Investing in the Right Start-Ups: a Decision-Making Model ...

Investing in the Right Start-Ups: aDecision-Making Model for Chinese

Venture Capital Investment inPrecision Oncology in the United States

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Citation Si, Wen. 2020. Investing in the Right Start-Ups: a Decision-MakingModel for Chinese Venture Capital Investment in Precision Oncologyin the United States. Doctoral dissertation, Harvard T.H. ChanSchool of Public Health.

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INVESTING IN THE RIGHT START-UPS:

A DECISION-MAKING MODEL FOR CHINESE VENTURE CAPITAL INVESTMENT

IN PRECISION ONCOLOGY IN THE UNITED STATES

WEN SI

A Doctoral Thesis Submitted to the Faculty of

The Harvard T.H. Chan School of Public Health

in Partial Fulfillment of the Requirements

for the Degree of Doctor of Public Health

Harvard University

Boston, Massachusetts.

May, 2020

ii

Thesis Advisor: Richard Siegrist Wen Si

Investing in the Right Start-ups: A Decision-Making Model for Chinese Venture Capital

Investment in Precision Oncology in the United States

ABSTRACT

Precision oncology aims to combat cancer through targeted, personalized

medicine, while technology transfer helps to translate knowledge in the field of precision

oncology from research to practice; venture capital is the underlying funding source that

supports and enables this process. With the booming venture capital industry in China,

there is an increasing interest among Chinese venture capital investors to invest in

precision oncology start-ups in the United States.

This project examines the trends of Chinese venture capital investment in start-

ups in the United States that focus on precision oncology. The overall objective is to

learn about the purposes and preferences of Chinese venture capital firms, and to

develop a model of decision-making on cross-border venture capital investment; this

model should help Chinese venture capital investors to improve the targeting of

investments and to enhance the effectiveness of technology transfer.

A mixed-method research approach was adopted and included a significant

literature review, secondary data analysis on 680 deals involved Chinese venture capital

investment in healthcare in the United States, and 41 elite interviews of venture capital

investors in both China and the United States. A model of decision-making on cross-

border venture capital investment was developed based on the analytical findings and is

presented as the “3M Model”. The three critical components of the 3M model are

iii

Macro-environment, Motivation, and Match (demand-supply). In addition, 4 toolkits

were developed to help investors apply the model when making investment decisions in

start-ups that focus on precision oncology in the United States.

iv

TABLE OF CONTENTS

ABSTRACT …………………………………………………………………………………………………………. ii

LIST OF FIGURES WITH CAPTIONS………………………………………………………….…….…. vii

LIST OF TABLES WITH CAPTIONS…………………………………………………………...……..….. ix

ACKNOWLEDGMENT……………………………………………………………..…………..………..…..… x

1. INTRODUCTION…………………………………………………………………………………………….. 1

1.1 A Heavy Disease Burden………………………………………………………………….…………..… 1

1.2 Precision Medicine………………………………………………………………………………………... 2

1.3 Venture Capital…………………………………………………………………………………………..... 4

2. ANALYTICAL PLATFORM………………………………………………………………………………. 7

2.1 Problem Context and Literature Review………………………………………………………….. 7

2.1.1 Precision oncology……………………………………………………………………………………. 7

2.1.2 China’s venture capital………………………………………………………………………….… 10

2.2 Research Question……………………………………………………………………….………………. 16

2.3 Project Goals……………………………………………………………………………………………..… 16

2.4 Macro-picture Framework…………………………………………………………………..……….. 17

2.5 Methods……………………………………………………………………………………………………… 19

2.5.1 Study settings and design………………………………………………………………………… 19

2.5.2 Data sampling and collection…………………………………………………………………… 20

2.6 Analysis……………………………………………………………………………………………..………. 24

2.6.1 Statistical analysis………………………………………………………………………………….. 24

2.6.2 Thematic analysis…………………………………………………………………………………… 25

2.6.3 The inductive approach…………………………………………………………………………… 26

2.7 Ethical Considerations…………………………………………………………………………………. 26

v

3. RESULTS STATEMENT………………………………………………………………………………… 27

3.1 The Quantitative Results: Contextual Information…………………………………………. 27

3.1.1 Geographic distribution………………………………………………………………………….. 28

3.1.2 Chinese VC investment in the US healthcare…………………………………………….. 28

3.1.3 Chinese VC investment in the US in precision medicine and precision

oncology……………………………………………………………………………………………….. 30

3.2 Qualitative Results: Development of the 3M Model………………………………………… 33

3.2.1 The process of induction……………………………..………………………………………….. 34

3.2.2 Themes in M-1: Macro-environment………………………………………………………… 35

3.2.3 Themes in M-2: Motivation……………………………………………………………..……… 40

3.2.4 Themes in M-3: Match-demand………………………………………………………………. 44

3.2.5 Themes in M-3: Match-supply…………………………………………………………………. 52

4. KNOWLEDGE GENERATION: THE 3M MODEL………………..…………………..……… 58

4.1 Description of the 3M Model…………………………………………………………….………….. 59

4.2 Purpose of the 3M Model………………………………………………..…………………………… 60

4.3 Scope of the 3M Model…………………………………………………………………………………. 61

4.4 Discussion on the 3M Model…………………………………………………………………………. 61

4.4.1 M-1: Macro-environment…………………………………………..……………………………. 62

4.4.2 M-2: Motivation…………………………………………………..………………………………… 65

4.4.3 M-3: Match demand and supply………………………………………………………………. 66

4.4.4 Relationship among the three components……………………………………………….. 71

4.5 Application of the 3M Model………………………………………………………..………………. 72

4.5.1 A toolkit for M-1: Macro-environment………………………………………..……………. 72

4.5.2 A toolkit for M-2: Motivation…………………………………………………………………… 73

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4.5.3 Toolkits for M-3: Match………………………………………………………………………….. 74

5. CONCLUSION………………………………………………………………………………………………. 79

5.1 Project Review……………………………………………………………………………………….……. 79

5.1.1 The primary trends of Chinese VC investment in precision oncology in the US

over the past two decades………………………………………………………..……………... 80

5.1.2 The purposes and preferences of the Chinese VC in investing in precision

oncology………………………………………………………………………………………………… 82

5.1.3 The 3M model of cross-border VC investment decision-making……..………….. 83

5.2 Limitations…………………………………………………………………………………………………. 84

5.2.1 In project design…………………………………………………………………………………….. 84

5.2.2 In project implementation………………………………………………………………………. 85

5.3 Implications of the Project……………………………………………………………………..……. 86

5.3.1 Contribution of the project…………………………………………………….………………… 87

5.3.2 Future exploration………………………………………………………………….………………. 87

5.3.3 Enhancing the effectiveness of technology transfer to serve the ultimate goal of

improving people’s health………………………………………………………………………. 88

6. BIBLIOGRAPHY…………………………………………………………………………………………… 91

7. APPENDICES………………………………………………….…………………………………………. 104

7.1 Tables……………………………………………………………………………………….……………… 104

7.2 One-page Introduction (Bilingual) …………………………………………….……………….. 111

7.3 Interview Topic Guide (Bilingual)……………………………………………………………….. 113

7.4 Interview Guide (Bilingual).……………………………………………………………………….. 115

7.5 Abbreviations.…………………………………………………………………………………………… 119

7.6 Glossary and Definition.…………………………………………………………………………….. 120

vii

LIST OF FIGURES WITH CAPTIONS

Figure 1: Chinese venture investment in the US - the number of deals by year.

Figure 2: the number of registered Likely Precision Medicines trials in the US by phase.

Figure 3: China’s venture fundraising climbs to US levels.

Figure 4: a schematic diagram of a national innovation system.

Figure 5: the project design and methodology.

Figure 6: the process of data cleaning.

Figure 7: Chinese VC involvement in US healthcare deals – number and % share by year.

Figure 8: Chinese VC involvement in US healthcare deals – deal size in total and % share

by year.

Figure 9: Chinese VC involvement in US healthcare deals – the average deal size and

comparison by year.

Figure 10: Chinese VC involvement in US in precision medicine and precision oncology -

the number of deals by year.


deal size in total (million $) by year.


the average deal size (million $) by year.

Figure 13: distribution of deals involved Chinese VC investment in each primary

industry in the US in precision medicine and precision oncology (year: 2000-

2019).

Figure 14: the number of deals involved Chinese VC investment in each stage in the US

healthcare (year: 2000-2019).

Figure 15: a list of the 14 themes from the thematic analysis.

viii

Figure 16: evidence and mapping themes to develop the model.

Figure 17-1: the 3M model.

Figure 17-2: a toolkit for the Macro-environment component.

Figure 17-3. a toolkit for the Motivation component.

Figure 17-4a: a toolkit for the Match-demand component, investment timing.

Figure 17-4b: a toolkit for the Match-demand component, criteria for start-up selection.

Figure 17-4c: a toolkit for the Match-demand component, VC value-added.

Figure 17-5a: a toolkit for the Match-supply component, types of technology.

Figure 17-5b: a toolkit for the Match-supply component, functionalities that Chinese VC

investors prefer.

Figure 17-5c: a toolkit for the Match-supply component, illustrations of the cancer

specifics.

ix

LIST OF TABLES WITH CAPTIONS

Table 1: description of the dataset and relevant indicators.

Table 2: data segmentation in the database.

Table 3: information of the participants.

Table 4: the number of deals involved Chinese VC in the US healthcare (year: 2000-

2019).

Table 5: distribution of deals involved Chinese VC investment in the US (the number of

deals by state, year: 2000-2019).

x

ACKNOWLEDGMENT

I would like to convey my gratitude to the people who contributed in different

ways to this project.

First of all, I want to express my great appreciation to my thesis committee

members: Professors Richard Siegrist, William Bean, and Liming Wang, for your

academic guidance on my thesis project, and your tremendous support to me. I’m

deeply inspired by your being professionals with remarkable insights and role models

with caring hearts for students, immense passion for teaching, and rigorous attitude

towards research.

I also want to sincerely thank Douglas Corley, for your continuous efforts devoted

to facilitating the completion of this project. And I would like to pay special regards to

all the interviewees: thank you very much for your participation. I’ve learned and

benefited a lot from your professional experiences and diverse opinions.

I wish to express my heartfelt thanks to Susan Madden for your constructive

comments and substantial assistance in helping me revise the thesis draft; to Emma

Aveling, and my classmates Amy Bantham, Bryan Buckley, Gillian Christie, Maryam

Khalid and Tariana Little, for your valuable advice and illuminating thoughts on

qualitative methodology; to my executive coaches Fawn Phelps, Anne Litwin and

Deborah Langstaff, as well as my peer coaches Hector Carrasco, Obiageli Okafor, Kojo

Nimako and Mohd Lutfi Fadil Bin Lokman, for your trust and confidence in me, and

your support and encouragement to me; to Kimberlyn Leary and Jocelyn Chu, Aria

Xuemei Jin and Gary Williams: your spearing no effects in this program and beyond

have greatly facilitated my study and living in this beautiful city of Boston.

xi

I have been fortunate to be admitted to Harvard University, and I am grateful to

the faculty and staff at T. H. Chan School of Public Health, especially to my academic

advisor Professor Winnie Chi-Man Yip, for guiding me through my time at Harvard in

both academics and life. It’s my honor having met my classmates Ahmad Alkasir, Chia

En Lien, Anuoluwa Ishola, Dominique Rouleau, Eric Coles, Stephanie Kang, Terrol

Graham and Vannessa Harrison: your broad vision, rich experiences, and innovative

ideas have enlightened my thinking and enriched my life.

Last but not least, I’m extremely grateful to my family: my parents, my parents-

in-law, and the very special person in my life: my husband Shuai Cheng. I want to thank

my parents-in-law: your being visionary and considerate have highly empowered me. I

want to thank my parents for all the happiness you have brought to me and all the

principles you have taught me since I was a child. I want to thank my lovely and beloved

husband, who has always been there with me: your charisma, wisdom and optimism

always bring me hope, joy, courage and strength to move forward! I’m so lucky to have

such a caring family, without your unconditional love and support, I would not have

been here. I dedicate this milestone in my life to them.

1

1. INTRODUCTION

For decades, cancer has remained a substantial threat to public health. Precision

0ncology, a sub-field of precision medicine, is an innovative approach to cancer

treatment that aims to combat cancer with personalized medicine and care. Although

tremendous progress has been made in precision oncology, technology transfer is

urgently needed to help disseminate that knowledge from research centers to clinical

practice throughout the world. Thus, finding ways to fund technology transfer efforts

is of great significance. Venture capital (VC), being a critical funding source for

technology transfer in healthcare can contribute to conquering cancer by facilitating

the provision and dissemination of innovative solutions to cancer screening,

diagnosis, and treatment. This project looks at the trends in Chinese VC investments

in precision oncology in the United States (US), to learn about the purposes and

preferences of the Chinese VC firms, and to propose a model of cross-border VC

investment decision-making for Chinese VC investors to enhance the effectiveness of

technology transfer.

1.1 A Heavy Disease Burden

2

Cancer, the second biggest cause of death globally, accounted for 9.6 million

deaths worldwide in 2018 (World Health Organization, 2018), of which 2.87 million

occurred in China and 616 thousand occurred in the US (Global Cancer Observatory,

2019). In that same year, there were 4.3 million new cancer cases in China, and 2.1

million in the US; lung, gastric and liver cancers were the top three fatal types in

China, and in the US, lung, pancreas and colon cancers had the highest mortality

(Global Cancer Observatory, 2019).

1.2 Precision Medicine

Precision medicine is a promising new field of research innovation in the world’s

evolving efforts to combat cancer; aims to deliver “the right drug to the right patient

at the right time” (Pothier, 2017, Chapter 1 & 17). Advancements in precision

medicine have been fueled by developments in immunotherapy (Jameson & Longo,

2015, see glossary in appendix 7.6), statistical learning (Perumbakkam & Kohl,

2018), nano-particles (Jacob & Deigner, 2018), next generation sequencing

(Dhawan, 2017, see glossary in appendix 7.6), gene editing (Pothier, 2017, Chapter

15) and disease detection (Zhang et al., 2018), all of which have significantly boosted

3

the discovery and development of new drugs, biomarkers, and companion

diagnostics, as well as medical devices and instruments.

Precision oncology, where much of the work in precision medicine is focused,

seeks to provide cancer patients with personalized care based on an understanding of

the genetics and genomics (see glossary in appendix 7.6) of the disease (National

Cancer Institute, 2017). The scope of precision oncology includes early detection,

diagnosis, treatment, and prognosis prediction (Price, Chau & Longo, 2017).

In 2015, the US federal government launched its $215 million Precision Medicine

Initiative1 (Bahcall, 2015) to fund research that focused on gene therapies,

pharmacogenetics, and real-world patient data (Hodson, 2016). The following year,

in 2016, China started its 15-year precision medicine initiative with a preliminary

budget of $9.3 billion in government investment in projects on genome sequencing,

biomarker detection, and clinical data acquisition (Cyranoski, 2016). Research and

1 The US Precision Medicine Initiative was announced by US President Obama in 2015 to promote

research on innovative approaches to provide personalized care to patients.

https://obamawhitehouse.archives.gov/precision-medicine

4

development (R&D) in precision medicine has also been included in China’s 13th

Five-year Plan2 as a critical component of its strategy for emerging industries (State

Council of China 2016, Chapter 23).

