The Inflection Point Of Biomedical Early Investment: Four Kinds Of Funds To Build Industry Ecology

Zhao Na, researcher of the 21st century innovation capital research institute

Angel investment is not easy, but it will not die out because of its value.

In recent years, the investment channels in the field of private equity investment are constantly changing, but the difficulty of fund-raising is a common topic. The situation in 2021 is slightly improved, but it is far from that before the new asset management regulations.

According to the statistics of Qingke private equity, the trend of difficulty in raising funds in domestic equity investment market will continue in 2020, with a total amount of new raised RMB 1197114billion, a year-on-year decrease of 3.8%. In the first half of 2021, the newly raised amount increased slightly year on year, but it was still at a low level in recent three years.

Raising Angel funds looks harder. According to the data of private equity, early investment institutions raised 5.894 billion yuan in the first half of 2021, with the average scale of fund-raising decreasing by 8.5% year-on-year and 34.2% month on month. Qingke's definition of "early investment institution" is one that focuses on investing in the equity of early and seed enterprises.

The other side of the dismal fund-raising data is that angel investment has been receiving positive signals since 2020.

From the perspective of fund-raising, since 2020, many large Angel master funds have begun to expand or set up. From the perspective of policy, many departments encourage the establishment of venture capital guidance funds to guide social capital to invest in early projects. From the exit side, in addition to chapter 18a of the Hong Kong Stock Exchange and the Shanghai Science and technology innovation board, the news of the establishment of the Beijing stock exchange has been confirmed.

The 21st century innovation capital research institute has found that angel investment is ushering in good news under the promotion of the above-mentioned policies, fund-raising, exit and other aspects. Among them, there are many industry focused Angel funds in the medical and health field.

"From 0 to 1" of health Angel Fund

Turn the clock back to 2014. This year is the beginning of the VC2.0 era of China's private equity investment industry. Many venture capital teams that have stepped into the first-line or even top-level institutions officially pulled the investment trigger in that year.

At that time, the fund-raising environment of private equity investment industry was getting better, and many backbone of old-fashioned investment institutions began to start their own businesses independently. In addition to the outstanding past performance of fund founders and founding teams, they also have a major feature, which is their focus on the investment field.

VC2.0 generation of medical and health funds and medical investment teams of established institutions have become capital hunters in the field of biomedicine. With the introduction of the new regulation 18a of the Hong Kong Stock Exchange and the implementation of the registration system of the science and technology innovation board and the growth enterprise market in A-share market, these investment institutions and their medical investors have gained a lot.

Many of the above-mentioned investment institutions benefit from the industry's early entry and early investment. However, on the other hand, it was still difficult to support the emergence of medical and health or biomedical Angel funds at that time. Institutions with the ability to make "from 0 to 1" investment are mostly allocated to Angel stage by reserving a certain proportion of funds.

The mint angel fund, which was established in August 2015, fills the gap of medical and health Angel Fund. The earliest investors of mint angel fund include Hengrui pharmaceutical, yaomingkangde, Xiansheng pharmaceutical, TEG medicine and Feifei group.

A few years later, the mint Angel Fund has reached its third phase. According to the announcement on investment in partnership issued by Hengrui pharmaceutical in July this year, the scale of phase III of mint fund will be no less than 260 million yuan, and the investors include Hengrui pharmaceutical, Xiansheng pharmaceutical, Qilu pharmaceutical, etc.

The latest trend change is in 2020. This year, the scale of Shenzhen Angel master fund expanded from 5 billion yuan to 10 billion yuan, becoming the largest Angel master fund in China. After entering 2021, Suzhou, Changzhou, Dongguan, Guangzhou and other places have successively set up or proposed to set up Angel master funds, with the unit of "billion" as the unit.

For the government agencies that initiate the establishment of angel master fund, their funds can realize the amplification effect through the guidance fund mode, on the one hand, it can support the rapid development of local early projects, on the other hand, it can attract more high-quality projects to land.

The accelerated entry of angel master fund makes it possible for angel investment funds focusing on medical field to raise funds. The 21st century innovation capital research institute has found that Shenzhen Angel master fund, Suzhou Angel master fund and Suzhou Industrial Park Angel Fund have all contributed to special medical health Angel Fund and even biomedical Angel Fund.

It is not only government departments but also scientific research institutes that provide living water for Angel Fund. In 2018, the first phase of the master fund for transformation of scientific and technological achievements of the Chinese Academy of Sciences was established in Wuhan. In December 2020, Guoke holdings and the science and Technology Department of Guangdong Province reached a cooperation and planned to set up a phase II fund in Guangzhou, with a fund scale of 6 billion yuan.

