AVCJ Awards 2017: VC Professionals of the Year: JP Gan & Nisa Leung

Q: Qiming has seen a number of IPOs in the last 12 months. What does that say about the broader exit environment for VC-backed companies in China?

GAN: The onshore and offshore public markets, as well as M&A, have been good for Chinese tech companies. Traditionally, the Hong Kong Stock Exchange hasn’t been that receptive to internet businesses but after Meitu [a photo and social networking app Meitu in which Qiming was the first investor] went public in late 2016, we’ve seen Zhong An Insurance and China Literature do IPOs. A few more companies are currently going through the application process, so we can say that Hong Kong is becoming an important exit venue for Chinese VC-backed companies. Meanwhile, the US market has been coming back, and on the domestic side, the regulatory approval process has got faster. Overall, I think it’s the best I’ve ever seen in my career. Having said that, a few large tech companies, such as Meituan-Dianping and Didi Chuxing, will continue to raise capital from the private markets. I don’t expect them to go for IPOs anytime soon.

LEUNG: We’ve had four healthcare IPOs in 2017: Zai Lab on NASDAQ and three others on the A-share markets [one of which was a reverse merger]. In general, the healthcare companies we have invested in prefer to list domestically. Ultimately it depends on a company’s fundraising structure and business model. Our three investees that went public in China were very profitable when they listed. Companies that have yet to become profitable will go to the US or Hong Kong.

Q: How often your Qiming’s consumer internet and healthcare teams look at deals together?

GAN: We have about 30 investment professionals and they are allocated equally across healthcare, internet and consumer, and other core technology like big data, artificial intelligence (AI) and cleantech. We don’t have a fixed ratio of how much of the fund should be deployed in each area. The consumer internet and healthcare teams have worked closely on several mobile healthcare investments like We Doctor and Miaoshou Doctor.

LEUNG: The ecosystems for healthcare – which is very diverse, comprising pharmaceuticals, medical devices and diagnostics – and consumer internet are quite different. One interesting thing is that the BAT [Baidu, Alibaba Group and Tencent Holdings) are also entering the healthcare space in different ways. We have multiple co-investments with Alibaba and Tencent in digital healthcare. The convergence of sectors through technology is very interesting. The composition of our three main sectors gives us a unique angle. For example, when we identify a healthcare company that has deployed mobile internet or AI technology, we invite other teams to review the project and establish whether the technology is legitimate and vice versa.

Q: Where do you see the most attractive investment opportunities right now?

GAN: On the consumer internet side, there is a lot of discussion about “new retail.” We have invested in an unmanned convenient store operator called BingoBox and then there are plenty of so-called new retail start-ups that put the vending machines in offices or public areas. At the end of the day, the business must make economic sense – it is more efficient to have the store or machine than a sales person – and involve disruptive technology. If you just use an app to open the vending machine’s door, that’s not high-tech at all. But if you use facial recognition or product recognition technology in stores, that’s interesting.

LEUNG: New drug discovery is still very hot, and valuations have gone up a lot over the past two years. In some ways, healthcare companies in China are more expensive than ones in the US now. Medical devices and diagnostics are also interesting. The mobile healthcare sector – start-ups using online platforms to connect doctors and patients – has gone through some volatility. Many well-funded companies found it difficult to raise follow-on rounds last year. But now Ping An Good Doctor is preparing an IPO in Hong Kong, so it’s possible that other players will follow suit.

Q: To what extent is healthcare becoming so hot that the valuations might surpass those of internet companies?

LEUNG: TMT [technology, media and telecom] valuations are always ahead of healthcare because more money is entering the consumer internet space. But healthcare has been picking up. Given the exit prospects in the A-share and US markets, many healthcare-focused funds have been formed and the Chinese government is also pouring money into many tech areas. It’s beneficial for our existing portfolio companies – we have one that have received 17 term sheets for its next funding round – but valuations are very high when backing new companies. Deciding whether or not to invest comes down to the quality of the management teams and the assets, and the R&D pipeline. Some healthcare-start-ups have pitched for early-stage rounds at valuations of $300-500 million before they’ve even started clinical trials. As a value investor, we shy away from those deals. 

Q: What is the major difference that you see in entrepreneurship now compared to 10 years ago ?

GAN: The quality entrepreneurs is so much better. Ten years ago, it was difficult to find someone who had previously run a $50 million-plus business or led more than 100 people. Good entrepreneurs came from multinationals or just the grassroots. Jack Ma, for example, worked in a completely different field to e-commerce. Now you have young and ambitious founders who have studied overseas and at domestic elite universities or who previously led thousands of employees at large technology companies. This batch of entrepreneurs is world-class in terms of technology development, business planning and execution. 

Q: How have the relationships evolved between Chinese start-ups and larger tech and healthcare companies?

GAN: Although some of the new generation tech companies, such as online-to-offline local services platform Meituan-Dianping, have received backing from the BAT, the former is disrupting the latter. Just look at Baidu. In the PC world, users would go to Baidu to search information, but in the mobile internet age, players like online news aggregator Toutiao push relevant information so users don’t need to search by themselves. Toutiao is now generating billions of dollars in advertising revenue that might otherwise have gone to Baidu, so in many ways it is eating Baidu’s market share. Meituan-Dianping is doing the same thing, developing technology that makes customized suggestions as to what people might want to eat or purchase.

LEUNG: When it comes to forming joint ventures between Chinese companies and international pharmaceutical companies, it has been a mix. Some have worked and some haven’t. Meanwhile, a number of home-grown Chinese companies that we have invested previously have become very big and they are partnering with new generation start-ups in a meaningful way. For example, our portfolio company TigerMed, a Shenzhen-listed contract research organization, has been working with a handful of biotech companies globally. Its corporate venture arm also has been invested in companies both in China and the US, and we have co-invested in some of those deals as well.

Q: Various large VC firms have set up dedicated teams to provide value-add services to start-ups, from human resources (HR) to public relations (PR). Would Qiming consider doing the same?

GAN: Our time, industry resources and networks are valuable to entrepreneurs. If an entrepreneur comes to me and ask for help on business or even personal matters, I will try my best. Many successful business stories have sad personal stories behind them. As a company grows, partnerships can break up and there might also be family issues, such as divorces. Sometimes I get involved in very difficult life decisions for the founders. That’s part of my job, that’s real value-add. But I’m not there to help them write press releases or review legal documents. They should hire people to do PR and legal.

LEUNG: Unlike most VC firms in China, all our senior partners have extensive operational backgrounds. When I sit on the boards, I work with our companies on acquisition targets, as well as partnerships with global pharmaceutical firms and large hospitals in the US and China. I think it’s very hard to build a team to create that type of value-add because it is very personal. It’s based on how we work alongside CEOs for a long time, brainstorming what types of partnerships we should develop. A lot of time these relationships are quite high level. We are deeply ingrained in our various sectors, but an HR person who understands the pharma industry may not understand financial technology, so it’s kind of defeating the purpose of setting a dedicated team. The tough part is really about business strategy – which is the true value-add a professional VC should offer. 

Pictured: Nisa Leung of Qiming receives her award from Hogan Lovells' Tom Whelan

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• Topics
• Greater China
• Venture
• Early-stage
• IPO
• Technology
• Healthcare
• China
• Qiming Venture Partners
• TMT
• AVCJ Awards