1.3 Venture Capital

Sustained funding is vital to technology transfer (Abramovitz et al., 2019,

Chapter 53) in precision medicine worldwide. Historically, investment by VC funds

have been a key source of financial support for entrepreneurial start-ups as well as

providing other value-added resources (Leong, Tan & Leong, 2014). In the past

decade, over 1000 VC deals in healthcare were made in the US annually, and in 2018,

these VC investments in healthcare (see definition in appendix 7.6), including in

biotechnology and pharmaceuticals, comprised over one-fifth of the total VC

investments in the US (Pitchbook-National Venture Capital Association, 2019). The

US healthcare VC raised a record-high fund of $9.6 billion in total (Silicon Valley

2 China’s Five-year Plan: 2016-2020, includes the goals and strategies for China to achieve social and

economic development within the five-year period. The first Five-year Plan was initiated in 1953.

http://www.chinadaily.com.cn/china/2015cpcplenarysession/2015-10/29/content_22311061.htm

5

Bank, 2019) in the year of 2018.

Compared with other investment forms, such as acquisition and greenfield

investment, VC accounted for one-third of the total Chinese investment in the US in

2017, and it is the driving force for the recent growth in the number of Chinses

investment in the US (Kazmierczak et al., 2019, Chapter 3). The graph below (Figure

1) illustrates the growth in the number of China’s VC investments in the US since

2010; the number of these deals doubled in 2014 and has maintained a steady

growth since. In 2017, China's investments in the US healthcare industry increased

by 161%, in contrast to a total of 35% decrease in investments in real estate,

hospitality and entertainment; among the Chinese investments in the US in

biotechnology, 29% of the funding came from VC.

Figure 1: Chinese venture investment in the US - the number of deals by year.

Source: Gonzales & Ohara, 2019.

6

What is noteworthy is that according to Kazmierczak et al. (2019, Chapter 3),

over 70% of the Chinese investments in the US, including VC, are made for strategic

purposes, i.e., for future business integration, long-term development, and accessing

new markets outside China, rather than for short- or medium-term financial return.

It is probable that achieving specific strategic purposes is a significant component of

the goals of Chinese VC investment in the US healthcare industry. This provides

insight into some of the background behind the increasing interest among the

Chinese VC firms for investing in precision medicine start-ups in the US.

The next section, the Analytical Platform, introduces the context for this project

with a supporting literature review. The research question and project goals are then

stated, followed by the demonstration of the framework of technology transfer, which

underpins the overall project design. Quantitative and qualitative methods are used

to provide solid evidence for model development; and the descriptive statistics and

themes from the qualitative analysis are presented in the Results Statement section,

which further lead to the introduction of the 3M model with a subsequent discussion

of its application in the Knowledge Generation section. Lastly, in the Conclusion

7

section, key findings and main takeaways from this project are summarized, leading

to the broader implications of the project in public health.

2. ANALYTICAL PLATFORM

This section describes the problem context with a literature review focused on

two aspects: the advancements made in precision oncology; and the development of

the Chinese VC industry. The research question and project goals are then stated,

followed by the framework of technology transfer. Research methods used in this

project include a mixed-method, and the inductive approach for model development.

2.1 Problem Context and Literature Review

2.1.1 Precision oncology

The current approaches to cancer treatment face many challenges. A major one is

that patients have varied and inconsistent responses to traditional treatment

protocols, partially due to differences in cancer genotypes (Kaur et al., 2017).

Another is that we currently have limited knowledge of the relationship between the

cancer genotype and its associated clinical phenotype (Kaur et al., 2017).

8

Precision oncology offers one potential solution. Just as cancer is complex and

heterogeneous, precision oncology itself is interdisciplinary in its approach, and is

closely intertwined with multi-omics (Eyk & Sobhani, 2018), including proteomics,

transcriptomics, genomics (Martinelli & Foreman, 2015) and pharmacogenomics

(Pacanowski & Huang, 2016, see glossary in appendix 7.6). the following are critical

trends in precision oncology:

1) Immunotherapy is gaining attention (Kumar, 2019, Chapter 52). Research in the

use of antibodies, identifying immune checkpoint pathways, and the use of

autologous T-cells to develop diagnostics and therapeutics (Jameson & Longo,

2015) is very promising and is attracting intense interest.

2) Recent research is shifting focus onto identifying and targeting the signal

pathways, and developing monoclonal antibodies, and small-molecule

compounds, and away from the previous focus on inhibiting DNA synthesis and

mitosis of the cancer cells (Basu, Mukhopadhyay & Konishi, 2018).

3) Molecular diagnostics is indispensable to precision oncology approaches, and

include such methods as next generation sequencing, microarrays, and PCR-

9

based methods (Kaur et al., 2017).

4) Next generation sequencing is integrated with logarithmic bioinformatics tools to

better understand cancer genotypes (Friedman et al., 2015) and to profile them

more accurately. In particular, this involves combining big data (Frey, Bernstam

& Denny, 2016), mobile health/eHealth (Jameson & Longo, 2015, Mohler et al.,

2015), and machine learning to develop new models and algorithms derived from

both real-world and multi-omics data in order to assist with diagnosis and

prediction (Lin & Tsai, 2017).

5) The usage of biomarkers in clinical trials could be further developed into effective

targeted therapeutics (Chandra, Garthwaite & Stern, 2018).

In recent years, the number of clinical trials to test these approaches has

increased. In 2016, there were over 12,000 clinical trials worldwide; 30% of these

were conducted in the US, of which 57% (about 2300 trials) employed biomarkers.

Among the trials conducted in 2016 worldwide, 10% (about 1200 trials) were for

Likely Precision Medicines (Chandra, Garthwaite & Stern, 2018, see definition in

appendix 7.6), and about 900 trials were for cancer indication. In the same year,

10

there were 600 trials for Likely Precision Medicines in the US, and almost half of

them were in Phase I (Figure 2); 75% of them were for cancer indication (Chandra,

Garthwaite & Stern, 2018). Thus, Chandra, Stern & Garthwaite (2018) summarize

the following: cancer therapeutics are more likely to be the future application of

precision medicine; the US is ahead of other countries by at least 2 to 3 years in

developing Likely Precision Medicines; and Likely Precision Medicines trials are

more likely to happen in the US.

Figure 2: the number of registered Likely Precision Medicines trials in the US by phase.

Source: Chandra, Garthwaite & Stern, 2018, pp. 33.

2.1.2 China’s venture capital

The growth of China’s VC industry is occurring under a set of political and

economic incentives (Ahlstrom, Bruton & Yeh, 2007). In 1986, China’s first VC firm

11

was founded in response to the positive signals from the central government to

promote the development of high-technology industries (China Ministry of Science

and Technology, 2009). In the 1990s, some local authorities, echoing the national

policy that encouraged local governments to launch VC funds, incorporated VC firms

in their high-technology parks/zones to support the start-ups there (State Council of

China, 1991). By 1999, there were over 100 VC firms nationwide, managing $1.1

billion in funds (China Yearbook, 2001). In the same year, a policy of building a

national VC system was proposed by the China National Democratic Construction

Association to the central government (Chinese People's Political Consultative

Conference, 2008), after which, both foreign and domestic VC investment grew in

China (Zhang, 2014). In 2007, the total volume of China’s VC funds grew to over $5

billion, and by 2010, it had doubled to over $10 billion (Hardin, 2017).

In 2015, the State Council of China (2015a) announced the Made in China 20253

3 Made in China 2025: was announced by Chinese Premier Li Keqiang in May 2015. It is a strategic

plan for China to upgrade its manufacturing and industry towards producing higher-value products

and services. http://english.www.gov.cn/2016special/madeinchina2025/

12

strategy, aiming to boost the country’s manufacturing by focusing on development in

high-technology fields, including the pharmaceutical industry (Torrey, 2018),

information technology, and robotics. In the same year, the State Council of China

(2015b) promulgated guidelines for promoting entrepreneurship and innovation,

which greatly encouraged the development of start-ups and incubators based on the

flourishing Internet industry. Since 2017, there have been a series of governmental

policies favoring and invigorating Chinese overseas investment (Ernst & Young,

2018). Due to the policy stimulus, the booming domestic private sectors, and the vast

market demand, the Chinese VC industry grew dramatically, and raised an estimated

funds of $40-50 billion in 2016 (Lu, Chen & Fu, 2018, Hardin, 2017, Figure 3); while

there were also concerns over the sustainability of this boom (Macfarlane, 2018).

Figure 3: China’s venture fundraising climbs to US levels. Source: Hardin, 2017.

13

Even as the Chinese VC industry was thriving, serious challenges continued to

exist:

1) In sharp contrast with the recent skyrocketing growth in VC funds, the number of

innovative start-ups in China did not increase proportionately. Thus, there were

large amounts of capital hunting among a small number of quality projects in

China (Huang & Jiang, 2019).

2) As Chinese VC firms sought to broaden their investments and diversify their

portfolios, there were not enough professionals with specific knowledge of

precision medicine to conduct quality due diligence (Huang & Jiang,2019).

3) The Chinese VC industry is facing challenges in fund-raising (Lu, Chen & Fu,

2018, Chen & Chan, 2019) as government funding in VC are decreasing.

4) As China continues to open up its financial market, the inflow of foreign capital is

intensifying the competition in the VC market (Lu, Chen & Fu, 2018).

5) China needs to continue improving its VC ecosystem by managing risk tolerance,

advancing overall management capability (Lu, Chen & Fu, 2018), and

accelerating legislation to cover such aspects of the industry as the mechanism for

14

exiting investment (Zhang, 2012, 2014).

One of the solutions to addressing some of these challenges is to invest overseas,

although many Chinese VC investors are not currently familiar with cross-border

investment. This solution offers more options for Chinese VC firms to diversify their

portfolios. Also, investing in foreign start-ups in their areas of interest, such as

biotechnology, provides access to these foreign markets and their intellectual

property, both of which are strong interests for Chinese VC investors (Kazmierczak et

al., 2019). In the meantime, many foreign start-ups are eager to cooperate with

Chinese VC firms, hoping to access the massive Chinese market (Blachman, 2018).

On the other hand, the US, being the world’s leader in technology and the largest

VC market, has attracted the world’s attention and capital (Groh et al., 2018). In

2018, 15-20% of the total number of VC deals made in the US related to healthcare,

and the deal size in total reached around $23-30 billion (Mathur, 2019, Pitchbook-

National Venture Capital Association, 2019), including a record-high influx of China

funds (Hancock & Kuchler, 2019). Liu (2014) mentions that it is natural for Chinese

VC firms, especially those that have been successful domestically to go out seeking

15

opportunities that are “economically profitable," as there are many innovative start-

ups in the US. Chinese investors also want to bring new technologies to the Chinese

market.

However, Chinese investors appear to have a different strategy to their

investment approaches when investing in the US (Ahlstrom, Bruton & Yeh, 2007):

1) Chinese VC firms appear to have a strong preference for investing in early-stage

companies in the US (Gonzales & Ohara, 2019). In 2010-2017, 79% of the Chinese

VC investment in the US was in early-stage start-ups; in contrast, 60% (on

average) of all US-based VC investments were made in early-stage start-ups

(Gonzales & Ohara, 2019).

2) Liu's study (2014) on Chinese VC investment in the Silicon Valley suggests that

the American VC culture, which is entrepreneur-centric, gives start-ups more

autonomy in decision-making; while Chinese VC investors are likely to be

control-based, preferring to use board seats, veto rights and stock options to

influence decision-making in start-ups and to protect the interests of the

investors.

16

3) Zhang (2012) indicates that Chinese VC investors have a lower level of risk

tolerance. However, this contradicts the data that shows that Chinese VC firms

invested at an above-average level in early-stage companies in the US, if early-

stage investment is taken as an indicator to reflect risk tolerance (Zhang, 2012).

4) Some Chinese VC investors prefer start-ups with a Chinese co-founder, which

may facilitate bringing products to the Chinese market (Liu, 2014).

2.2 Research Question

As shown in the literature review, there are strong interests among the Chinese

VC firms to invest in precision oncology in the US. To improve the targeting of

investments and to enhance the effectiveness of technology transfer, this project

explores the following research question:

How should Chinese venture capital make better decisions in investing in

precision oncology start-ups in the US to improve the targeting of the investments

and enhance the effectiveness of related technology transfer?

2.3 Project Goals

To answer this research question, this project takes the following three steps:

17

1) Summarizes the primary trends of Chinese VC investment in the US in precision

oncology in the past two decades;

2) Identifies the purposes and preferences of the Chinese VC firms in investing in

precision oncology; and

3) Develops a model of cross-border VC investment decision-making in precision

oncology for Chinese VC investors.

2.4 Macro-picture Framework

In recent years, scientific research in cancer has advanced substantially (Barker,

2016, Chapter 2). However, there is a vast gap between the research and the actual

benefits patients receive (Barker, 2016, Chapter 1). To fill this gap, we turn to

technology transfer to accelerate the process of bringing the technology to clinical

use. The United Nations Conference on Trade and Development (UNCTAD) defined

technology transfer and provided a framework to support effective technology

transfer.

Technology transfer refers to the process of technology dissemination, including

the process of technology commercialization and diffusion (UNCTAD, 2001).

18

International technology transfer “can benefit all” by promoting access to new

technology for developing countries (Harris, 2015), and by expanding the application

of the technology (Stewart, 1979) to meet market demand. Methods of international

technology transfer include direct foreign investment, turn-key packages,

management contracts, technology license agreements, purchase of equipment, joint

ventures, and international aid (Haug, 1992, Ragossnig & Vujić, 2015).

For this project, the role of VC in technology transfer can be viewed through the

lens of the UNCTAD diagram of a national innovation system (UNCTAD, 2014,

Figure 4). This framework indicates that an innovation system supporting

technology transfer involves multi-dimensional cooperation between the academia,

research centers and the industry, particularly during the process of investment,

international trade and financial activities. VC is an indispensable component in this

eco-system as a financial sector providing funding and a facilitator enabling market

access and managerial expertise assistance.

19

Figure 4: a schematic diagram of a national innovation system. Source: UNCTAD, 2014.

2.5 Methods

2.5.1 Study settings and design

The author worked in both Boston and Beijing, with the host organization (a

consulting firm) from July 2019 to March 2020. To answer the research question and

reach the project goals, this project adopted a mixed-method approach in design

(Figure 5). First, relevant literature on Chinese VC and precision oncology was

reviewed. Next, longitudinal data on China's VC investment in US healthcare was

analyzed to detect the main trends of investment and assess the context. Then, semi-

structured interviews were used to learn about the experiences and perspectives of

20

the Chinese VC investors and to capture their primary considerations when investing

(Rubin & Rubin, 1995). Lastly, a model of cross-border VC investment decision-

making in precision oncology was developed with toolkits for application.