Li Guochun, partner of Yuansheng venture capital, believes that China's early investment in biomedicine is at a turning point. On the one hand, entrepreneurs and investors are optimistic about the opportunities of license out transactions for Chinese pharmaceutical companies. On the other hand, the introduction of chapter 18a by the Hong Kong stock exchange, the implementation of the science and Innovation Board of Shanghai Stock Exchange and the recent information of Beijing stock exchange have brought confidence to investment institutions.

"The state does this not only for the sake of medicine, but medicine is definitely a great beneficiary." Li Guochun analyzed that the government has continuously injected vitality into the industry through capital market reform. With many advantages, the biomedical industry is ushering in early investors with different backgrounds.

The first year of Angel Fund for biomedicine

With the positive feedback effect of angel master fund gradually reflected, the enthusiasm of setting up master fund to contribute to the early fund continued to rise.

After the barriers to fund-raising were gradually broken, more angel funds focused on the field of big health appeared in the local market, some of them further focused on the biomedical industry.

There are four types of angel funds that focus on biomedical field in the market: Angel funds established by PE / VC institutions with deep medical background, angel funds established by industrial enterprises, angel funds established by scientific research institutes and biomedical incubators with physical carrier space.

1、 Not only the traditional angel investment institutions, including comprehensive PE / VC funds, medical industry PE / VC funds and other financial institutions, are entering the angel investment stage or increasing the allocation in the angel investment stage.

According to the report of science and technology daily in December last year, well-known local institutions and universities have strong willingness to invest in key industries in Suzhou. Yuansheng venture capital, Soochow securities and Suzhou Medical Institute have all initiated the establishment of angel funds for biomedicine and high-end medical devices.

The 21st century innovation capital research institute has learned that since 2020, Yuansheng venture capital, which has made outstanding achievements in the medical and health field, has successively set up three Angel funds, which are funded by Shenzhen Angel master fund, Beijing Science and technology innovation fund and Suzhou Angel master fund.

2、 In the past, there were many multinational enterprises such as Lilly and AstraZeneca, and local giants such as Hengrui Pharmaceutical Co., Ltd. carried out project layout in the form of industrial funds. Since this year, the capital tentacles of industrial enterprises have been further extended to angel investment stage.

Industry background the core demands of angel fund include enriching product pipeline, tracking and investing in excellent start-ups, etc. it can provide industry empowerment for target enterprises, accelerate the R & D speed of invested enterprises, and even assist start-ups to solve sales problems.

In July this year, ASEN launched the Yasheng angel fund to focus on early investment in the biomedical industry. The investment fields include but are not limited to protein degradation therapy, antibody coupled drugs, double antibody drugs, mRNA and cell therapy and other innovative technology fields.

AXA Angel Fund will be located in AXA global headquarters in Suzhou. Yasheng pharmaceutical headquarters can carry out the whole process from drug discovery to drug clinical, and undertake the functions of independent design, optimization, screening, research, development and transformation of small molecule targeted anti-tumor drugs with new targets. This platform is expected to provide rich incubation resources for the enterprises invested by the fund.

3、 Scientific research institutes are the important gathering places of original innovation achievements. Stimulating the innovation vitality within the system, including the Transformation Fund, can promote the transformation of scientific and technological achievements and accelerate the industrialization of scientific and technological achievements.

In June 2019, Nanshan Pharmaceutical Innovation Research Institute of Guangdong Province, as the leading organization, set up a 200 million yuan scientific and Technological Achievements Transformation Fund, focusing on investment in biomedicine and related fields of scientific research institutions, new research and development institutions, universities and scientific and technological achievements transformation projects.

According to the report of the 21st century economic report at that time, the fund will focus on the advantageous technology fields of universities and scientific research institutions in Guangzhou, adopt the mode of "enterprise + technology + capital + intermediary organization", integrate the technology transfer system and venture capital docking system, and link relevant provincial, municipal and district industrial funds, so as to realize the "precise docking" between the supply and demand sides of scientific and technological achievements, Promote the efficient transfer and transformation of scientific and technological achievements, and promote the deep integration of industry, University and research.

4、 There are many biomedical incubators in China. As the carrier of industrial innovation, these incubators become the bridge connecting the start-up enterprises and the market.

In recent years, there are not only the biomedical incubators planned by local governments and the incubators established by professional operation institutions, but also some industrial enterprises have joined in the operation of biomedical incubators. They not only provide laboratory, office space and public facilities, but also have investment funds in the form of self construction or cooperation.

In the view of biomedical investors, investors with different backgrounds have different advantages and resource endowments. In the early stage, it is more common for all parties to incubate and invest together to achieve win-win and multi win while promoting industrial development.

