital has been affected by the economic environment, and investment has become more conservative and cautious; for start-ups, time is money and life.”
Specifically, when it comes to project selection, social capital should look at the industry prospects and market size of the subdivided field, and more importantly, whether the project is unique and innovative, whether it ranks at the forefront of the industry, or whether it has the potential to become a leader, as well as the profitability and growth rate of the enterprise.
Government-guided funds may lower the above requirements due to other factors. Wang Haijiao believes that some government-guided funds are more aggressive than social capital (mainly referring to direct investment). “They consider comprehensive benefits, including the improvement of the local industrial structure by the project, and the promotion of employment and taxation. If the comprehensive benefits of the project are high, even if the risk is high and the valuation is high, even if it takes 5 or 10 years to grow, they are willing to invest.”
Policies, scientific research, factories,
What support can government-guided funds bring?
Government-guided funds have their own particularities at the investment level. As LPs or corporate shareholders, they can also bring specific value and resources to GPs or invested companies.
As an LP, the government-guided fund can form a linkage working mechanism with local relevant industry authorities with the support of strong administrative resources, regularly or continuously collect innovative projects, and form a project library for investment enterprises for screening by cooperative GPs.
“Government recommendation is a powerful supplement to the source of GP projects. In addition, the greater help of government resources is that if we are interested in a subsidiary, spin-off project or other star project of a listed company, direct contact may not produce results; but if the project happens to be located in the location of one of our funds, it will be easier to contact the project through government resources, which is also a project development strategy.” Wang Haijiao said frankly.
At the same time, whether as an LP or a shareholder, the government-guided fund can bring policy breakthroughs, scientific research cooperation, plant or laboratory construction, human resources and other multi-faceted support to medical and health companies.
Zheng Jie said that there is no mature technical standard in the subdivision field where Weiweisi is located. With the investment of national funds, there is an opportunity to connect with national projects and explore the establishment of technical standards, application scenario standards, and data management standards. “It is not easy to develop new products and explore new fields. It is difficult for a single enterprise to promote it. Government endorsement can increase our advantages.”
In 2022, digital dental equipment company Dentefi received investment from Haiheng Capital, Hongbo Capital, Chuanggu Capital, Hefei Angel Investment Fund, etc. Among them, Hefei Angel Investment Fund is one of the top direct investment government angel funds in the country.
Dentfi founder Huang Kaixian mentioned that along with this investment, relevant government departments have given strong support to the company’s scientific research projects. In September 2022, Dentefi and the Hefei Institute of the Chinese Academy of Sciences launched an industrial research cooperation on the “Ultra-wide-angle Laser Scanning Fundus Camera Project”. “With the help of government departments, we have been able to carry out in-depth cooperation with many universities and scientific research institutions in Hefei to incubate new projects or carry out technical research and development of core components.”
In addition, Dentefi has planned a 1,000-acre production base in Hefei, and the first phase of 300 acres has been completed. “In terms of land use and factory construction, the government also gave great support, including financial subsidies, construction project approval and construction process guidance, etc., which saved us a lot of time and energy.”
In general, the advantages of government-guided funds in investment decision-making, progress, and post-investment resources are difficult to replace, but companies still believe that it is necessary to introduce different types of investors at different stages, such as focusing on government-guided funds in the early stage and focusing on social capital in the middle and late stages to achieve complementary advantages between the two.
Stock optimization,
More professional tripartite collaboration is needed
Recently, the latest round of the State Council’s institutional reform plan was announced, and the science and technology department, financial and securities management department have been greatly optimized, which shows the country’s attention to these fields. Technological innovation will be a long-term and core theme of the future economy and society, and scientific and technological innovation also needs a sound venture capital system to support it.
It is understood that although government-guided funds have become the backbone of domestic venture capital investment, the number of newly established funds has declined year by year in recent years, and the overall stock optimization stage has been entered.
In the future, government-guided funds, GPs, and innovative enterprises need to form closer and more professional cooperation to maximize the value of invested funds. Medical and health investment has its own particularity, with high professional thresholds and long payback cycles, and higher requirements for professional collaboration among three parties.
In the cooperation, the government-guided fund attaches importance to the return investment ratio, undertakes investment promotion, and hopes to leverage more social capital with less funds to invest in local enterprises and introduce new projects.
GP hopes to land in areas with a certain industrial foundation or even enterprises with investment intentions, so as to complete the return investment task more smoothly; and hopes that the government will intervene in decision-making as little as possible, allowing GP to give full play to its professional capabilities.
The demands of enterprises are all aspects of the development process. In addition to funds, there are also support for scientific research, taxation, land use, market, listing, etc. The resources required for R&D and manufacturing are different, and the needs of the same enterprise at different stages are also different. A medical technology company faced a relocation subsidy of 200,000 yuan in a certain place’s investment promotion policy, and said bluntly: “It’s not that subsidy, but it’s the order that hits me!” This also shows the specific needs of the enterprise.
In the cooperation, how can the government-guided fund promote the construction of industrial parks and industrial clusters through administrative resources and market-oriented operations? How to optimize the allocation of industrial elements between regions? How will it affect the medical and health market pattern? Will local guidance funds “roll inward” because of attracting investment to grab enterprises? These are topics worth in-depth discussion.
In order to further smooth the information channels between government guidance funds, investment institutions, and innovative enterprises, and to observe the value of mutual achievement between the three parties more deeply, Artery Network will continue to pay attention to this field.
