While vacationing in the US during the Chinese New Year
early February, I attended a Bay Area event organized for VCs (venture
capitalists) and medical device entrepreneurs. I was a bit surprised by the
sentiment voiced by the panelists and the audience that “there is plenty of
venture money available in China”
and “given the tough funding environment in the US,
companies should look to China
for alternative sources of venture money”. “Aren’t the roads there paved with
gold?” a Chief Medical Officer for a Bay Area biotech startup jokingly asked
me. As an active healthcare VC in China in the past few years, I know
this view is far from accurate.
It is not hard to understand why investors and entrepreneurs
might view China
as a bountiful source of financing. At the end of 2010, China held over
$2.8 trillion of forex reserves. The Chinese government has played white knight
in an effort to help stabilize the Euro zone economy, by buying
euro-denominated Portuguese and Spanish debt. These facts have been widely
reported in the US press,
and I’m sure that US biotech entrepreneurs have also heard about the
hyper-active PE (private equity) and VC industries in China.
There is no comprehensive list of all the PE and VC funds with
a focus on China
who are actively investing. However, there are probably over a thousand of
these funds, and it is quite possible that more than half of them probably
raised fresh money over just the past two years. Statistics from ChinaVenture
suggest that such funds raised more than $12.3 billion in 2009, and over $30
billion in 2010 alone.
Moreover, the Chinese government’s 11th and 12th
five-year development plan spanning from 2006-2015 places a high priority on
biotech. As a result, dedicated central government funds have been allotted to
incentivize new drug development, and dozens of biotech parks have sprouted
around major cities to support biotech companies.
So is China
a good place for your biotech startup to look for money? Think again!
Over the past two years, I have come across a fair number of
entrepreneurs from North America and Europe,
with deals ranging from pre-clinical or phase I/II therapeutics to
prototype-stage medical devices. Many of these entrepreneurs had included some
sort of China-related story in their business plan. But most of them have
ultimately not been able to implement the Chinese dimension of their plan, even
after half a dozen trips to China
and many meetings with local investors and bio-parks. As a consequence, they
have left the country empty-handed — though after a series of eye-opening
experiences, and probably a sense of repletion after several elaborate banquets.
So the people I met at the Bay Area event are not so very
different from many bio-entrepreneurs who came to China with high hopes but major
misconceptions. Many of them appear to believe that: 1) there is plenty of VC
money available around China
for biotech startups; and 2) startups can get free funding from the government
and local bio-parks.
Unfortunately, I can tell you that if you are a starving
early stage biotech startup, chances are slim for you to get funded in China.
In next blog post, I’ll be explaining why.
(Karen Liu is a healthcare investor at a leading China based PE
and VC fund. The views and opinions expressed here are entirely personal and may
not represent those of her firm.)