Northern Light eyes healthcare sector

The firm made its name with early-stage technology deals and these will still attract most of the capital, alongside the consumer and cleantech plays. However, Founding Managing Director Feng Deng sees increasing opportunities in medical devices and healthcare services, thanks to a combination of rising disposable incomes and government policy.

"In the last few years there has been real growth in the sector and the new healthcare reforms will push up demand even more," he tells AVCJ. "Healthcare spending per capita in China is far lower than in the US so there is enormous potential for further growth."

In 2009, the Chinese government pledged to spend $124 billion over three years to make healthcare more affordable and accessible. This involves improving and expanding the hospital and treatment center network, widening medical insurance coverage and bringing down the prices of key drugs. The infrastructure build out is a boon for medical equipment manufacturers and private equity and venture capital firms have been drawn to the industry. Northern Light's healthcare investments only began to gather momentum towards the end of its second fund.

That vehicle, which closed at $353 million in 2007, is fully deployed apart from a small amount of capital held over for follow-on investments in portfolio companies. The third fund has a similar LP base to its predecessor - endowments, family offices, foundations and fund-of-funds, plus Northern Light's longstanding strategic partners, Silicon Valley VC firms Greylock Partners and New Enterprise Associates. The first capital call was made in August and the fund is closing in on its debut investment, a company in China's consumer-internet space.

Northern Light also has two renminbi-vehicles set up in 2009 as joint ventures with the governments of Suzhou and Beijing's Zhongguancun district, respectively. A third local currency is currently being raised. While the first two funds operate with Northern Light's US dollar vehicle as LP alongside the governments, the new fund is independent, drawing on commitments from high net worth individuals.

Although the private equity firm's sector allocations are being tweaked slightly, Deng explains that many of China VC investments share a common ground: they leverage the country's manufacturing strength.

"Some opportunities play better in China than the US due to labor cost," he says. "A lot of the technologies we invest in are complete technologies - you have to combine lab work with process engineering. As a result, manufacturing capabilities are important."

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• Topics
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