Figure 5: the project design and methodology. Source: author.

2.5.2 Data sampling and collection

For the literature review, relevant literature, books and business reports were

searched via Harvard Library. For the quantitative part, secondary data on Chinese

VC investment in the US healthcare was obtained from the Preqin database via

Harvard Library access. The search type was by portfolio company in the healthcare

group, with the portfolio companies located in the US and investor companies

Model

Qualitativeinterview &analysis

Quantitativedata analysis

Literaturereview

with application toolkits

21

located in China. The data was collected between Jan. 1, 2000 to Dec. 31, 2019, and

there was a total of 680 deals recorded during this period with seven relevant

indicators (Table 1, see appendix 7.1); details on data segmentation in the database

are described in Table 2 (see appendix 7.1).

For the qualitative part, an elite interview approach was used to explore the

understanding and perceptions of the key individuals (Braun & Victoria, 2013,

Chapter 4). The host organization provided the interviewee list. Table 3 (see

appendix 7.1) summarizes the information of the 41 interviewees, and 23 of them

work in small- to large-sized VC firms, with fund sizes vary from $200 million to $4

billion. In this project, elite is defined as investors from VC firms who hold the

position of vice president or above; professor or department director in academic

institutions, founder of incubators and start-ups, and attending physicians in

healthcare sectors. Elite status comes from their professional knowledge, reputation

and power (Lilleker, 2003) in technology innovation. Between August 2019 to

January 2020, 41 interviews were conducted, each lasting 30 to 90 minutes. The

sample size was set to reach reliable information power (Malterud, Siersma &

22

Guassora, 2016) while balancing depth and breadth (Liu, 2018, Mears, 2009) of the

interviews.

To access the interviewees, the host organization first sent an introductory

email/message. The author then contacted the interviewee via email or Wechat

messages to send them a one-page introduction (see appendix 7.2), including a brief

description of the project and a biography of the author in English and Mandarin.

Both the network of the organization and the author’s profile helped in gaining

access to the elites (Liu, 2018). The sequence of the interviews was set according to

the availability of the interviewees.

In preparation for the interviews, the author collected the professional biography

(Liu, 2018, Mikecz, 2012) and information about the affiliation of each interviewee

from websites or obtained that information directly from the interviewee before each

interview. Upon receiving the schedule confirmation, the bilingual interview topic

guide (see appendix 7.3) was sent to each interviewee, listing general instructions

(Spradley, 1979) and the main topics of the interview. Two pilot interviews were

conducted in early August 2019.

23

The interview guide (Jacob & Furgerson, 2012, Letts et al., 2007, see appendix

7.4) was developed based on the project goals and designed to explore two major

themes: why Chinese VC invested and what specifically they invested in. The

question on the feature of innovation was designed based on the Rogers (1983)

theory of social innovation. At the beginning of the interview, all interviewees were

asked if they had any clarifying questions. After this, each question was tailored

according to their experiences and previous responses in the interview (Liu, 2018).

All questions were open-ended, and the semi-structured format allowed flexibility

(Liu, 2018) and asking follow-up questions. This guide was constantly revised based

on feedback from the interviewees and findings from the quantitative analysis.

For the model development, results from qualitative interviews served as the

foundation. Main themes emerged from the qualitative analysis were summarized

and refined into key notions, together with the quantitative results, literature and the

macro-picture framework, form the model of cross-border VC investment decision-

making. From this, relevant toolkits were developed to facilitate the application of

the model.

24

2.6 Analysis

2.6.1 Statistical analysis

Based on the information of the 680 deals recorded in the database, the websites

of portfolio companies were checked one by one to collect more detailed information

on their products/services, especially to check the relevance of the applications in

their pipelines to precision oncology. Then, all deals were screened and categorized

according to the general and narrow definitions of precision oncology (Figure 6, see

definitions in appendix 7.6).

Figure 6: the process of data cleaning. Source: author. Notes:

* criteria of exclusion of non-precision medicine: consumer discretionary, communication platform,

application, bio-sensor for food development, application in agriculture, veterinarian medicine,

nutrient supplements, medical insurance management, caregiver finder, patient network, hospital

Precision oncology dataset (narrow definition, 306 deals)

Precision oncology dataset (general definition, 426 deals)

Exclude non-precision oncology directly related; including those may have protentional applications in treatingcancer-related symptoms and complications*** 120 deals

Precision medicine dataset (625 deals)

Exclude non-precision oncology related, either directly or indirectly; including infectious diseases and other non-communicable diseases; companies having no product/service relating to cancer in their pipelines** 199 deals

Original dataset (680 deals)

Exclude non-precision medicine related; including consumer discretionary, tele health platform/connectivity hardware/software targeting the healthy population* 55 deals

25

paperwork system, medical records unification, third-party information platform, trace chemicals in

the environment and food, health IT platform for patient information, consulting services, emergency

room triage system, patient-doctor communication platform.

** criteria of exclusion of non-cancer related: other non-communicable diseases such as neuron-

degradation (Alzheimer), cardiovascular disease, obesity, auto-immune and genetic diseases, rare

diseases; chronic conditions such as pain management; Hepatitis B virus vaccine; some claim on

cancer while don’t have any product or service relates to it.

*** criteria of exclusion of non-cancer directly related: quick blood and urine test machine, point of

care that may be used in cancer treatment, injectable protein having no clear clinical application in

cancer, drug development and sterile compound production and delivery, artificial intelligence for

drug development but far from having cancer targets, speech detection, gene editing (synthesis and

other customized gene technology platform not directly related with cancer treatment), treating

certain symptoms such as jaundice, surgical devices may be used in tumor surgery, PCR technology,

flow cytometry, contracted research organization, wearable to measure and monitor blood pressure,

oxygen saturation and weight, new material, 4D ultrasound to restructure heart, surgical instrument,

electronic muscle for disability support, immune suppressant for organ reservation and post-

transplantation.

2.6.2 Thematic analysis

Interviews were not tape-recorded, but the author took notes. All interview notes

were summarized within 24 hours of the interview, and interviews conducted in

Mandarin were translated into English by the author. The notes were compared

against other collected information of the interviewees to check data validity

(Beamer, 2002). As the analysis is content-driven due to the exploratory feature of

this project, notes are viewed as a proxy for experiences (Guest, MacQueen & Namey,

26

2014, Malterud, 2001). Conceptual codes defining key domains were applied

(Bradley, Curry & Devers, 2007) to the notes; those domains were summarized into

14 themes, which were further merged into 4 categories (Green & Thorogood, 2004,

Guest, MacQueen & Namey, 2014, Bradley, Curry & Devers, 2007). A summary of the

themes in each category was presented in the Results Statement section.

2.6.3 The inductive approach

For the model development, an inductive approach was adopted (Thomas,

2006). The process of induction includes: first, to condense and summarize the

textual data from the interview notes; next, to establish links between the project

goals and the summary of the findings; then, to find key notions that reflect the

essence of the findings and the links based on existing theories and concepts; lastly,

to synthesize the notions into a model and develop toolkits to facilitate its application

based on data statistics, thematic analysis and relevant literature.

2.7 Ethical Considerations

All interviewees were notified that the interview was not recorded and were

assured that their names and affiliations would be kept anonymous. In the notes and

27

thesis, the interviewees have been de-identified. However, risk still exists that

readers, especially colleagues within the relevant fields, may be able to identify the

participants. Interviewees will have access to the final research findings after the

thesis submission.

3. RESULTS STATEMENT

In this section, the quantitative data results are presented to provide contextual

information on Chinese VC investment in the US healthcare. Then, the qualitative

interview results are stated to lay a solid foundation for developing the decision-

making model.

3.1 The Quantitative Results: Contextual Information

The following analysis is based on information from the 680 deals participated

by Chinese VC in the US between January 1, 2000 to Dec. 31, 20194. Among those

deals, mainland China-based VC firms participated in 486 deals (Table 4, see

4 There are 680 deals recorded in the Preqin database, but these are not all the deals made during this period.

28

appendix 7.1). This data provides contextual information on Chinese VC investment

in the US healthcare, as well as revealing relevant findings for exploration in the

qualitative interviews.

3.1.1 Geographic distribution

Over the course of the past two decades, approximately half of the Chinese VC

investment in the US healthcare occurred in California-based firms and

approximately a quarter of them in Massachusetts-based firms; a similar distribution

occurred in Chinese VC investment in precision medicine and in precision oncology

(Table 5, see appendix 7.1).

3.1.2 Chinese VC investment in the US healthcare

In the year 2000, there were 200 healthcare VC deals made in the US; this

number gradually increased to a peak of 1600 in the year 2012. The number of VC

deals in US healthcare has remained above 1000 per year since 2009. Chinese VC

started to actively invest in the US healthcare companies in the year 2014 and

steadily increased to a peak in 2018 when deals involved Chinese VC accounted for

9% of the total number of VC deals in the US healthcare companies (Figure 7). This

29

trend reflects the promulgation of a series of Chinese policies beginning in 2015 that

promoted entrepreneurship and innovation.

Figure 7: Chinese VC involvement in US healthcare deals – number and % share by year.

Data source: Preqin.

The deal size in total also reflected the same increasing trend of Chinese VC

investment in the US healthcare (Figure 8). Since the year 2014, the deal size in total

involved Chinese VC increased rapidly, reaching a peak in 2018 accounting for 18%

of the deal size in total of the VC deals in the US healthcare.

Figure 8: Chinese VC involvement in US healthcare deals – deal size in total and % share by year.

Data source: Preqin.

0%

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Total number of deals invovled Chinese VC in the US healthcare Total number of VC deals in the US healthcare %

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However, it is noticeable that the average size of the deal involved Chinese VC

investment in the US healthcare was much higher than that of the US average since

2001 (Figure 9). In particular, between the years 2010 to 2012, the average deal size

involved Chinese VC were 2.5 times that of the average VC deal size in the US. Since

2014, this trend has declined slightly, as the average deal size keeps at the level of

about 50% higher than the US average. Explanations for this finding were explored

through the interviews, the results of which are presented in the model discussion

section.

Figure 9: Chinese VC involvement in US healthcare deals – the average deal size and comparison by

year. Data source: Preqin.

3.1.3 Chinese VC investment in the US in precision medicine and

precision oncology

Chinese VC investment in precision medicine in the US experienced rapid growth

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31

beginning in 2014; precision oncology has always been a significant component of

this investment, accounting for over 50% of the total deals (Figure 10). The deal size

in total involved Chinese VC in both precision medicine and precision oncology has

continued to increase and has exceeded $ 1 billion per year since 2015 (Figure 11). In

particular, the average deal size of precision oncology investment, especially in those

narrowly defined precision oncology start-ups, appeared to be much higher than the

average precision medicine start-ups (Figure 12).

Figure 10: Chinese VC involvement in US in precision medicine and precision oncology - the number

of deals by year. Data source: Preqin.

Figure 11: Chinese VC involvement in US in precision medicine and precision oncology - deal size in

total (million $) by year. Data source: Preqin.

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32

Figure 12: Chinese VC involvement in US in precision medicine and precision oncology - the average

deal size (million $) by year. Data source: Preqin.

Among the Chinese VC investment in precision medicine and precision oncology,

most start-ups were in the categories of biotechnology, pharmaceuticals, and medical

instruments (Figure 13); more investment happened in series A and B (Figure 14).

Figure 13: distribution of deals involved Chinese VC investment in each primary industry in the US in

precision medicine and precision oncology (year: 2000-2019).

Data source: Preqin. Note: Healthcare here as a primary industry category is defined with a narrower

scope in the Preqin database than defined in this project in appendix 7.6. In this figure, it refers to

healthcare services occurred in healthcare sectors and may not include the cross-cutting industrial

areas such as healthcare and IT, healthcare and materials.

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

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Average deal size in precision medicine Average deal size in precision oncology (general definition) Average deal size in precision oncology (narrow definition)

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Biotechnology Healthcare Health IT Medicalinstruments

Pharmaceuticals Medical devices Software Manufacturing,material, medicaltechnology, semi-

conductors

Number of deals in each primary industry category

Precision medicine Precison oncology (general definition) Precision oncology (narrow defintion)

33

Figure 14: the number of deals involved Chinese VC investment in each stage in the US healthcare

(year: 2000-2019). Data source: Preqin.

Note: Others here refer to private investment in public equity, venture debt, merge, secondary stock

purchase, growth capital/expansion, and pre-initial public offering (see glossary in appendix 7.6).

3.2 Qualitative Results: Development of the 3M Model

In this project, 41 elite interviews were conducted, out of which 14 themes

emerged reflecting the answers to the “why” and “what” questions in the interview

guide. These 14 themes were distilled into 4 major categories (Figure 15) and formed

the basis of the 3M model. In this section, the rationale of generating the 4

categories, i.e. Macro-environment, Motivation, Match-demand and Match-supply is

stated. Then a description of each theme with a subsequent rationale regarding why

each theme was sorted into that category is presented.

0

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Angel Seed A B C D E F G Unspecific Add-on Others

Number of deals in each stage invested by Chinese VC in the US

Precision medicine Precision oncology (general definition) Precision oncology (narrow definition)

34

Figure 15: a list of the 14 themes from the thematic analysis. Source: author.

3.2.1 The process of induction

The 14 themes demonstrate the multiple factors that Chinese VC investors take

into consideration regarding why and what to invest. To induce key notions to cover

the main factors affecting decision-making, theories from the Art of War (Sun, 500

B.C.) and concepts from strategic planning (Kotler, 1997) were adopted to inform the

categorization and abstraction.

Sun (500 B.C., Chapter 1) indicates that in order to predict the results of war,

there are five fundamental factors to assess: alignment, weather, terrain, commander

and doctrine. Weather and terrain refer to external contextual factors such as

favorable climate and geographic conditions, which can be considered as a macro-

35

environment component. Alignment refers to whether people agree with the leader

and thus support the decision; and doctrine refers to the internal organization of the

army. Therefore, the commander needs to align the interests internally and

implement decisions through organizational structures and actions to serve its

primary mission; just like VC investors need to ensure that each investment meets

the motivation of the firm and interests of its limited partners (see glossary in

appendix 7.6). Thus, motivation is an indispensable component when considering

investment decisions.

Sun (500 B.C., Chapter 3) also states that “…know the enemy and know yourself,

in a hundred battles, you will never be defeated”. This demonstrates the importance

of knowing both parties involved, i.e. the demand and the supply. And the key to

success lies in finding a “strategic fit” between the two parties, i.e. to match the

corporate capabilities to the market needs (Kotler, 1997, Chapter 3). Thus, the

process of matching the demand and the supply is essential to VC decision-making.

3.2.2 Themes in M-1: Macro-environment

External factors influence VC investment decision-making; such factors are the

36

main contextual determinants as politics, economy, legislation and health system,

which are derived from themes 1 - 4 in the Macro-environment category.

“Of course, policy, in both politics and economy, is a big determinant... and we

also care about how precision medicine fits into the overall health system in

healthcare expenditure and in improving the efficiency of the health insurance.”

