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Brett Johnson: This is Brett Johnson in New York with OneMedRadio. Today, we are with James Huang who is with the venture capital firm Kleiner Perkins Caufield & Byers in China based in Shanghai. They’re focused on healthcare and life sciences. James is co-chairing the China Forum II January 9th in San Francisco, which is part of the OneMedForum. It’s an afternoon of panels and networking with leading executives and investors focused on opportunities in the rapidly growing healthcare sector in China. Thanks for joining us today, James.
James Huang: Thank you very much, Brett. I’m pleased to be here.
BJ: So, first up, when talking about sort of what are some of the biggest things happening, what are the big trends in healthcare in China now?
JH: One of the things we’re seeing in China is the American firms primarily they are looking to expand into China across both the biotech as well as medical device sector. To some extent, we’re seeing a little bit on the medical equipment and diagnostic sector, but primarily driven by biotech companies seeking ways to expand their business in China.
BJ: So what are the big challenges? If you’re a US company for example and you’ve got a great technology whether it’s a device or whether it’s a new drug, I mean what are the big challenges you face? I mean how does one think about approaching China?
JH: You know, it’s very difficult to navigate through the very complex process of doing business in China right along the traditional cultural differences you may see between the American culture and the Chinese culture. For example, when you think about China, you envision the traditional IP government regulation that you need to think about. It’s very, very important to think about when you’re bringing a product into China how are you going to entrust your assets into a group of individuals you have never dealt with and whether or not these folks that you’re working with are committed to go through the ups and downs, the tradition of bringing a product to the marketplace. I think that process is extremely complex and very difficult to navigate.
BJ: So some people I’ve talked to have indicated to me that, you know, going and trying to launch a company in China is really not a great idea and that really the only way to do this is to identify an appropriate partner over there. Would you concur with that?
JH: I definitely concur with that. You know, it depends on the kind of product you have, the sector you’re in, there’s a number of licenses that may be required to actually bring your product to venture into the marketplace. In itself, it is very cumbersome for any American company trying to do so by themselves from the United States. So therefore without a local partner you can work with or at least a group of managers that you can trust that know how to navigate through the system, I think it would be very, very difficult.
BJ: So what are the ways that you’ve seen people successfully find partners in China?
JH: There are a few ways of doing so. So let’s just start on the basic part. To actually enter a marketplace, there’s always the capital requirement that’s needed and many firms had gone through the traditional venture capital firm, they’ve gone through — even all the way to through a hedge fund to do so. Some of the investments banks also play a role in financing some of that, but that’s pretty rare. And we’re seeing more of angel investors now coming into the marketplace to help some of the companies to commercialize their technology at least for the seed capital end. So that’s one way of doing so. And then the second thing that’s very important is actually finding the management team that you trust. Now I could not stress this more than anything else. If you can find yourself a good professional manager to help you do so, that will be ideal, which is not easy.
So what we’ve seen in the past five years is that that returnees from the United States as well as in Europe coming back to China in such a large number that many of them have development experience and commercialization experience that can really help American companies to actually work with the local government to be successful. So those are the two things that I really recommend any of the American companies to really focus on.
BJ: You mentioned angel investors. Would these be Chinese investors, angel investors, is that correct?
JH: Yes, these are actually Chinese investors. There are also seed money that are now provided by venture capital firms that they are actually more like angel investors. We are seeing this trend very clearly in other sectors outside life sciences, but in recent months, we’re seeing the same group of angel investors actually entering the life science sector to find companies.
A good example is a company that’s based on Hangzhou that this past year received $100M to actually start a biotech company and it’s all funded by a major investor.
BJ: Right. And speaking with some of those types, I’m aware that there’s been a great deal of wealth created by entrepreneurs in China and a lot of the natural resource sectors and the real estate sectors and increasingly are interested in investing and operating companies. And they’re seeing healthcare is one of the areas that’s an ongoing growing field. Is that sort of the nature, these are sort of successful entrepreneurs that made elsewhere and now want to move it into the healthcare business?
