Singapore life sciences firm Esco to seek up to $100m for spin-off fund

Xiang Qian (XQ) Lin, CEO of Esco Lifesciences Group

Singapore-based life sciences technology conglomerate Esco Group, which recently announced an RMB100 million ($15 million) investment in a new innovation centre in China, plans to raise up to $100 million for a spin-off fund that will invest in life sciences startups, a top executive with the firm told this portal.

“Due to the initial track record, and also the expertise we have developed, we are thinking of doing a spin-off fund. Technically, we are now an investment holding company – we do not have a fund. This fund will be very specialized, investing in only certain verticals in the life science space,” Esco chief executive Lin Xiangqian said in an interview.

Lin said the firm was yet to finalise details for the fund, but would ‘leverage the expertise of the parent company (Esco Group) and its existing scientific capabilities’.

“Informally, we have begun sounding off LPs and we will begin talking to anchor investors soon,” he added.

The Esco Group is taking multiple steps to launch this spin-off vehicle, including strengthening its Singapore team and setting up an office in Boston to help identify and source deal flows in the US.

Lin said the group had been investing in startups in the life science space for the last six years and had made its first exit recently.

Last month, the life sciences ecosystem builder had said that it would acquire the remaining shares in medical device developer AT Medical UAB, a portfolio company of the group’s venture investment arm Esco Ventures. That deal also saw Esco Micro Pte Ltd, the primary operating entity of Esco Group, make an undisclosed payment for the remaining shares in AT Medical, and added that acquisition price represented a ~16X ROI multiple on the first investment it had made into the company.

According to him, the new vehicle will stick to making investments across three verticals – women’s health, newborn health and life science tools. The fund will also look to leverage the group’s manufacturing facilities as well as R&D labs in the US, Europe, China and Singapore.

“Esco is already in 100 countries – we are not new to working globally, and we already have a direct presence in manufacturing and R&D in the US, Europe and China. For Esco Ventures, we are currently setting up an office in Boston, and we have three advisors on the ground there,” he added.

Edited Excerpts:

What do you think are the gaps or opportunities in this space for you to be setting up a fund?

If you look at global venture investments, two sectors stand out – TMT and healthcare. Under healthcare, biotech stands out. Needless to say, there is a lot of liquidity available in SEA, and there is a lot of interest into investing in healthcare, but this requires very specific expertise – in particular, scientific, clinical, and multidisciplinary skill sets. So I think there is room for such new funds to fulfil this need. Family offices and institutional investors are all wanting to be in this space. Another observation is that in SEA as a region for healthcare, both demand and consumption are growing. It is still a nascent market with many opportunities. Obviously, there are local funds that are investing in services, but clearly, there are a lot of opportunities on the product side.

We are now seeing the first of the healthcare funds in the VC space coming up in SEA. The PEs have been doing larger healthcare deals, including hospital chains and pharma companies. For VCs, how mature is the healthcare sector in SEA?

This region is very nascent, and the challenge is that SEA, in general, is very heterogeneous. It does not necessarily have the most innovative technologies and is more like import substitution. Then obviously, in this region, you have quite a few established generic manufacturing sectors, and you have a lot of distribution type of businesses. We are also seeing a lot of intra-region-connectivity within SEA, and Singapore has a role to play in facilitating this.

We are seeing the initial seeds being planted in health-tech and digital health – it’s still very early, but I think there are opportunities in the products space. Esco is a global business but as an SEA-based company, we have unique insights and capabilities that we could perhaps leverage within a fund structure. With external capital, we will be able to pursue these products in healthcare – we are exploring these themes right now. Globally, it will be looking into three verticals – women’s health, newborn health and life science tools.

Esco’s products are sold in over 100 countries  – investing in life sciences globally can be one potential angle for the spin-off fund. Another angle would be to invest in the SEA healthcare space. Here, import substitution is the theme – it is similar to China about 10-15 years ago. The Chinese began doing basic copycat, then built up the business gradually and hit revenues and profits, and are now investing in innovation

Is talent a challenge in building healthcare ventures in SEA?