- Quote from a Chinese VC investor

Theme 1: Unmet needs in China

Most Chinese VC investors consider that China is at the early stage of innovation

in the healthcare industry, and there is much room for improvement in R&D. As a

result, there are vast unmet health needs in China within the current health system

that propel the VC to bring in quality innovation for both industrial and social

benefits. Hence, the lack of quality domestic innovation in healthcare is a major

driving force for China’s cross-border VC investment. This theme reveals that despite

investing overseas, the Chinese market will still be a major market for technology

application. Thus, Chinese VC investors are quite sensitive to the approval of the

China State Food and Drug Administration and the technology being included on the

37

governmental procurement and reimbursement lists in China. From this perspective,

familiarity with the Chinese healthcare system - in particular, the payment, financing

and regulatory policies - is necessary to predict market and return when making

investment decisions.

Theme 2: Valuation bubbles

As good projects in China are scarce, they are quite expensive; big valuation

bubbles exist in the Chinese market. The bubbles may have resulted from inadequate

due diligence or lack of expertise, or even from rough valuation, which is less

science-based or data-driven. Thus, valuation bubbles under the macro-economic

environment drive the Chinese VC to go overseas to look for less expensive start-ups

overseas to reduce costs. However, there is no consensus either on valuation or on

the bubbles. Some investors rely more on intuition and imagination rather than data

analysis when setting prices. Some hold that valuation bubbles are universal, which

closely relate to the macro-economy, and that the market itself instead of regulations

can adjust it. Others think policy intervention is needed to constrain over-valuation.

This theme brings out the importance of understanding the macro-economic

38

situation, including the financial markets, interest rates and taxation rates that could

affect the valuation of the start-ups and the capital flow.

Theme 3: Attractiveness of the US

The VC ecosystem in the US is very mature and comprehensive, with a reliable

credit system. This ecosystem is designed to quicken the process of technology

transfer; in turn, profit from technology application becomes capital invested back

into R&D. Thus, the US is active in R&D, especially in early-stage R&D, with top

talent in science and technology. Many start-ups in the US are led by prominent

scientists and physicians, who have substantial professional knowledge and field

experience in healthcare start-ups. Meanwhile, VC firms often provide various

support on operations and overall management, allowing scientists to exit early to

start another innovation. The VC investment is more rational, having a relatively

standard and data-driven process to evaluate the start-ups.

This theme also references the fact that the critical US VC eco-system is built

upon a complete legal framework and market orientation that facilitates VC

investment and exit. Thus, understanding how this eco-system works in intellectual

39

property protection, transaction, and recruiting talent is crucial to assess the

possibility of realizing the innovative ideas in the start-ups.

Theme 4: Policy context

There are concerns among the Chinese VC investors over the current US-China

trade dispute as they consider it will affect future policies on technology transfer,

foreign currency exchange and flow, as well as investment censorship. Some Chinese

VC and American start-ups are seeking legal consultation on where to build their

R&D and business development sites in the future in order to facilitate technology

transfer and minimize the risk.

The macro-economy also directly affects Chinese VC investment by influencing

VC fund raising. With the economic growth slowing down in 2019, Chinese VC firms,

especially the bottom and middle-tier VC, are experiencing more difficulty raising

funds. Previous limited partners, such as the local governments, state-owned

enterprises, peer-to-peer business, and corporations are less active in VC than

before. At present, the Chinese VC industry is undergoing a rationalization process,

moving towards professionalization of the VC industry.

40

This theme reflects that Chinese VC investors view investing in the US within a

broad policy context; they care about the US-China politics and economy,

particularly foreign policy and trade ties, both of which influence the mutual trust

thus affect the cross-border VC investment. This theme also identifies the

unpredictability of politics as a factor adding to the uncertainty of cross-border

investment, thereby creating potential risks.

3.2.3 Themes in M-2: Motivation

There are some internal factors that motivate Chinese VC to invest in healthcare.

Themes 5 - 7 describe those factors, including the nature of healthcare investment

being capital-demanding but with high return; precision medicine being a promising

area, as well as investing for strategic and financial purposes.

"… (we invest) for financial return, for sure, but we primarily want to bring

innovation to the Chinese market."


Theme 5: Healthcare appeal

Health care has a relatively long investment cycle, often stretching to ten years or

41

more, although VC firms often exit at specific milestones shorter than that. However,

what makes healthcare so attractive to VC is its high return. New drug development

is costly, but once it is approved there are many upside rewards from skyrocketing

sales. Also, due to patent protection, there will be few competitors in an exclusive

market. In addition, in times of financial crisis and economic turndown, the

performance of the healthcare market tends to be quite stable.

Chinese VC investors are enthusiastic about investing in health care. The fact

that the Chinese government is increasing emphasis on healthcare provides the VC

with political support, which is a critical success factor. National policy also indicates

that there is immense market potential in China to meet the healthcare needs of all

citizens, particularly those of the increasing aging population. Other reasons for

investing in healthcare include personal interest and network of the funders and/or

investors; a number of investors believe that China lags behind the western world in

healthcare thus, it is urgently needed to invest and grow this area. This theme reveals

two major purposes of Chinese VC investment in healthcare: high return on

investment in purely financial terms, and for bringing new technology to the Chinese

42

market. The latter can be taken as a strategic purpose in short and mid-term

investing, and as a financial purpose in the long term.

Theme 6: Perception of precision medicine

In general, Chinese VC investors are optimistic about the future of precision

medicine, viewing it as more advantageous than the traditional trial-and-error

medicine; however, their perception of precision medicine varies greatly. Some

Chinese VC investors consider precision medicine as a technical term, some take it as

a loosely defined concept or even a pure political concept, while others believe that

almost everything can be linked to it. Precision medicine is also considered a solution

for the health system to improve its efficiency and to reduce the burden of

catastrophic health expenditure through new technology. This theme adds another

layer to the strategic purpose, as precision medicine is not only valued on an

individual level to treat diseases, but also on a population level to address public

health issues.

Theme 7: Goals of cross-border investment

Most Chinese VC investors mention financial return as one goal; they invest in

43

the US to diversify their portfolio companies. The American healthcare market is also

attractive, as it is abundant with strong and durable purchasing power, especially as

its health system encourages the adoption of new technology and therapies. VC

firms, especially whose limited partners are high-net-worth individuals, are more

likely to aim for return on investment.

A number of investors have noted, however, that if the VC fund is funded by large

Chinese pharmaceutical companies, state-owned enterprises, or local provincial

governments, the firms may focus more on longer-term strategic issues, such as:

bringing new technology to the Chinese market in order to create jobs, building joint

ventures, accessing and/or owning the intellectual property, helping Chinese

companies to access the international market, as well as investing for future M&A

and talent acquisition. Some corporate VC investors focus on aligning their

investment strategy with the vision and long-term development goals of their parent

company; these funds place greater emphasis on investing for strategic purposes

rather than purely financial reasons.

Chinese investors believe that there are more ramifications and application sites

44

for new technology in China, and that Chinese industry is readily able to adopt new

technologies. Thus, most VC want to bring the best innovation to China so that

Chinese industry can manufacture products domestically for long-term return. Some

investors also consider it their social responsibility to bring advanced diagnostics and

therapeutics to the Chinese people, and that there is a strong social benefit to

promote their health. This theme demonstrates multiple types of motivation for

Chinese overseas VC investment, with the emphasis on the Chinese market. Given

these various motivations, some VC investors put more weight on longer-term gain

over immediate financial return when making investment decisions.

3.2.4 Themes in M-3: Match-demand

Knowing what the buyers need is critical. Themes 8 - 12 provide substantial

information on the preferences of the Chinese VC, their criteria of start-up selection

and the resources they offer.

"We value the product and the team the most, and we hope to assist the start-

ups to enter the Chinese market.”


45

Theme 8: Investment timing

The consensus among Chinese VC is that recent investment focuses more on

early-stage start-ups, i.e., angle/seed and series A, or drug development in pre-

clinical or phase I clinical trial. Chinese VC investors have noted that there are a

number of plausible explanations for this investment pattern:

1) It is due to the increased risk tolerance of the Chinese VC investors, and the

intensified competition and the valuation bubbles in China.

2) Low-hanging fruit such as investing in generic drugs in the US have all been

taken.

3) The earlier to enter, the better price investors get.

4) If investors cannot join at the beginning, it will be tough to join later.

5) Big funds tend to invest more in early-stage start-ups in recent years, as they

consider that if the market is large enough, return on investment tends to be high

and selecting the fast-growing start-ups in the early stage worth the risk.

6) Chinese VC has developed greater professional knowledge to assess projects now.

This trend can also be viewed in the technology and policy context. In healthcare,

46

especially in biotechnology, innovative technology appears at an early stage. In

particular as current drug R&D is moving from chemical to biological, many small

companies with a strong scientific background, rather than only the pharmaceutical

giants, can develop new drugs. Also, investment needs to be visionary and

prospective; for example, if investing in CRISPR or CAR-T (see glossary in appendix

7.6) now, it is three years behind the mainstream of the US VC investment. Under

the industrial context, each technology has a stage of development and plateau;

hence, the earlier to enter, the more chances there to balance risk and return.

Moreover, China's restrictive foreign currency policy moves VC investment to early

stage that involves smaller investment; US policies that increase restrictions on

Chinese investment especially in biotechnology further add to this trend.

There are also Chinese VC firms that invest in series B and drugs in phase II

clinical trials. These investors argue that data is incomplete at the early stage, and it

is hard to predict the risks at that point. It is challenging to see efficacy in phase I and

phase II as many signals or biomarkers still change and fail. VC firms investing in

late stages, phase III or post-clinical/pre-licensing stage, value the low risk, and they

47

do not expect extreme high return given the expensiveness of the project and the

over-valuation. Some Chinese VC firms thus invest in both early and late stages to

minimize overall risk.

This theme provides abundant information regarding how the Chinese VC

investors choose the right time to invest. Taking risk, cost and data evidence into

consideration is critical for the demand side when making investment decisions.

According to the various strengths and specialties of the VC firms, investors choose

the stage that meets their risk tolerance, capital availability and professional

judgment capacity.

Theme 9: Criteria of start-up selection

Product is critical to Chinese VC. Relative/competitive advantage is the most

valuable feature, followed by communicability, which can be improved by hiring a

good operations team. Investors also care about the compatibility of the technology

with the Chinese market, including whether clinicians will adopt it. A patent is taken

as solid proof of concept, though it is not decisive. Some VC investors prefer to invest

in leading technology, while others believe that safety comes first when dealing with

48

healthcare.

There are always many ideas in healthcare, but how to operationalize those ideas

is essential. Thus, team and talent behind a start-up are vital for execution. A good

team should have a complementary combination of science and market development

ability with medical professionals who understand healthcare. Chinese VC investors

have a strong preference for start-ups that have a Chinese component, either with a

Chinese-speaking founder or operation/trial/sales strategies in China. The best team

combination is to have both overseas and Chinese talent, as the former brings

managerial expertise and the latter understand the Chinese market to facilitate

product localization. Having staff who have previously worked in international

corporations is a bonus as they can bring soft skills such as leadership and innovative

spirit. In a word, Chinese VC investors emphasize talent, as talent supports long-

term development.

Market is the third factor; in particular, market size, though it is a relative

concept. In a big market with more competitors, the share may be small. Clinical

application scope matters, as investors ask what specific problem the technology

49

solves for patients. Chinese VC investors look at the disease survival period and

evaluate the competition and substitutes, as well as patents and licenses. It is

noteworthy that having a license is very important in China as this grants access to

the market and increases the possibility of being reimbursed by health insurance.

Chinese VC investors also weigh the cost of the technology due to the payment

system in China. They evaluate the business model, calculate the manufacturing cost

and valuation. When investing in the US, most of the Chinese VC firms join

syndicated investment to share risk, and some of them consider endorsement from

big corporate VC can bring more resources, and some believe a local brand name

guarantees success. In addition, some Chinese VC firms prefer to be the lead investor

while some will never take the lead in the US.

Theme 9 demonstrates the key factors that Chinese VC investors consider when

selecting start-ups. They are product, team, market and cost. From the demand side,

these are the main determinants of investment decision-making. Besides, Chinese

VC investors also have different preferences in each determinant, thus meeting those

criteria increases the possibility of securing investment.

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Theme 10: Chinese VC in the US

According to the interviewees, their investment in the US healthcare was around

$3-8 million for projects in the early stage; all of them have a US dollar fund for

overseas investment and some of them use a financial agent when investing in the

US. In general, Chinese VC in the US faces fierce competition from the American VC

firms and from Chinese VC firms who have branch offices in the US. As Chinese VC is

new to the US market, there is few good track record nor successful exits yet. Chinese

VC investors lack experiences in investing overseas though they are fast learners.

Also, as there are not enough US dollars available, Chinese VC firms want to invest in

the China branches of the start-ups, while the start-ups prefer direct investment in

their US headquarters. This theme shows the major challenges Chinese VC faces in

the US. It is critical for the buyers themselves to be aware of their weaknesses.

Therefore, taking this into account and preparing solutions are important for the

demand side to successfully match deals.

Theme 11: Resources Chinese VC offer

Given the aforementioned challenges, the most valuable resources Chinese VC

51

firms provide is their network, especially facilitating the introduction of technology

to the Chinese market. Chinese VC can help match resources in China, such as

developing multi-center clinical trials and building manufacturing sites in China.

They are also familiar with the Chinese market and policies, licensing and sales

promotion, negotiating with payers, as well as providing legal support. Of course, like

other VC, Chinese VC firms also bring substantial funds, strategic partners, and

managerial expertise to start-ups, such as setting up the organizational structure,

recruiting talent, advising finance and managing capital. Echoing Theme 10, Theme

11 shows the strengths of the Chinese VC in competing in the US market. As VC

investment is bi-directional, knowing the advantages of the demand side is also of

great significance in attracting outstanding start-ups.

Theme 12: Management style

Chinese VC investors pay careful attention to risk control. They often require a

board seat with veto right and use terms on preferred stocks and liquidation to

protect their interests. Chinese VC investors argue that by investing in start-ups, they

also share the risk, thus they need more power in decision-making to ensure their

52

gains. What is noteworthy is that some Chinese VC firms may become more

controlling when investing in the US as they consider it riskier to invest overseas.

While, others are enterprise-centric, giving more flexibility and autonomy to the

start-ups, as they consider that no one knows the technology better than the

founders. A general difference between the Chinese and the American VC firms in

their management style and philosophy is that the Chinese VC firms focus more on

the fundraising aspect of VC, while the American VC firms stresses portfolio

management. Theme 12 provides additional information on management style of the

Chinese VC firms, which may affect choosing of start-ups. For the sake of better

communication, Chinese VC investors are likely to choose start-ups that are

compatible with their own management style.

3.2.5 Themes in M-3: Match-supply

The supply side refers to the innovative start-ups in the US. Themes 13 and 14

present the views of Chinese VC investors on various types of technology and

functionalities they prefer on the supply side.