JH: Absolutely. Also because of their relationship with the local government. An angel investor tends to work with the local government through a variety of schemes to help local businesses to blossom. And one of the key initiatives that we identified by the local government as well as the central government is biotech in the next five years, and so we’re seeing angel investors working closely with the local government to bring in technologies and products outside of China. And the second thing also is that some of the major capital firms like Kleiner Perkins were really much focused on the technologies outside of China that may benefit and raises the standard of living in China and life sciences is one sector that we are strategically focused on.
And in many cases, we also work government much like the angel investors to actually bring these products into the country. And the amount of money often that’s required is not that large and very small unlike the traditional venture capital type of investment requirement. Because many times, the government is willing to put in non-diluted financing into these types of deals and so the amount of money that’s actually put up by a venture capital firm is actually quite small and in many ways it looks more like an angel investment.
BJ: Interesting. So the engagement and the active engagement of the government makes sort of the cost for venture investors lower to get into some of these deals?
JH: Yes, that’s part of the reason. The other reason has more to do with the fact that the government has learned from other sectors in the past that without professional venture capital firm’s involvement in technology driven type of deals or type investment that their own investment will not bear fruit. So they have learned through their own lessons in the past decade that where they were to take early stage type of an investment for technologies and products and make that be commercially successful enterprises and the way to do so is by working with venture capital firms.
BJ: Interesting. So in terms of the forum that you’re chairing on January 9th in San Francisco, I see from the agenda that you’ve broken it down into sort of three general areas, a government session, a doing business session, and a finance session. Can you talk a little bit about what’s going to be covered on January 9th?
JH: Sure. Well obviously, folks have to be aware of some of the key changes that are happening in China so we will be going through that. Then we’ll take a look at the regulatory environment, this is very important in China to navigate through both the local and central government policy changes, to understand the landscape and some of the incentives that the government has put in place. Whether it’s taxes, whether it’s the land, or whether it’s factories, it’s very important to get a good understanding. Then we’ll move into a general understanding of what’s happening with the life science sector and that will be chaired by Dr. Tony Zhang of Eli Lilly. And these folks will give a very good understanding that within the life science sector what are some of the key success factors that actually have brought other companies into the marketplace and some of the key drivers of the marketplace.
Then we’ll go into more of the financing discussion, which is very important for all the American firms that are trying to enter China who get many options that are available to companies. And then hopefully with the entire panelists, we’ll have an opportunity to really talk about what it is we’re seeing in 2012. Given what has happened in 2010, what has happened in 2011, we expect 2012 to be another very dynamic year for healthcare in China.
BJ: That sounds like a great program. Can you tell us a little bit about your background and how you got involved with Kleiner Perkins in China?
JH: I’ve been passionate about working with entrepreneurs for many, many years. I actually worked many years in big pharmaceutical companies as well as biotech companies for more than 20 years and then I moved over to the investment side in 2007. My goal at Kleiner Perkins is to really work with entrepreneurs as well as work with American companies and European companies that have breakthrough technologies. And together with our capital, we can create scalable, exiting life science companies in China that can over time raise healthcare standard in China, which is one of the lowest in the world. So that’s our goal and I’m very excited to look forward to meeting many people at this conference and see if there are ways in which we can work with entrepreneurs to make it happen.
BJ: Well it sounds like there’s a lot of exciting opportunities there and it sounds like you’re quite actively engaged in making those things happen. Thanks so much for joining us today, James.
JH: Thank you very much, Brett, for inviting me to be on the conference.
BJ: So that is James Huang who is with the venture capital firm Kleiner Perkins Caufield & Byers in Shanghai, China joining us today and telling us a little bit about the China Forum he’ll be co-chairing in San Francisco on January 9th. Thanks so much for joining us. This is Brett Johnson of OneMed Radio signing off from New York.