ZWC Ventures-backed Chinese primary healthcare platform Yunhu Technology is planning to launch a fresh fundraising round by end-October and is targeting to induct government-linked private equity investors in a bid to capture significant market share in the public health space.
The fundraising target is yet to be decided but the amount is expected to be higher than the 220 million yuan ($30.79 million) closed in a previous Series pre-B round.
Yunhu Technology provides medical testing and diagnosis services, medicines, medical devices and education to tier-four and lower-tier cities in the country.
“The healthcare industry is essentially an area with stringent regulations in China,” Yunhu CEO and founder Chen Xiaobing told DealStreetAsia.
The company executive described it as “a must” for primary healthcare firms to build up bonds with the government authorities.
“This requires the presence of a communication channel, preferably a shareholder with a government background,” Chen added.
Unlike other countries where the investment activities are usually market-driven, China has a significant number of investment institutions with a government background. The country has recorded 1,636 government-guided funds – that are directly launched by governments at various levels – managing a total of 4.05 trillion yuan ($566.55 billion) by the end of 2018, according to Chinese industry research firm Zero2IPO Group.
Yunhu has so far raised four funding rounds all from market-driven investment companies. Prior to the Series pre-B round led by ZWC Partners, Yunhu closed tens of millions of USD funding in a Series A+ round led by China Creation Ventures in February 2019. The company also secured 50 million yuan ($6.99 million) in a Series A round in September 2018 and a Series pre-A round worth tens of millions of yuan in December 2017.
China Creation Ventures (CCV), an investment company led by former KPCB China head Zhou Wei, healthcare-focused investment firm BioTrack Capital and private equity firm Cash Capital were investors in the previous rounds.
One of the largest players in China’s healthcare field, Tencent Trusted Doctor, a merger between Tencent Doctorwork and Trusted Doctor, also roped in two investors with government background in its latest Series C round in April 2019, including Russia-China Investment Fund, which was jointly set up by Chinese sovereign wealth fund China Investment Corporation (CIC), and AVIC Trust, launched by Chinese state-owned aerospace and defense conglomerate AVIC.
Tencent Trust Doctor raised $250 million in the round to reach the unicorn valuation of $1 billion.
Yunhu is eyeing business opportunities in the Chinese healthcare market, where the elderly population aged above 65 has reached 166.6 million in 2018, accounting for 11.9% of the total population, according to the National Bureau of Statistics data in August 2019.
Yunhu is aiming to work with the state authorities to deliver a primary healthcare system “as convenient as hailing a taxi through Didi Chuxing or ordering takeout on the Meituan-Dianping platform in the future.”
The Chinese authority is promoting a hierarchical medical system which will require medical institutions to treat patients according to the degree and urgency of the diseases. The system was formally introduced by the State Council in September 2015 as Beijing pledged to solve the problems of biased medical resource allocation and high patient flows to large hospitals.
Enterprises like Yunhu are seeking to capitalise on these macro policies through their internet platform.
“I anticipate our potential cooperation with the government will mainly be in five fields: primary healthcare data, prevention of high-incidence diseases, medical education for grass-roots doctors, promotion of hierarchical system, and control of unreasonable medical coverage,” said Chen.
Yunhu, founded in January 2017 and based in Hangzhou, connects at least 300 million people from institutions along with the upstream and downstream of the primary healthcare industry chain.
The network, however, is not deemed large enough to negotiate a deal with the Chinese government, according to Patrick Cheung, founding and managing partner of China and Southeast Asia-focused investment company ZWC Partners. ZWC Partners led a Series pre-B round worth 220 million yuan ($30.79million) in Yunhu in early September 2019.
“An enterprise needs to possess certain capabilities so as to forge cooperation with the government, such as data collection and analysis,” said Cheung. “Yunhu will be qualified in the next one to one and a half years when the company has successfully formed connections with one third – or at least one fourth – of primary healthcare clinics in China.”
“The company right now only covers a small proportion of the over 900,000 clinics in China. Its 1,500 full-time employees still need to do a lot of laborious on-the-spot investigation and visits to promote the business development,” said Cheung.
Yunhu currently connects with 150,000 medical institutions in 450 prefecture-level cities across 25 provinces. As its top priority for the next 12 months, Yuhu will continue to increase investment in business development and logistics network construction in an attempt to grab a stake in China’s burgeoning policy-driven primary healthcare market.
The company earns about 95% of general income by serving as a medical products wholesaler and pocketing the difference from corporate purchases. The startup is expanding the business scope and enhancing offerings that include internet-based platforms for online appointments, medical testing, and diagnosis, clinic recommendations, as well as a one-stop cold-chain logistics business that serves clients like third-party medical testing institutions and drug research and development centers.