"We are looking for innovation in therapeutics… especially in cancer with high

53

incidence."


Theme 13: Different types of technology in the eyes of the Chinese VC

There are four general categories of innovation in healthcare: drug development,

medical devices and instruments, healthcare services, and cross-cutting areas such as

healthcare sectors cooperating with IT companies or delivery services. Theme 13

provides an overview of how Chinese VC investors view the different types of

healthcare investment available to them.

The reasons for investing in drug development include the strong patent

protection and the exclusive market with few competitors, as well as the potential for

huge profit. However, some Chinese VC investors choose not to invest in it, because:

1) They consider there are large valuation bubbles in start-ups of drug development,

and the success rate is decreasing.

2) There is no incentivized payment mechanism in the Chinese health system for

using expensive drugs.

3) The initial investment is substantial, but it takes too long to get a return.

54

4) Investing in the early stage is too risky, while in the late stage is too expensive.

There are four subtypes of medical devices and instruments: medical equipment,

in-vitro diagnostics, implant materials, and basic medical supplies. The business

model for sizeable medical equipment is quite different in the Chinese market

relative to the US market. In China, the purchasing power of public hospitals is

limited by the quota policy. Thus, Chinese VC investors are less likely to invest in

medical equipment even though the investment scale is smaller compared with drug

development. The entry threshold for in-vitro diagnostics is low. For example, gene

testing became a saturated market very quickly in China, and there are over 100

companies now competing by lowering the price. The reason for this is that gene

testing service is not well connected with clinical practice, thus, test results are not

well interpreted. Moreover, Chinese companies do not possess the core technology in

manufacturing the equipment; many start-ups in this area are good at fundraising

and have a high valuation, but their sales are disappointing. For implant materials,

such as the stent, it often takes 3-5 years to obtain a license for devices in China.

Also, changing clinicians’ habit to promote sale is not easy once it has formed. Basic

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medical supplies are not of much investment interest to the Chinese VC.

Healthcare services represent a promising area for investment as there are

unmet needs in the Chinese healthcare system. However, this category of investment

would require a dramatic change in patients' health-seeking behaviors. For medical

care, it is difficult to bring the American care models to the Chinese health system,

which is more of a public-hospital-dominated system. Private hospitals are capital-

intensive and take a long time to get a return. Only those services that are not

covered by national health insurance, such as in-vitro fertilization, ophthalmology,

dental and plastic surgery are profitable. Besides, the chain-store model did not work

very well in China; those clinics find it hard to expand due to a lack of innovative

business models.

Cross-cutting fields in healthcare services are beginning to attract more attention

from Chinese VC; some of these include hospitals working with IT companies to

develop telemedicine for rural clinics, intensive care extensions, rehabilitation at

home, and integrated health care services. China also has advantages in data volume;

long-term real-world data can provide clinical proof, track population health, and

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improve R&D. As Chinese VC firms have different investment goals, Theme 13

provides different choices from the supply side to meet the various investment needs.

New drugs, medical devices, healthcare services and intersecting fields have pros and

cons; such information allows investors to weigh from the product perspective when

making investment decisions.

Theme 14: Functionalities that Chinese VC investors prefer in precision

medicine

Chinese VC investors care about how innovative technology will be incorporated

into the Chinese market. The largest VC firms invest in all dimensions of precision

medicine while others have specific preferences. Chinese VC investors are most

interested in therapeutics, such as new drugs, followed by diagnostics, and finally by

screening/early detection tools. The most focused disease category is cancer,

especially those types with substantial burden and significant market size.

Chinese VC investors search for precision medicine innovation that is effective,

efficient, and affordable in therapeutics. They are interested in specific biomarkers

targeting allergens, proteins or genetic diseases, in gene therapy, immunotherapy

57

and precision radiotherapy as they are well protected by patents. They pay attention

to lung cancer, breast cancer, and prostate cancer, as there are many patients but few

drugs available. Therapeutics come with an explicit market; it is easier to find a payer

for reimbursement and faster to go through the approval process.

Diagnostics is considered to have the second-largest market. However, Chinese

VC investors also view diagnostics, mainly digital diagnostics, as a tricky area since it

is challenging to realize except when combined with treatment. Theoretically,

diagnostics is a robust area with policy support to prioritize disease prevention. In

reality, next generation sequencing has limited contribution to clinical practice and

new diagnosis without follow-up treatment brings psychological burdens to patients.

Screening and early detection implies a bigger population and market. In the real

world, it is complicated to commercialize as no one wants to pay for it. It is not

widely covered by the national nor private health insurance, while individuals do not

see an urgent need to pay out-of-pocket. In a sense, the current Chinese market for

screening is not as big as expected, and health promotion and education are needed.

Poor follow-up is another weakness; again, it needs to be integrated with treatment.

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The functionalities related to Theme 14 provide a different segmentation from

Theme 13, bringing in the perspective of business development. On the supply side,

functionalities are closely linked with potential market and clients, which is a key to a

fit match and future growth of the start-ups.

These 14 themes provide an informative description of the multiple factors that

Chinese VC investors take into account when selecting the right start-ups. Those

factors include the contextual conditions and the internal motivation that drive their

cross-border investment, as well as the determinants of investment regarding their

interests and preferences in precision medicine and precision oncology. Building on

the aforementioned theory, theses 14 themes were further put into 4 categories and

the 4 categories became the 3 key components of the 3M model.

4. KNOWLEDGE GENERATION: THE 3M MODEL

The 3 key components of the 3M model are Macro-environment, Motivation and

Match. Besides mapping the 14 themes from the qualitative analysis into the model,

evidence from the quantitative results, literature and the framework of technology

59

transfer is also integrated to fully develop the model (Figure 16). In the following

section, the overall 3M model is presented with descriptions of its purpose and

scope; a subsequent discussion provides detailed interpretation on each component

of the 3M model, further resulting in 4 toolkits designed for model application, to

demonstrate the dynamism and potential use and value of the model.

Figure 16: evidence and mapping themes to develop the model. Source: author.

4.1 Description of the 3M Model

The 3M model is comprised of three components: Macro-environment at the

overarching macro-level, Motivation at the meso-level, and Match at the micro-level.

There are factors at each level that affect the cross-border VC decision-making. A

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graphic depiction of the 3M model is shown in Figure 17-1.

Figure 17-1: the 3M model. Source: author.

4.2 Purpose of the 3M Model

The 3M model is designed as a means of assisting Chinese VC investors in their

decision-making process to invest in the right start-ups in precision oncology in the

US. This model has been developed primarily for descriptive purposes; however, it

also has potential functionality in predicting start-up selection. For VC investors, the

3M model leads them through a systematic process to evaluate the feasibility of

projects and the capability of start-ups dynamically to reach an investment decision.

Similarly, for start-ups, the 3M model summarizes the main determinants in VC

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decision-making and highlights the preferences of Chinese VC investors; thus, start-

ups with innovation meeting both VC criteria of selection and the preferences are

more likely to obtain the Chinese VC investment.

4.3 Scope of the 3M Model

The 3M model is initially designed for Chinese VC investing in the US in

precision oncology. Both quantitative and qualitative data were obtained and tailored

for this scope. However, it is possible to expand the application scope adaptively with

further supporting evidence: the model could potentially be applied in overseas

investment in countries other than the US, and in the broader area of precision

medicine rather than just precision oncology.

4.4 Discussion on the 3M Model

Each component of the 3M model has its unique role in influencing the

investment decision-making. In this discussion, the role of each component is

interpreted, followed by its linkage with previous research findings to help the

readers better understand the function of each of the 3M model components. Then, 4

toolkits are presented based on the evidences referred to in the discussion as a means

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to help apply the model in practice.

4.4.1 M-1: Macro-environment

Macro-environment is the foundation of the 3M model, which lays the ground

for cross-border VC investment in precision oncology. Macro-environment has two

dimensions - structure and policy - and it applies to both the investment destination

country and the future market country. Structure refers to the organizational

structure of the systems, which is relatively stable and helps to map out the

stakeholders and their interests involved. Policy is often changing and thus can

support or obstruct VC investment; thus, decision-making can be time-sensitive.

In this project, Theme 3 (Attractiveness of the US) cites the maturity of the

American VC eco-system as being a critical factor; this reflects the notion in the

technology transfer framework (UNCTAD 2014) that close connections among

academia, R&D centers and industry provide a competitive advantage such that the

US is able to lead innovation in products and services. It is commonly mentioned in

literature and Themes 1 (Unmet needs in China), 2 (Valuation bubbles), and 4

(Policy context) that cross-border investment decisions are more likely to be

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influenced by institutional factors such as governmental policies, economic

consideration, legislation, and health systems (Stafford, 2016); being aware of these

contextual factors is thus a critical success factor (Cumming, 2010). Any small issue

in foreign relations, trade ties, intellectual property, or health policy could affect the

cross-border VC investment to a large extent.

Politics is a major contextual factor for investment decisions. Components such

as foreign policy (Ernst & Young, 2018), national security (Stewart, 1990), domestic

stability in both society and legislation (Guler & Guillén, 2010) should therefore be

taken into consideration. A case mentioned in interviews is the current restrictions

on Chinese investment in the US (Orr, 2019) which hurts mutual trust (Bottazzi, Da

Rin & Hellmann, 2016) and affects investment decisions (Hancock & Kuchler, 2019).

Macro-economy is a key factor in investment decisions, e.g. the magnitude of

bilateral trade (Wang & Wang, 2011), foreign exchange levels (Stewart, 1990), global

economic trends and the state of local financial markets (Ernst & Young, 2018) all

contribute to investment decisions. Other macroeconomic factors, such as economic

growth rates, taxation and interest rates, also influence the cross-border VC

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investment by affecting the demand-supply relation (Schertler & Tykvová, 2012).

VC investors prefer a robust legal system in destination countries that protects

the intellectual property and interests of the investors (Lerner & Tåg, 2013). Within

such system, there are often policies facilitating economic activities and transaction,

supporting complex contracts, exit opportunities and flexibility in employment

(Black & Gilson, 1998, Bottazzi, Da Rin & Hellmann, 2009).

Health system configuration is an indispensable factor to consider when

investing in healthcare. There are five aspects to look at regarding the health system

(Roberts et al., 1995). For financing and payment mechanisms, insurance coverage

and reimbursement are vital; in particular, incentives, both financial and non-

financial, shape innovation and its adoption (Stern, Alexander & Chandra, 2017,

2018). The other three factors are regulatory policies on product approval (Pratt,

2019), organizational structure, and behavior, including that of healthcare providers

and patient's health-seeking behavior. What is noteworthy is that Chinese VC

investors ultimately care more about the Chinese market than the US market; thus,

more attention is paid to the Chinese health system.

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4.4.2 M-2: Motivation

Motivation is the root cause of cross-border VC investment. It is shaped by the

macro-environment and tailored to the mission of the VC firms. In general, there are

two categories of motivation: financial and strategic; the two are not exclusive.

Having distinct motivation can better guide the process of matching.

The Kazmierczak et al. (2019) report shows that over one-quarter of the Chinese

investment in the US biotechnology is from VC, and Gonzales & Ohara (2019) show

that 20% of Chinese VC investment in the US from 2010 to 2017 was in life science.

Quantitative results and Themes 5 (Healthcare appeal) and 7 (Perception of

precision medicine) reflect this enthusiasm among Chinese VC to invest in

healthcare, precision medicine and precision oncology. Kazmierczak et al (2019) also

mention that 72% of the overall Chinese investment in the US is for strategic

purposes, and Theme 6 (Goals of cross-border investment) echoes that strategic

purpose is unneglectable.

Gonzales & Ohara (2019) show that 78% of the Chinese VC investment in the US

comes from pure VC funds and 22 % from corporate VC. For the VC funds, return on

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investment is the primary indicator for their performance; however, according to the

interviewees, sometimes limited partners of these VC funds influence the decision-

making and may lead it towards strategic investment. For corporate VC, Gonzales &

Ohara (2019) indicate various purposes: 29% are strategic partners, hoping to

expand business; 29% are corporate funds, aiming for additional profit; 42% are

strategic investors investing for both purposes. Theme 6 (Goals of cross-border

investment) and Colin (2018) demonstrate the strong will among Chinese VC to

bring innovation to the Chinese market, particularly among the strategic partners

(Gonzales & Ohara, 2019): 24% of them want to bring the technology to China, 29%

want to conduct joint R&D and product development, 6% want to use the product in

a Chinese firm, 10% want to manufacture in China, and 31% want to access the

technology.

4.4.3 M-3: Match demand and supply

The demand-supply relationship is the essence of decision-making (Schertler &

Tykvová, 2012, Stafford, 2016). The demand side refers to the Chinese VC investors,

who are interested in investing in the US in precision oncology. Chinese investors

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have their criteria of start-up selection, prioritizing technology and evaluating the

management team. According to the motivation of the VC firms, when and how to

invest are components of the matching process. Decisions should be in line with

motivation while making the best use of the resources from the VC investors to

maximize the growth of the start-ups. The supply side refers to the overseas start-ups

in precision oncology in the US that are available for investment. As each type of

technology has its pros and cons in R&D and business development, it is critical to

think through the whole supply chain to assess the start-ups in an organized way.

Given that Chinese VC investors are mainly focusing on the Chinese market, their

preferences for functionality necessarily reflect the unmet health needs in China. In

addition, as this model was designed for investment in precision oncology initially,

information on cancer epidemiology, clinical trials, trends and challenges are

necessary to assist decision-making.

On the demand side, investment timing is strongly associated with the clinical

R&D phases (Barker, 2016, Chapter 5). As noted, there are many reasons underlying

the trend of Chinese VC investing more in early-stage start-ups in the US; the

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rationale for this preference, as seen in Theme 8 (Investment timing) is to balance

the risk and cost to achieve expected return. In earlier stages, technology is in its

infancy, thus, the cost of investment is low while the risk is high. More professional

knowledge is needed to evaluate the start-ups and make more accurate predictions.

In the later stages, more data is available; thus, uncertainty is reduced while the price

rises.

Theme 9 (Criteria of start-up selection) states that Chinese VC value the

technology, team, market, and cost when selecting start-ups, which is partially

verified by the quantitative results that Chinese VC investment concentrates in the

areas where education and innovation are thriving in the US (Guler & Guillén, 2010),

such as California and Massachusetts. The importance of the team is arguable

though. While Petty & Gruber (2011) show that start-ups often change chief executive

officers along the way, some investors think suitable talent can always be found to fill

the positions. In terms of market, Desiraju, Nair & Chintagunta (2004) suggest that

the higher per capital expenditure on healthcare and lower the price of the

technology, the faster technology diffuses; the interviewees share this conclusion.

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The quantitative data shows that the average size of the deal involved Chinese VC

investment in the US is much higher than the US average. This finding could be

explained by the following two reasons: one is that cross-border investors have

higher return expectations, thus are willing to spend more as it is still cheaper

compared with domestic Chinese start-ups (Stafford, 2016, Schertler & Tykvová,

2012); the other is that Chinese VC investors have a poor information network

(Stafford, 2016, Sorenson & Stuart, 2001) or lack personal ties (Stafford, 2016,

Wuebker, Hampl & Wuestenhagen, 2015) in the US, thus over-valuate the projects.

