Fund focus: HighLight’s early-stage prescription

Steven Wang spent more than a decade making healthcare investments in China, latterly for CDH Investments, before going solo and setting up HighLight Capital in 2014. Jason Zhao, his co-founder, had carved out a role as a specialist in the same sector with SBCVC. This experience translated into a swift first fundraise: HighLight’s debut US dollar and renminbi-denominated vehicles closed at $200 million and RMB1 billion ($150 million), respectively.

In March – six months after closing its second local currency fund at RMB1.5 billion – the GP launched a second US dollar vehicle. Investor demand was strong, to the point that HighLight resisted requests for a dramatic increase in fund size and closed at the hard cap of $250 million. Temasek Holdings and two sovereign wealth funds came in as new investors, alongside pension funds, insurance companies, fund-of-funds, and family offices from the US and Europe. Existing LPs accounted for 50% of the corpus.

“In China, it’s easy for a healthcare GP to write a $30-$50 million check from a sizable fund – all they need do is go after high-profile companies and invest in late-stage rounds. But we ask ourselves to be disciplined, with a focus on early-stage rounds with smaller checks and lower valuations. This strategy helps us build a solid track record. The essential art of investment is buy low, sell high. A buying-high larger fund won’t necessarily get the best returns,” says Wang.

HighLight’s debut US dollar fund backed more than 20 companies, with early-stage deals making up more than 60% of the corpus. It was the sole Series A investor in dental clinic chain Malo Clinic, wearables manufacturer Oranger Family and pediatric care operator Dr. Cui Yu Tao. The GP also participated in growth to pre-IPO rounds for the likes of biotech firm Suzhou Kintor Pharmaceuticals and healthcare technology player Kyee. 

The latest US dollar fund – which follows a similar strategy to that of its predecessor – has already backed six companies. About 20% of the corpus will go towards pharmaceuticals, with the remainder spread equally between medical devices and healthcare services.

“When it comes to growth-stage investments, we are very selective. We might invest only one to three projects every year,” says Wang. “There aren’t many high-quality companies – meaning they are cash-generative and have excellent management teams – available in the market at reasonable valuations. When there are such candidates, global players and large country-focused funds flock to invest in them.”

Numerous healthcare-focused GPs have set up in China in recent years, looking to tap into national healthcare expenditure that topped $663 billion in 2016 and is to reach $1.84 trillion by 2026. “The addressable healthcare market in China is huge, real, and growing,” Wang says. “However, top-tier will eventually cover 80% of the deal flow because most of the so-called sector GPs don’t have enough relevant experience making healthcare investments.” 

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• Topics
• Greater China
• Fundraising
• Healthcare
• Venture
• China
• HighLight Capital