Despite the adverse impacts of the COVID-19 crisis, Eight Roads has doubled its investments in areas of healthcare and technology in China this year compared to 2020. To keep pace with the rapidly developing market, the global venture capitalist launched a $400 million China-focused healthcare fund in June this year and is currently in the process of raising a new tech fund.
“We have doubled our team, and have been growing our platform carefully to better deploy the larger pool of capital we have been granted recently,” said Eight Roads managing partner and head of China Jarlon Tsang.
Eight Roads China Ventures, backed by Fidelity, has over $2 billion in assets under management and eight funds. Over the past 25 years in the country, the venture capital (VC) firm has invested over $1.1 billion in around 130 venture stage companies – including over 60 healthcare startups.
Its portfolio companies include Innovent Biologics, which develops drugs for the treatment of oncology; AI platform for drug development Insilico Medicine; and Semma Therapeutics, which makes transformative therapies for Type 1 diabetes patients, among others.
Edited excerpts from an interview with Tsang:
Could you take us through the venture capital firm’s China funds? Are there any new fundraising plans on the radar?
Eight Roads has operated business in China for over 25 years. For a long time, China Fund had been one fund through which we invested in the healthcare and technology sectors. A few years ago, we split them into two independent funds and started having two separate teams.
Earlier in June this year, we launched a $400 million Eight Roads China Healthcare Fund V in a bid to tap early-stage opportunities in therapeutics, medtech, healthcare services, healthcare IT and digital health. And now we are proceeding to launch our fifth tech fund.
This year Eight Roads has made quite a few healthcare investments in China? Has COVID helped create new opportunities?
Yes, we are much more active this year. The first reason why the market is active is because of the COVID-19 crisis. The second reason is China is trying to shift from the idea of bringing drugs from outside to it within the country. We’ve seen top scientists coming back to China to develop new drugs for the domestic market and for the world. I think the industry will slowly catch up to the international level as technology develops.
In terms of deal numbers, I think we’ve doubled our deployment. Part of the reason is that a lot of deals from last year have been pushed to this year, meaning late last year’s deal flow was really slow as there were concerns in the middle of the pandemic.
For us, what is more critical and impressive is that divestments have also nearly doubled from last year, which goes on to signify that companies have gone for IPOs that have provided us the option to score exits.
In the healthcare space, Eight Roads is known for its investments in companies focusing on rare diseases?
Rare diseases don’t mean there are lots of patients, but life-threatening ones. Each of the rare diseases is a small market that almost no big drug players want to take risks with. Thus, we believe there are huge demands within the segment when looking at treatments firms provide.
The Chinese government understands that so it facilitates new drug application and approval, clinical study, and BMI system.
We set up a company called RareStone Group, which is a rare disease platform where we bring in well-developed, clinically-proven drugs and therapeutic treatments.
Within the healthcare umbrella, which are the other segments Eight Roads is betting big on?
We mainly focus on four verticals. The first one is healthcare IT that includes digital therapeutics, followed by medtech. The third one is healthcare services such as hospitals, clinics and chains, and the last one is therapeutics.
Given that China’s healthcare market is very sought after, have you seen any competition or bubble in general?
There is always competition, but Eight Roads is one of the few firms which has made successful investments in all four spaces. While firms do focus on some of the segments, it’s very rare to have one firm dominate all four spaces.
In terms of bubbles or risks, we can say that we’re not worried about high valuation. Mostly, we invest in early-stage companies.
Tell us about your tech investments. That’s one area that you are betting big on, after healthcare.
We’ve always been more focused on the developing middle class, so we do consumer, hardcore consumer and digitalization. Meanwhile, we’re very focused on B2B that links to hardcore ‘enterprise tech’, software-as-a-service (SaaS), and cloud. We call it ‘enterprise IT’ because it’s really hardcore technology that helps companies run more efficiently.
Tech investments have always evinced significant investor interest. So, how do you differentiate between markets?
I feel everything is a bit of a cycle. The US is a very well-developed innovation market. Europe comes after that as it’s fragmented, although it is also quite strong. Now, China equals Europe and maybe it’s catching up with the US too. Besides great education, overseas talent is returning to the country, and entrepreneurship is emerging, China has a very huge homogeneous market. Actually, the US, China and India are only three huge homogeneous markets that are driven around innovation.
You mentioned India. What are your plans for the country?
India’s coming up the curve as well. It has the education level and lots of engineers, but it hasn’t had big successes yet. The strategy that is followed by our India team is very similar to what we are doing in China. They conduct healthcare investments across four categories alongside technology – ‘enterprise tech’, B2B, SaaS, and 5G network.
And what is your take on the Southeast Asian market?
Southeast Asia is not a homogeneous market with one language and one country – that makes it complicated to invest there. However, we think Indonesia could be the next big market due to its big population – fintech is one sector that could be interesting to us there.
The year is on the verge of ending. What is your forecast for Eight Roads’ coming year?
In general, I think the pace of investment will slow down a bit compared to this year. On the one hand, there are some headwinds with policy climate, inflation, real estate prices crashing, so investors will become more cautious. On the other hand, one of the reasons why this year the investment landscape thrived is because a lot of deals got carried over from last year.