In addition, there are studies showing that reputation of the VC drives syndicated

investment (Stafford 2016, Wuebker, Hampl & Wuestenhagen, 2015). As Chinese VC

is a newcomer, reflected in Theme 10 (Chinese VC in the US), it’s harder to join

syndicated investment with a smaller check size.

Role of VC in a start-up is often described by agency theory (Strömsten &

Waluszewski, 2012), which asserts that VC investors bring experience and their

network in addition to capital. This view is reflected in Theme 11 (Resources Chinese

VC offer); Chinese VC considers their familiarity with the Chinese market as the most

70

valuable asset. Literature also mentions that board oversight and managerial support

(Ryan, 2012) help start-ups to grow and thus shorten the cycle of technology transfer

(Wang & Wang, 2011). Theme 12 (Management style) indicates that Chinese VC

needs to improve its portfolio management, and Petty & Gruber (2011) suggest

tailoring the management style to meet the needs of the start-ups.

On the supply side, Theme 13 (Different types of technology) shows that Chinese

VC invests in all aspects of precision medicine: new drugs, medical devices, and

healthcare services. However, as the cost of drug R&D keeps on rising (Agrawal et al.,

2019), it is hoped that automation, process redesign, and advanced analytics could

bring down the cost. Innovation in healthcare services to improve access to health

resources (Raimundo, 2019) through patient self-service, care setting navigation and

telemedicine are attractive; current data (Cbinsights, 2019) echoes this trend as in

recent years technology giants have invested more in data management and linking it

with healthcare provision and insurance services.

In this project, Theme 14 (Preferred functionalities) shows that Chinese VC

investors prefer therapeutics, particularly cancer therapeutics with enormous market

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potential (Volchek et al., 2014). Cancer types with high prevalence and incidence in

both the US and China gain most attention. Though China's national policy stresses

the importance of disease prevention, in reality screening does not attract enough

investment interests as there is a lack of innovative business models (Harvard

Business School, 2019). It has been suggested that diagnostics should be linked with

treatment in clinical practice, while in research, linking it with lab automation,

artificial intelligence, and gene sequencing (Leiva & Mantovani, 2019) will help to

create rapid breakthroughs in precision medicine.

4.4.4 Relationship among the three components

The three components of the 3M model are inter-dependent. On the macro-level,

Macro-environment sets up the external conditions to lay the foundation for

initiating cross-border VC investment. On the micro-level, Match is the last but

decisive step to finalize an investment deal. In between, Motivation serves as a bridge

linking the Macro-environment and the Match: Macro-environment and Motivation

together inform the access to cross-border investment (Cohen, March & Olsen, 1972),

while aligning Motivation with Match choices guarantees the success in VC

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investment decision-making.

4.5 Application of the 3M Model

The 3M model is designed primarily for Chinese VC investors, to help them select

the right start-ups when investing in precision oncology in the US. Thus, application

of the model is a significant step for transferring knowledge into practical use. To

realize this, 4 toolkits have been designed to support the analysis of each component

(Figure 17-2, 17-3, 17-4, 17-5). These toolkits can be used jointly to evaluate the 3M

components comprehensively. Also, each toolkit can be used separately to learn

about one certain aspect of the component. The following instructions describe how

to conduct analysis using the 3M model with the 4 toolkits.

4.5.1 A toolkit for M-1: Macro-environment

Figure 17-2 represents the toolkit for the Macro-environment component. It

summarizes the 4 aspects to be considered in order to evaluate whether it’s a

favorable environment for VC investment. Under each aspect, there are factors to be

assessed to weigh whether the politics, economics, legislation and health system

provide the environment for a cross-border deal to happen in the investment

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destination country, as well as whether the market is promising in the innovation

application destination.

Figure 17-2: a toolkit for the Macro-environment component. Source: author.

4.5.2 A toolkit for M-2: Motivation

Figure 17-3 represents the toolkit for the Motivation component. It simplifies the

main purposes of investment into two groups: financial return and strategic

purposes. Factors in each group provide the investors with more detail on what

specific goal the investment aims to achieve, which is key to defining the right match

in the later steps. It’s noteworthy here that the motivation can be and often is a

combination of both financial and strategic purposes, thereby adding to the

complexity in evaluating the match in the next steps as there are two dimensions to

Political

Foreign policyStability in society and in legislation

National securityMutual trust

Economic

Bilateral trade tiesForeign exchange

Global economy trendEconomic growth

Taxation/interest ratesFinancial market

Legal

Intellectual propertyLaws on economic activities/transactions

Labor/employment

Health system

PaymentFinancing

OrganizationRegulationBehavior

Macro-environment

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take into consideration.

Figure 17-3. a toolkit for the Motivation component. Source: author.

4.5.3 Toolkits for M-3: Match

Figure 17-4 represents a set of toolkits for the Match-demand. It applies to

Chinese VC funds of varied sizes: ranging from small-scale fund starting from $100-

200 million to the middle-sized fund of up to $1 billion, and to large VC funds often

with healthcare branches managing over $2 billion.

Figure 17-4a shows how the investment stages can be targeted to the R&D phases

in diagnostics and therapeutics. The gradual color change in the arrows indicates the

intensity for risk, cost and data respectively. According to their motivation and

capital, VC investors can choose varied timing to invest in order to achieve the

expected return and bear relevant risk. Thus, each investment may vary from $3-5

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million or less in the early stage to over $10 million in the middle stage and even

more in the late stage; it can be syndicated investment as well.

Figure 17-4a: a toolkit for the Match-demand component, investment timing. Source: author.

Figure 17-4b lists the main criteria Chinese VC investors value when selecting

start-ups. It provides rich information on the key determinants, which could be

decisive in a successful match.

Figure 17-4b: a toolkit for the Match-demand component, criteria for start-up selection.

Source: author.

Technology/science

Product matters,business model isrelatively simple

Competitiveadvantage is key,

followed bycommunicability

Acceptance byhealthcareproviders

Patent protection isnot decisive

May not have to beleading technology,safety matters, too

Team

Managementexperiences of the

chief officers

Complementarycombination of

science & marketdevelopment ability

Including medicalprofessionals,

overseas & Chinesetalents

Employees withwork experience in

internationalcorporations, with

leadership skills

Market

Market size is key

Clinical applicationscope is important

Compatibility of theproduct in the

Chinese market

License for theproduct

Cost & others

Valuation

Cheap tomanufacture

Business model

Co-investors(reputation,cooperative,

network)

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Figure 17-4c demonstrates what resources Chinese VC have; this is used to match

the start-ups in urgent need of these resources, to help them grow faster and

stronger.

Figure 17-4c: a toolkit for the Match-demand component, VC value-added. Source: author.

Figure 17-5 is a set of toolkits for the Match-supply. It refers to start-ups in

precision oncology in the US, many of which are deep-tech companies founded on

research achievements from academic institutions.

Figure 17-5a listed the pros and cons of each type of technology in healthcare. To

meet the different needs of the investors, start-ups need to be clear with their own

strengths and weaknesses to match the right resources that can help them overcome

their own weaknesses as well as leverage their advantages. To illustrate, such start-

Value-added

Capital

Network

Partnership

Market

Policy/legal

Managerialexperience

Expertise/talent

Finance

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ups in drug development includes not only new proteins targeting certain solid

tumors, or monoclonal antibodies to treat liquid cancer; technologies such as cloud

computing can also assist drug development. Examples of start-ups with innovation

in medical devices include novel implantable devices to help monitor and treat

cancer patients; applying existing technology such as ultrasound in new scenes like

in early detection of breast cancer. Health care services include innovations in

service models such as integrated case management for cancer patients.

Figure 17-5a: a toolkit for the Match-supply component, types of technology. Source: author.

Figure 17-5b summarizes the preferences of the Chinese VC seeking different

functional innovation. It helps the start-ups to evaluate the situation from a

marketing perspective and to improve the possibility of a successful match with the

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Chinese VC. Examples of start-ups in developing new therapeutics can be new drugs,

such as a single agent or combination with checkpoint inhibitors to treat a certain

type of cancer; or a vaccine for any tumor with a certain antigen expression. Start-

ups in diagnostics can work on digital pathology or point of care testing for cancer

patients. And start-ups in screening and early detection can focus on blood screening

or portable imaging tools for early cancer detection.

Figure 17-5b: a toolkit for the Match-supply component, functionalities that Chinese VC investors

prefer. Source: author.

Figure 17-5c is an illustration of cancer specifics. It shows the Chinese VC

investors on how to assess the potential market for specific type of cancer by

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understanding its epidemiological data, clinical trial progress, trends and challenges

in R&D.

Figure 17-5c: a toolkit for the Match-supply component, illustrations of the cancer specifics.

Source: author.

5. CONCLUSION

This section presents a brief review of the project. The essential findings and

primary takeaways of each of the three project goals are summarized, followed by

limitations and implications of this project.

5.1 Project Review

Lung cancer

•Epidemiology: ranks 1st mortality in both China and the US (Global Cancer Observatory, 2019).•Clinical trials:156 and 1302 clinical trials in phase I in China and the US respectively (US National Library of Medicine, 2019).•Trends: China approved its first PD-1 antibody in 2018, treating advanced or late-stage non-small cell lung cancer (Mak, 2019). Till 2016, US FDA has approved drugs block the immune PD-1 pathway and started phase I

trial for a subcutaneous injection PD-1 inhibitor KN035 (Zhang & Wu, 2018). Assessing biomarkers such as EGFR and ALK before using targeting inhibitors have greatly improved efficacy (Kaur et al., 2017).

Liver cancer

•Epidemiology: ranks 3rd mortality in China and 5th mortality in the US (Global Cancer Observatory, 2019).•Clinical trials: 99 and 365 clinical trials in phase I in China and the US respectively (US National Library of Medicine, 2019).•Trends: US approved Sorafenib in 2007, a tyrosine Knase inhibitor against multiple targets (Qin, 2018). China approved FOLFOX4 regimen in first-line treatment of advanced or metastatic hepatocellular carcinoma in

2013 (Qin & Wu, 2015).•Challenges: a series molecular-targeted drugs failed in phase III, but Regorafenib and Lenvatinib succeed. Though PD-1 and PD-L1 are proved to be effective in treating solid tumors, their function in hepatocellular

carcinoma is under investigation. No single agent or targeted therapy was identified to cure hepatocellular carcinoma in trials yet as intra-tumor heterogeneity (Chen, Fu & Wang, 2018).

Gastric cancer

•Epidemiology: ranks 2nd mortality in China and 15th mortality in the US (Global Cancer Observatory, 2019).•Clinical trials: 212 and 63 clinical trials in phase I in China and the US respectively (US National Library of Medicine, 2019).•Trends: the only one drug targeting HER2-positive gastric cancer available in the Chinese market is approved in 2012 (Jia et al., 2016). In 2014, a new molecular classification of gastric cancer was introduced (Zhou et al.,

2015) in the US, and next generation sequencing has been used to help tumor classification and guide targeted therapy in clinical practice (Jia et al., 2016).

Breast cancer

•Epidemiology: ranks 8th mortality in China and 4th mortality with highest number of new cases in the US (Global Cancer Observatory, 2019).•Clinical trials: 75 and 1381 clinical trials in phase I in China and the US respectively (US National Library of Medicine, 2019).•Trends: in Europe, there are at least 6 PARP inhibitors in phase III clinical trials, and an orally active one, Olaparib has been approved (Sonnenblick et al., 2015). As two genes, BRCA1 and BRCA2 are known to influence

cancer susceptibility, detecting their mutation has clinical implications in screening and choosing targeted therapies; and multi-gene panels have been widely used for genetic testing (Chen, Fan & Xie, 2016).

Colorectal cancer

•Epidemiology: ranks 5th mortality in China and 3rd mortality in the US (Global Cancer Observatory, 2019).•Clinical trials: 59 and 664 clinical trials in phase I in China and the US respectively (US National Library of Medicine, 2019).•Trends: a recent study basing on gene expression suggests categorization of colorectal cancer into four ‘consensus molecular subtypes’ (Guinney et al., 2015). In recent clinical guideline, when considering anti-EGFR

therapy, metastatic colorectal cancer patients should receive extended RAS testing of tumor (Allegra et al., 2016). Few biomarkers are licensed for clinical use treating colorectal cancer (Richman & Jasani, 2018).

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Precision oncology is considered a promising approach to address the challenge

of cancer, and VC is an important source of funding to support innovation and the

transfer of technology from research to practice. With the rapid growth of Chinese

VC in recent years, there are increasing interests and needs among them to go abroad

and engage more in cross-border investment, particularly in the US. Therefore, the

objective of this project was to enable Chinese VC to make better decisions in

investing in precision oncology start-ups in the US in order to improve the targeting

of their investment and to enhance the effectiveness of technology transfer. Designed

under the macro-framework of technology transfer, this project utilized a mixed-

method research approach that enabled the development of a model of cross-border

VC decision-making in precision oncology for Chinese VC investors.

5.1.1 The primary trends of Chinese VC investment in precision

oncology in the US over the past two decades

Quantitative analysis on the 680 recorded deals involved Chinese VC investment

in the US healthcare in the past two decades reveals the following trends:

1) The number of VC deals in the US healthcare start-up market involved Chinese

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VC has increased sharply since 2014 and reached a peak in 2018, accounting for

almost one-tenth of the total number of VC deals made in US healthcare start-

ups.

2) The total size of the deal involved Chinese VC investment raised significantly

since 2014, and in 2018 it hit a record-high by accounting for 18% of the dollars

invested in the US healthcare start-ups.

3) In the past decade, the average size of the deal involved Chinese VC was 1.5 to 2.5

times that of the deal in the US. The highest difference occurred in 2011 and 2012

when US VC deal size averaged $10.1 million and $8.6 million while deal size

involved Chinese VC averaged $25.9 million and $21.7 million respectively.

4) Biotechnology, pharmaceuticals, and medical instruments attracted most of the

investment; California- and Massachusetts-based start-ups attracted 75% of the

Chinese VC investment in the US healthcare.

5) Projects in precision oncology accounted for more than half of the investment in

precision medicine since 2001; in general, these deals were significantly larger

than other projects in healthcare.

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5.1.2 The purposes and preferences of the Chinese VC in investing in

precision oncology

Literature shows the growing interests among Chinese VC to invest in the US

healthcare market in recent years as the Chinese VC industry has boomed. With the

rising volume in fundraising and a series of favorable national policies, Chinese VC

investors started to invest in overseas start-ups to diversify their portfolios and to

gain potentially high financial return.