For healthcare products, we are not talking high-tech. Some of the existing generations of biotech products, medical devices and diagnostics – these are not very high tech. Obviously, talent has been an issue, but I think that is changing, and we are just on the dawn of this sector taking off. My third observation is that we are now seeing a very interesting phase of Singapore-based tech companies in the healthcare space – Tesa Therapeutics recently raised $130 million. We don’t have any biotech unicorns in Singapore, and maybe, we can have one in the future. Thanks to our government,  Singapore has a very strong scientific infrastructure in place. What is lacking is maybe entrepreneurial vehicles.

While Singapore has done well when it comes to R&D, is churning out successful companies the next step for this country?

Companies that are launched here in the life sciences space must have a global focus from day one – their main markets have to be US and China. The life sciences market is very global and it needs very deep domain expertise – so it’s also about understanding what are the various motivations of the different actors. For instance, if you are a biotech startup or investor, it is about knowing when global giants will want to buy this asset, and from an early stage, how do you fund yourself to get to that point. We are seeing promising signs that startups in Singapore will be able to mature and actually prove themselves.

Specifically, for Esco, we have a separate team which is funded by the parent company. This team is working on venture creation and incubation. This group may be one of the very few private sector translational vehicles focusing on biotech in Singapore. Within that group, we have Esco Ventures X, where we are actually identifying platform technologies that meet specific medical needs, and we are filtering them. We then scout for these technologies locally and globally, and fund them as a project, and see whether the scientific hypothesis is panning out, and if so, it gets launched into an early stage company that we provide funding for up to $5 million. The challenge is that there are a limited number of true platform technologies in the local academic system, so we have to discover these. In some cases, we have to bring in technology or the IP from other countries.

What are the other challenges for Singapore in this sector? You said that capital and talent are not the primary challenges.

Academic talent is there, but it is still quite different from the entrepreneurial talent that you need. At Esco Ventures X, we have launched a fellowship programme to bring in post-doctorates to help them explore spaces outside of the classical academic pathway. We are training them to be entrepreneurial so that they can be the next generation of biotech founders.

Will you be looking to invest in markets like the US too? Do you see yourself joining hands with other Singaporean funds or regional VCs to do global deals?

We have invested in startups that are in the US, Israel and elsewhere. We will also look at doing deals jointly with local VCs who are looking into this sector. The parent firm has five manufacturing facilities around the world – US, Europe, China and we can manufacture locally here as well. The group has innovation and R&D labs too in the US, Europe, China and locally here in Singapore too.

So will the US and China be your focus areas?

Definitely. For life sciences, it is very globalised. Our legacy or tradition has been that we are a global company, and our main markets are US and China, while SEA is our home. Recently the parent company has announced a hundred million RMB investment for building a new innovation centre and manufacturing facility in China. This is still one aspect that is still very close to our heart.

On the other hand, we are also seeing the rise of SEA as a future investment region. Large institutional investors are beginning to get interested in this region. So there could be many opportunities for us to leverage our capabilities. We are living in a historic age where most of humanity has their basic needs and wants covered, so everyone wants to live healthier and longer. We are also privileged because there are so many biological insights coming from academia around the world, and there is a unique opportunity to translate these insights into therapeutics, healthcare products, biotech or medical device products. These can be built into viable businesses.

Sitting in Singapore, how can you compete for the best of healthcare deals in China or the US? The companies doing well in this space have no shortage of investors.

We will be looking at very focused and specialised areas – women’s health, newborn health and life science tools – as these are areas that the parent company has competencies and expertise in, and there is no fund in the world that is focused on these areas now.

Esco is already in 100 countries – we are not new to working globally, and already we have a direct presence in manufacturing and R&D in the US, Europe and China. For Esco Ventures, we are currently setting up an office in Boston, and we have three advisors on the ground there. For this new potential fund, we will need to invest globally.

How will this new fund be structured? Since healthcare and life sciences take time to mature as a business, will you look at a longer fund life?

We are targeting to raise $100 million. The fund life will be at least 8 years, which is reasonable. Secondly, we are seeing some interesting opportunities in the under-served markets like the second-tier regions in the US, as well as outside the classical hotspot in Europe – there are many attractive clinical-stage companies that are in phase-1, where we can exit in 3-5 years. You obviously need to know the business and need to know how to pick the right businesses to invest in.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.