In this report, some funds for the transformation of scientific and technological achievements in the market are also included in the statistical scope. For such fund managers, angel investment funds are one of the key points to promote the transformation of scientific and technological achievements. In addition to providing funds, they are building a "innovation + industry + capital" platform.

There are not only government agencies and scientific research institutes, but also institutions with industry and investment background.

On August 24, Shanghai biomedical innovation and Transformation Fund, initiated by Shanghai real group and managed by Shanghai real capital, was officially launched, focusing on the investment opportunities of biomedical industry in the "from 0 to 1" stage.

Guo Qiushan, President of Shanghai biomedical innovation and Transformation Fund, believes that the management of early investment funds should pay more attention to cutting-edge technologies and trends. "Our more technical judgment and evaluation sources are the literature, real-world data, clinical data, etc. These are the information we use as an important decision (Reference)," he said

Capital power in the ecology of start-up enterprises

When discussing the innovation and development of biomedical industry, people from government, industry, academia and investment circles often refer to "Boston model" or "Boston experience".

From the industry's point of view, the development of Boston's biomedical industry is rooted in R & D capability and policy support, which is composed of three core elements: University research, top institutions and capital support, and a good environment for innovation and entrepreneurship.

Xu hangzeng, deputy director of the Institute of Biophysics, Chinese Academy of Sciences, said: "the transformation of scientific and technological achievements is a long-term and systematic work. The difficulty lies not only in the individual needs and long-term investment of each transformation project, but also in the creation of the ecological transformation of scientific and technological achievements. This is exactly the key factor that determines how far our scientific and technological achievements transformation can go."

In terms of capital, some biomedical investors have provided such a set of data: the proportion of early-stage funds in the United States is 30%, and that of Boston area is 50%; In contrast, in the Chinese market, the corresponding proportion of this indicator is only 11%.

Zhang Yinzhong and others of Shenzhen Angel master fund wrote in "Reflections on the development status of angel investment in the United States", that the proportion of angel investment in GDP of China is still far behind that of developed countries such as the United States and Israel. They put forward suggestions: on the premise of controllable risk, with the help of the scale advantage of social security fund, allow social security fund to allocate a certain proportion of angel investment; Encourage insurance funds and bank funds to invest in Angel funds in appropriate proportion; Innovating the financing methods of angel investment institutions, including but not limited to listing, issuing corporate bonds and other fixed income products; We will improve and optimize the continuous investment mechanism of government guidance funds, explore the establishment of angel investment evergreen guidance fund, and support the long-term development of angel investment industry.

What is gratifying is that government departments, industrial enterprises, investment institutions and scientific research institutes are actively participating in the construction of start-up enterprise ecology, and angel investment fund has become one of their ways to promote their work.

In July this year, the national development and Reform Commission issued the notice on promoting and learning from the innovative measures and experiences of Shenzhen Special Economic Zone, which mentioned that "giving full play to the role of government investment leverage to establish early venture capital guidance fund", specifically including: using government investment to leverage social capital, establishing venture capital guidance fund in accordance with the principles of marketization and legalization, Build a risk sharing mechanism to lead and promote scientific and technological innovation. In accordance with the business philosophy of "selecting top managers through globalization, introducing early hard technology, recruiting partners through globalization, and transferring territorial income through globalization", a fully market-oriented early venture capital sub fund is established to guide social capital to invest in early entrepreneurial projects, seed stage and start-up enterprises. Venture capital guides the fund to transfer all the excess returns of the sub fund in the process of project investment. At the same time, it can bear 40% of the investment risk of the sub fund in a specific project, and help the seed and start-up enterprises to cross the "Death Valley".

The gate of Angel Fund upstream funds is gradually opened, and investment institutions need more diversified exit channels.

The government has begun to act. In April 2020, Suzhou issued the implementation plan of Building Suzhou's biomedical and health industry landmark (2020-2030) to build a biomedical industry ecosystem with Suzhou characteristics by benchmarking and learning from the "Boston experience" of the United States.

In this plan, Suzhou not only proposes to establish a series of sub funds for biomedical industry investment in terms of financial capital support, but also actively promotes enterprise merger and reorganization, and encourages all kinds of investors to participate in enterprise merger and reorganization through equity investment funds, venture capital funds and industrial investment funds.

Li Guochun said that he expected the local M & a market to be more active, so that start-up companies do not have to blindly pursue listing, and the industrial ecology will develop in a more benign direction.

(this paper is a series of research results on investment and financing of pharmaceutical and health industry of the 21st century innovation capital research institute)