Interview data shows that Chinese VC investors are attracted to the US by its

mature VC eco-system and its vigor in innovation in comparison with the lack of

quality start-ups in China in healthcare. What is noteworthy is that it appears that

Chinese VC investors care more about long-term strategic gain than immediate

financial return when investing in the US: they want to bring the innovation to the

Chinese market. Chinese VC investors prefer therapeutics, especially those related to

high-incident cancer; there is also a trend of increasing investment in start-ups at the

early stage. The science underlying the product and the management team leading

the start-up are the two most important factors for investment selection. Chinese VC

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investors also place heavy weight on the possibility of the product being approved by

the China State Food and Drug Administration, which echoes their primary

investment purpose of bringing the product to the Chinese market.

5.1.3 The 3M model of cross-border VC investment decision-making

The 3M model was developed based on the 14 themes that were derived from the

qualitative interviews in conjunction with supporting evidence from literature and

quantitative data analysis. The 3M Model is designed to assist Chinese VC investors

to make decisions on investing in start-ups in precision oncology in the US.

The 3M model consists of three components: Macro-environment, Motivation,

and Match. The Macro-environment component includes political, economic, legal

and health system factors in both structure and policy dimensions. The Motivation

component focuses on the financial and strategic purposes underlying the

investment. The Match component includes both the demand and the supply: the

demand side focuses on the needs of the Chinese VC investors and helps them to

assess start-ups with specific criteria to decide when to invest and what extra

resources to add. The supply side refers to the innovative start-ups in the US; the

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model provides product segmentation to help Chinese VC investors understand the

strengths and weaknesses of the products and the market by further linking it with

the data on cancer. To guide such a systematic evaluation, four toolkits were

developed to work through the analysis step by step.

5.2 Limitations

There are limitations of this project in both design and implementation. This

project does not address the issue of health equity in viewing precision medicine and

precision oncology. In practice, data quality, inconsistent definitions, pre-

assumption and pre-conceptions were the primary challenges which the author

encountered.

5.2.1 In project design

As this project was designed to focus on VC funding innovation in precision

medicine and precision oncology, it did not include the perspective of health equity,

which is an important aspect for further research. While the majority consider

precision medicine and precision oncology as promising in improving people’s

health, there are concerns that precision medicine and precision oncology -

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particularly clinical interventions – cannot address health inequalities and inequity,

as social determinants of health, rather than clinical care, drive the differences in

health (Bayer & Galea, 2015). Moreover, in the real world, there are broad challenges

in integrating precision medicine and precision oncology into healthcare services

(Ward & Ginsburg, 2017), and legal issues in intellectual property and beyond; these

are vital to technology transfer (Rai, 2017) but not sufficiently studied in this project.

5.2.2 In project implementation

Data quality is one clear limitation in terms of the project implementation. As the

project incorporated secondary data, the data quality, including its accuracy and

completeness, was beyond the author’s control. To improve data accuracy, one

solution adopted is to verify the data against multiple sources. To cope with the

missing data (less than 15%) in the deal size indicator, the author used average value

in statistics, which affects the rigor of the results.

In particular, the VC deals participated in by Chinese investors are confined to

VC firms geographically based in China, thus exclude those Chinese investors who

are limited partners in VC firms located outside China. As a result, the actual volume

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of the total Chinese capital participating in the US healthcare VC activities is very

likely to be more significant. In contrast, the indicator of deal size in the database

records the total amount of investment in syndicated deals, thus, it is impossible to

differentiate the share of the Chinese VC investment. From this aspect, the actual

contribution from the Chinese VC in each deal is lower than the deal size recorded.

In addition, this study reviewed various reports, websites and literature to collect

information; as the definitions of terms from each source vary, the data collected was

not consistent. In order to address this issue, the author defined the terms used in

this project in the Glossary and Definition section (in appendix 7.6). In terms of

qualitative method, the risk of “assuming shared meanings” (Green & Thorogood,

2004) and pre-conceptions (Malterud, 2001) exist during the interview and in the

thematic analysis. Be aware of the limitations and reflect on them throughout the

process of project implementation add to the validity (Malterud, 2001).

5.3 Implications of the Project

This project links VC with healthcare, viewing this linkage through the lens of

technology transfer. In addition to the findings and takeaways presented above, this

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project also has implications on the mechanisms of enhancing the effectiveness of

technology transfer to further improve people’s health.

5.3.1 Contribution of the project

There are many studies on precision medicine and precision oncology in the

medical and public health field, and on VC in the business field; however, there are

few studies that link the two fields. Given the increasing involvement of VC in

precision medicine and precision oncology (Norris et al., 2019), there is a call for

health professionals to learn more about VC (Huang & Nambudiri, 2020). This

project is pioneering and distinctive as it integrates precision oncology and VC from

an inter-disciplinary perspective. It helps health professionals to understand how VC

works and thus improves their use of VC resources to deliver the right treatment to

the right patients. On the other hand, it brings VC investors more knowledge on

precision medicine and precision oncology to promote funding R&D for bringing

novel diagnostics and therapeutics to the market.

5.3.2 Future exploration

The author suggests that there are two likely directions for further research. The

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first is to apply the model in VC decision-making to real world situations and to

continuously revise and improve the model through case studies. The second is to

expand vertically and refine the toolkits for each component. For example, many

analytical tools could be applied when using the model, such as stakeholder analysis

for the political factor under the Macro-environment component.

5.3.3 Enhancing the effectiveness of technology transfer to serve the

ultimate goal of improving people’s health

VC contributes to the enhancement of the effectiveness of technology transfer by

strengthening a national innovation system through two mechanisms: integrating

resources within the innovation system and maintaining a virtuous cycle by

promoting economic growth to sustainably support innovation.

Under the UNCTAD (2014) framework of a national innovation system, VC

serves a vital function in connecting resources between the education system,

research centers and industrial sectors; it brings scientific discovery to applied

development for the market (Ryan, 2012). VC integrates the investors, the

innovators, and the market (Leong, Tan & Leong, 2014) to support cutting-edge

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innovation in precision medicine and beyond. Meanwhile, there are incentives and a

reward system (Barker, 2016 Chapter 5) in VC to push start-ups to develop products

and services to meet the market’s needs. This mechanism increases the pace of

technology transfer and directs innovation towards targeting the unmet needs more

precisely.

Access to VC funding may affect the wealth of nations significantly (Sorenson &

Stuart, 2001); this has been demonstrated in the American economy as small

businesses and start-ups influence innovation to a great extent (Cumming, 2010,

Chapter 1). Thus, the booming VC industry creates a virtuous cycle, as the financial

return from VC investment continuously cycles back to support further innovation.

As precision medicine is developing rapidly in recent years in China, there is

immense potential that VC will become one pillar supporting the growth of small

businesses in biotechnology, pharmaceuticals and healthcare services, thus

generating vast economic impact (Dauterive & Fok, 2004) to further promote

innovation in healthcare in China.

Innovation in technology provides us with new weapons to fight diseases, and VC

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is a sustained funding source to support R&D, clinical trials and commercialization

of novel ideas in the fields of precision medicine and precision oncology (Huang &

Nambudiri, 2020). The ongoing innovation in precision medicine is promising to

create breakthroughs in healthcare (Jaffe, 2015), thus bringing personalized

diagnostics and therapeutics to patients through effective technology transfer.

Together, efforts made in investing in the right start-ups lead to delivering the right

treatment to the right patient at the right time (Pothier, 2017, Chapter 1 & 17).

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7. APPENDICES

7.1 Tables

Table 1: description of the dataset and relevant indicators. Data source: Preqin.

Indicator Description Notes

Venture

ID

The identification number for

each deal in the fund-raising

round of portfolio companies

Each deal has a unique number, there

can be multiple VC investors in one

deal.

PortFirm

ID

The identification number for

the portfolio company.

Can appear in the dataset several times

as one company may raise fund from

multiple series/rounds.

Website Website of the portfolio

company.

Incomplete information, as some

websites are no longer accessible, or

changed after M&A.

Stage The stage of fund raising for the

portfolio companies from the

VC investors.

Range from Seed, Series A, B, C, D, E,

F, G, or Round 1, 2, 3, 4, 5, 6, 7; Add-

on, Unspecified round, Venture debt.

Deal size The amount raised in each deal

from VC investors (million $).

Incomplete information with missing

data. Most are syndicated investment.

Investors Name of the VC firm. Multiple VC firms can be involved in

one deal, and one VC firm can also

invest in multiple rounds and in

multiple portfolio companies.

State Location of the portfolio

companies

All portfolio companies are located in

the US.

Notes: VC deals in Preqin database refer to completed investment made directly by private companies

registered in China from seed round until an eventual exit event, such as the company selling shares

to the public for the first time in an initial public offering or it becoming part of a M&A exclusive of the

company. All the VC firms here are located in China, excluding the Chinese firms registered in foreign

countries or foreign VC firms with Chinese limited partners/source of fund.

105

Table 2: data segmentation in the database.

Data source: Preqin; summarized by author.

VC industry and

primary industry*

Sub-industry

Consumer

discretionary

6 deals

Consumer services Hi-tech, e-Commerce, Toy & Hobby Stores, Child Care

Organizations

Consumer products Advanced Medical Equipment, High-Tech, Hardware,

Technology, Mobile Applications, Healthcare IT,

Technology, Medical Software

Healthcare** 642 deals

Biotechnology Agriculture, Agribusiness, Biomedical, Bio-

Pharmaceuticals, Bioinformatics, Life sciences, Genetics &

gene therapy，Healthcare IT, Medical research, High-tech,

Wireless, Medical diagnostics, Molecular medicine,

Biopolymers, Oncology/Cancer (treatment),

Pharmaceutical development, Medical technologies, Data

storage, e-Commerce, Disease diagnosis, Search engines,

Web applications, Mobile applications, Medical software,

Pharmacogenomics, Healthcare, Manufacturing, Perfumes,

Cosmetics & Toiletries, Personal care products

manufacturing, Elective/Aesthetic medicine, Dental

products & services, Dentists offices & clinics, Specialty

pharmaceuticals

Health care*** Disease/medical diagnosis, Biotechnology, Life sciences,

Healthcare IT, Fitness & Gyms, Health & Wellbeing

centers, Consumer finance, Nutritional supplements,

Personal care products Manufacturing, e-Commerce,

Perfumes, Cosmetics & Toiletries, Genetics & Gene therapy,

Oncology/Cancer Treatment, Biomedical, technology, Real

106

estate, Home healthcare services, Intelligent sensors,

Biopolymers, Medical technologies, Medical & Imaging

laboratories, Medical research, Medical Devices,

Pharmaceutical Manufacturing, Pharmaceuticals

Healthcare IT Accounting/Finance Software, Billing, Payments and

Procurement Software, Cloud Computing & Solutions,

Analytics & Performance, Data Storage, Storage

Management, Bioinformatics, Medical Software,

Technology, Pharmaceutical Development, Biomedical,

Biotechnology, Business Services, Medical & Imaging

Laboratories, Dentists Offices & Clinics, Dental Products &

Services, Advanced Medical Equipment, Disease Diagnosis,

Cardiology, Mobile Applications

Home Healthcare Services, Social Networking &

Communication Platform

Medical devices Advanced Medical Equipment, Hospitals, Surgical Centers,

Optometrists and Opticians, Dentists Offices & Clinics,

Dental Products & Services, Hardware, High-Tech,

Intelligent Sensors, Healthcare IT, Technology, Cloud

Computing & Solutions, Medical & Imaging Laboratories,

Medical Research

Medical instruments Advanced Medical Equipment, Life Sciences, Medical

Research, Medical/Disease Diagnosis, Cardiology,

Oncology/Cancer Treatment, Healthcare IT, Medical

Software, Medical Devices, Medical & Imaging

Laboratories, Manufacturing, Medical Equipment

Distributors, Hospitals, Surgical Centers, Optometrists and

Opticians, Analytics & Performance Software

Pharmaceuticals Biopharmaceuticals, Biotechnology, Manufacturing,

Medical Research, Pharmaceutical Development, Genetics

& Gene Therapy, Life Sciences, Predictive Medicine,

107

Specialty Pharmaceuticals, Medical Devices,

Pharmacogenomics,

Oncology/Cancer Treatment

Medical technologies Biopolymers, Medical Diagnostics

IT 28 deals in IT/ software and industry

Internet Information Services, Mobile/web Applications, Search

Engines, Medical Research, e-Commerce, Nutritional

Supplements, Medical Software, Social Networking &

Communication Platform, Healthcare IT

Manufacturing Machine Tool Manufacture, Life Sciences, Electronic

Components, Medical Diagnostics, Medical & Imaging

Laboratories, Industrial Machinery Manufacturing

Software Analytics & Performance Software, Application Integration

Software, Mobile Applications, Healthcare IT, Medical

Software, Social Networking & Communication Platform,

Sales & Marketing Software, Beverages, Bioinformatics,

Cloud Computing & Solutions, Genetics & Gene Therapy,

Predictive Medicine, Systems Management Software,

Fitness & Gyms, Medical Diagnostics, High-Tech, Storage

Management Software, Data Storage, Biotechnology,

Medical Research

Materials 4 deals in Materials and semi-conductor

/electronic

Materials Agriculture Technologies, Biopolymers

Semi-conductors Electronic Components & Semiconductor Manufacture,

Genetics & Gene Therapy, Biotechnology, Technology,

Healthcare IT, Semiconductor Equipment & Testing,

Medical Devices, Electronic Components & Semiconductor

Wholesalers

Real Estate

Telecoms, media

108

and

communication

Energy and

utilities

Food and

agriculture

Infrastructure

Business services

Clean technology

Notes:

* words in bold in the first column are VC industry segments, and words under each VC industry in

the first column are primary industry segments.

** Healthcare here as primary industry used in the Preqin database may or may not include the cross-

cutting industrial areas that relate to health, e.g. healthcare and IT, healthcare and materials.

*** Healthcare here as sub-industry used in the Preqin database refers to a narrow scope, dealing

specifically with medical care services and products used or happened within healthcare sectors

and/or settings.

109

Table 3: information of the participants. Source: author.

Category Number

Affiliation* VC VC fund 18

Corporation VC 4

Family office 1

Scientist 10

Technology transfer officer 4

Incubator chief executive officer 2

Start-up founder 8

Educational

background**

Professional (MD/JD/PhD) 31

Finance/Economics/Management

(CPA/CFA/MBA)

17

Location*** US 27

China 14

Interview form Face to face 26

Phone call 15

Interview language Mandarin 15

English 26

Notes:

* there are interviewees holding multiple identities, e.g. a scientist & start-up founder, or incubator

chief executive officer & start-up founder.

** there are interviewees with both professional and finance titles, e.g. MD & MBA, or PhD & MBA.

*** workplace location of the interviewees.

110

Table 4: the number of deals involved Chinese VC in the US healthcare (year: 2000-

2019). Data source: Preqin.

Location of the VC firm The number of deals participated

Mainland China 486

Hongkong 145

Taiwan 106

Note: no recorded deal from Macau.

Table 5: distribution of deals involved Chinese VC investment in the US (the number

of deals by state, year: 2000-2019). Data source: Preqin.

State In

healthcare

In precision

medicine

In precision oncology

(general definition)

In precision oncology

(narrow definition)

CA 343 310 203 152

MA 122 118 83 65

MD 30 30 26 24

NY 33 27 23 14

PA 22 22 16 6

NC 15 15 10 6

WA 15 15 9 8

MN 11 11 5 2

Others 86 75 50 28

Missing 3 2 1 1

Total 680 625 426 306

111

7.2 One-page Introduction (Bilingual)

PROJECT DESCRIPTION

This is Wen SI's doctoral project to achieve her Doctor of Public Health degree

from Harvard University T. H. Chan School of Public Health (expected graduation in

May 2020). Her project studies Chinese venture capital investment in precision

oncology in the United States, and her host organization is DHB Global.

Precision Oncology, a sub-field of precision medicine, aims to combat cancer

with personalized care. Currently, with the venture capital booming in China, there is

an increasing interest to invest in overseas precision oncology projects for both

financial and strategic purposes. This project aims to understand the investment

trends and preferences of the Chinese venture capital firms through a mixed-method,

including data analysis and semi-structured interviews to develop a decision-making

model for cross-border venture capital investment in precision oncology.

BIOGRAPHY

Wen SI is currently a third-year doctoral student at Harvard T. H. Chan School of

Public Health. Her academic interest lies in health system and precision medicine.

She has extensive work experience in governmental health agencies, NGOs and

teaching hospitals in both China and the United States. Wen received her Medical

degree from Zhejiang University School of Medicine in China, and her Master degree

in Global Health from Karolinska Institute in Sweden.

Contact information

Email: [email protected]

Cellphone: +1 617-602-2520

112

项目简介

该项目是司文在哈佛大学陈曾熙公共卫生学院攻读公共卫生博士的学位论文(计划

毕业时间是 2020 年 5 月)。她的论文聚焦中国风险资本在美国对精准癌症医疗的投

资，此项目依托于 DHB Global 公司。

精准医疗，尤其是精准癌症医疗，旨在为患者提供个性化的医疗产品及服务从而

攻克癌症。近年来，随着中国风险资本的蓬勃发展，对海外精准癌症医疗项目的投资

热情也在增涨。投资者们看重的不仅是投资回报，许多投资也具有战略考量。本项目

旨在通过定量数据分析与定性访谈深入了解中国风险投资者在海外投资的趋势及偏

好，并在此基础上创建跨国精准癌症医疗风险投资的决策模型。

作者简介

司文，目前是哈佛大学陈曾熙公共卫生学院三年级的在读博士生，她的研究兴趣

在于卫生体系与精准医疗。在此之前，她曾就职于中美两国的政府卫生机构、非政府

组织以及教学医院。她毕业于浙江大学医学院临床医学系，并获得了瑞典卡洛琳斯卡

医学院全球卫生硕士学位。

联系方式

电子邮件: [email protected]

手机/微信：+86 150 1010 5054

113

7.3 Interview Topic Guide (Bilingual)

INTERVIEW TOPIC GUIDE (for interviewees)

This interview lasts 30-60 minutes. It aims to better understand the investment

of the Chinese VC (cross-border China or US-oriented funds), including their

investment purposes, preferences and criteria for decision making. The whole

interview will NOT be recorded, but the interviewer will take notes. Name and

affiliation of the interviewee will be anonymized unless agreed by the interviewee to

be revealed in the Acknowledgement section of the thesis. The interview will be

conducted in English. Below are the main topics for the interview.

I. The WHY questions

1. Why are you interested in overseas VC investment?

2. Why do you choose to invest in healthcare, including biotechnology?

3. Why invest? (general purpose of investment)

II. The WHAT questions

4. What’s your expectation of precision medicine/precision oncology?

5. Which feature of the innovation1 do you value most?

1) Relative advantage (market size, intellectual property)

2) Compatibility (with existing technology and fitting into the pathway)

3) Complexity (easy to master and apply)

4) Divisibility (or with multiple functions for other promising usages)

5) Communicability (for dissemination and marketing)

6. What are the other factors you consider important in influencing your

investment decision-making?

7. Besides funding, what other resources could you provide to the start-ups,

say, managerial support, and/or network?

8. How often do you follow up your portfolio companies?

1 Rogers, E. M. (1983). Diffusion of Innovations. New York: Free Press, London: Collier Macmillan.

114

访谈提纲 (受访者使用)

访谈时长为 30-60 分钟。该访谈的目的是了解中国的风险资本投资者（中国对外

或以美国为目的地）的投资需求，包括投资的目的，偏好以及做出投资决定的依据。

整个访谈过程不会录音，但是采访者会进行书面记录。受访者的姓名和机构信息均匿

名，除非受访者允许在论文致谢部分提及其姓名。访谈以中文进行。以下为访谈的问

题提纲。

一、“为什么”的问题

1. 为什么进行海外投资？

2. 为什么选择健康领域，包括生物科技？

3. 为什么投资？(投资的目的)

二、“是什么”的问题

4. 您怎么看精准（癌症）医疗？

5. 您认为创新技术的哪一项或几项特质 1最为重要？

1) 相对优势（市场规模、知识产权）

2) 兼容性（与市场上已有产品的匹配度）

3) 复杂性（是否容易掌握并使用）

4) 可分拆性（是否具有多种功能或有可能开发其它功能）

5) 传播性（扩散及市场营销）

6. 除此之外，还有什么别的因素会影响您作出投资决定？

7. 对于创业公司，除了提供资金支持，您还能为他们提供哪些资源，比如管理

经验，或者人脉网络？

8. 您与所投资的初创企业沟通项目进展频率是怎样的？


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7.4 Interview Guide (Bilingual)

INTERVIEW GUIDE (for interviewer)

This interview lasts 30-60 minutes. It aims to better understand the investment

of the Chinese VC (cross-border China or US-oriented funds), including their

investment purposes, preferences and criteria for decision making. The whole

interview will NOT be recorded, but the interviewer will take notes. Name and

affiliation of the interviewee will be anonymized unless agreed by the interviewee to

be revealed in the Acknowledgement section of the thesis. The interview will be

conducted in English. Below are the questions for the interview.

I. The WHY questions

1. Why overseas VC investment?

1) Compared with domestic VC investment, why are you interested in

investing overseas?

2) In the global market, why are you interested in investing in the US?

2. Why in Healthcare?

1) Compared with other fields, such as IT, engineering, why are you

interested in Biotechnology, and medicine-related innovation?

3. Why invest? (general purpose of investment)

1) What is your top priority expected in investing overseas (return on

investment/technology transfer/intellectual property, others)?

2) What about strategic purposes, such as long-term development?

3) How do you align the interests of your limited partners with your

investment goal? And how do you relate your investment goal to your

investment decisions?

II. The WHAT questions

4. What’s your expectation on precision oncology?

1) In your own words, how do you define precision medicine?

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2) Which function do you prefer: screening/prevention, early detection,

diagnosis, or treatment?

3) Is there any specific type of cancer you are interested in?

4) What is your ideal stage for investment (pre-clinical or clinical; which

phase and why) and what do you think about technology at phase I

stage? Is it too early?

5) In your previous investment, have you invested in diagnostics, or

healthcare services or therapeutics? How did you select the project?

6) What is your typical deal size (for start-ups at different stages)?

7) Data suggest that average size of the deal involved Chinese VC in the

US healthcare often doubles the average deal made in the US, was your

previous experience like this? What do you think are the possible

reasons for this phenomenon?

5. Which feature of the innovation1 do you value most?

1) Relative advantage (market size, intellectual property)

2) Compatibility (with existing technology and fitting into the pathway)

3) Complexity (easy to master and apply)

4) Divisibility (or with multiple function for other promising usage)

5) Communicability (for dissemination and marketing)

6. What are the other factors you consider important in influencing your

investment decision-making?

1) Investing in the idea or the team?

7. Besides funding, what other resources could you provide to the start-ups,

say, managerial support, and/or network?

8. How often do you follow up your portfolio companies?


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访谈提纲 (采访者使用)

访谈时长为 30-60 分钟。该访谈的目的是了解中国的风险资本投资者（中国对外

或以美国为目的地）的投资需求，包括投资的目的，偏好以及做出投资决定的依据。

整个访谈过程不会录音，但是采访者会进行书面记录。受访者的姓名和机构信息均匿

名，除非受访者允许在论文致谢部分提及其姓名。访谈以中文进行。以下为访谈的问

题。

一、“为什么”的问题

1. 为什么进行海外投资？

1) 与国内的风险投资相比，您为什么对于海外风投市场感兴趣？

2) 在全球市场范围内，您为什么对美国风投市场感兴趣？

2. 为什么选择健康领域？

1) 与其它领域相比，比如信息技术类、工程类，您为什么对生物科技和医

药类的创新项目感兴趣？

3. 为什么投资？

1) 您投资的首要目的是什么（投资回报，技术转化，知识产权，其它）？

2) 您的投资是否具有战略目的，比如长期发展？

3) 您有限将有限合伙人的利益与投资目的进行衔接？您的投资决定如何反

映出您的投资目标？

二、“是什么”的问题

4. 您如何看待精准癌症医疗？

1) 您是如何定义精准医疗的？

2) 您倾向于精准癌症医疗的哪一种或几种功能：筛查/预防、早期发现或是

诊断，或是治疗？

3) 您是否对某种或几种癌症特别关注？

4) 您理想的是在什么阶段对项目进行投资，是临床试验前还是临床试验阶

段？为什么？您认为投资处于临床试验 I期阶段的项目如何，是否过

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早？

5) 您之前投资过诊断、治疗或者医疗服务的项目吗？您是如何选择投资项

目的？

6) 您通常投资项目的投资规模是多少（针对不同投资期的初创项目）？

7) 数据显示在过去中国风险资本参与的美国医疗项目平均单笔交易额是美

国平均水平的两倍。您的投资经历是这样的吗？您觉得出现这种现象的

原因是什么？

5. 您认为创新技术的哪一项或几项特质 1最为重要？

1) 相对优势（市场规模、知识产权）

2) 兼容性（与市场上已有产品的匹配度）

3) 复杂性（是否容易掌握并使用）

4) 可分拆性（是否具有多种功能或有可能开发其它功能）

5) 传播性（扩散及市场营销）

6. 除此之外，还有什么别的因素会影响您作出投资决定？

1) 看重项目创意还是团队？

7. 对于创业公司，除了提供资金支持，您还能为他们提供哪些资源，比如管理

经验，或者人脉网络？

8. 您与所投资的初创企业沟通项目进展的频率是怎样的？


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7.5 Abbreviations

IT: Information Technology

M&A: Merge and Acquisition

PCR: Polymerase Chain Reaction

R&D: Research and Development

US: the United States

UNCTAD: the United Nations Conference on Trade and Development

VC: Venture Capital

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7.6 Glossary and Definition

CAR-T therapy: is “type of treatment in which a patient's T cells (a type of

immune system cell) are changed in the laboratory so they will attack cancer cells.”

Source: National Cancer Institute,

https://www.cancer.gov/publications/dictionaries/cancer-terms/def/car-t-cell-

therapy

CRISPR: stands for Clustered Regularly Interspaced Short Palindromic Repeats,

which are “the hallmark of a bacterial defense system that forms the basis for

CRISPR-Cas9 genome editing technology.” Source: Broad Institute,

https://www.broadinstitute.org/what-broad/areas-focus/project-

spotlight/questions-and-answers-about-crispr

Genetics and Genomics: Genetics is the study of “heredity”, and Genomics is the

study of “genes and their functions, and related techniques.” The main difference

between genomics and genetics is that “genetics scrutinizes the functioning and

composition of the single gene whereas genomics addresses all genes and their inter-

relationships in order to identify their combined influence on the growth and

development of the organism.” Source: WHO,

https://www.who.int/genomics/geneticsVSgenomics/en/

Healthcare: in this project is defined in a very broad term. It not only refers to

preventive and medical measures to improve people’s health, but also includes the

extended industry that serves this purpose, for example, biotechnology, life science

that relates human being, pharmaceuticals et al. In addition, services and functions

of health system through which healthcare services are provided is also a component

of healthcare. Source: author and BusinessDictionary,

http://www.businessdictionary.com/definition/health-care.html

Immunotherapy: is a type of “biological therapy that helps immune system to

fight cancer.” Biological therapy uses “substances that are made from living

organisms, or versions of these substances that are made in a lab.” Source: National

Library of Medicine, https://medlineplus.gov/cancerimmunotherapy.html

Initial Public Offering: or IPO, is “the first sale of stock by a private company to

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the public. IPOs are often smaller, younger companies seeking capital to expand their

business.” Source: Venture Choice, http://www.venturechoice.com/glossary/

Likely Precision Medicines: in this project, LPMs refers to its “generous

definition” stated in the Chandra, Garthwaite & Stern (2018) paper, as “trials using

biomarkers whose role include diagnosis, differential diagnosis, predicting drug

resistance, predicting treatment efficacy, predicting treatment toxicity, screening and

selection for therapy.”

Limited partners: is “a business organization with one or more general partners,

who manage the business and assume legal debts and obligations and one or more

limited partners, who are liable only to the extent of their investment.” Limited

partnership is “the legal structure used by most venture and private equity funds.”

Limited partners also “enjoy rights to the partnership's cash flow but are not liable

for company obligations.” Source: Venture Choice,

http://www.venturechoice.com/glossary/

Next Generation Sequencing: is defined as “technology allowing one to

determine in a single experiment the sequence of a DNA molecule(s) with total size

significantly larger than 1 million base pairs (1 million bp or 1Mb).” Source:

ScienceDirect, https://www.sciencedirect.com/topics/medicine-and-dentistry/next-

generation-sequencing

Pharmacogenomics: is the study of “how genes affect a person’s response to

drugs.” This relatively new field “combines pharmacology (the science of drugs) and

genomics (the study of genes and their functions) to develop effective, safe

medications and doses that will be tailored to a person’s genetic makeup.” Source:

National Library of Medicine,

https://ghr.nlm.nih.gov/primer/genomicresearch/pharmacogenomics

Precision Oncology (general definition): in this project, refers to the healthcare

services and products directly and indirectly relate to cancer screening, diagnosis and

treatment, including prognosis prediction. General procedures such as quick blood

test, point of care, PCR et al that could support diagnosis and treatment in cancer or

cancer complications are all considered within this category. Source: author.

Precision Oncology (narrow definition): in this project, refers to healthcare

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services and products directly relate to certain type of cancer screening, diagnosis

and treatment. For example, new drugs in the development pipeline should have

specific application in cancer (e.g. Breast cancer) or cancer groups (e.g. solid tumor).

Source: author.

Proteomics: studies “proteins in a large scale, on their structure, physiological

role and functions.” Source: ScienceDirect,

https://www.sciencedirect.com/topics/neuroscience/proteomics

Transcriptomics: Transcriptomics is the study of “the transcriptome - the

complete set of RNA transcripts that are produced by the genome, under specific

circumstances or in a specific cell—using high-throughput methods, such as

microarray analysis.” Comparison of transcriptomes allows “the identification of

genes that are differentially expressed in distinct cell populations, or in response to

different treatments.” Source: Nature,

https://www.nature.com/subjects/transcriptomics

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