Sound in­vest­ments for the long haul

Daniel Auer­bach leads Eight Roads into back­ing ven­tures that could make last­ing dif­fer­ence to China

China Daily (Hong Kong) - - BUSINESS - By WU YIYAO in Shang­hai wuyiyao@chi­nadaily.com.cn

Dressed in a three-piece suit, Daniel Auer­bach sits on a sofa and leans for­ward, lis­ten­ing at­ten­tively to peo­ple at a meet­ing on a sunny af­ter­noon in Shang­hai. Some­times, peo­ple grill him with tough ques­tions: but, even when he does not im­me­di­ately like some ideas he hears, he does not in­ter­rupt, but waits for his chance to ex­plain and clar­ify.

Auer­bach is calm, col­lected and pa­tient. Pa­tience, he says, is one of the most needed qual­i­ties in terms of long-term in­vest­ment and value in­vest­ment, which dif­fer­en­ti­ate him and his team among thou­sands of cap­i­tal ven­tures that seek to make a fast buck.

Now the senior man­ag­ing part­ner at Eight Roads Ven­tures China, for­merly Fidelity Growth Part­ners, the pro­pri­etary in­vest­ment arm of Fidelity In­ter­na­tional Lim­ited, Auer­bach has been work­ing in ven­ture cap­i­tal busi­ness for more than 30 years, 20 of which were in key Asian mar­kets like China, In­dia and Ja­pan.

Auer­bach is as­so­ci­ated with the es­tab­lish­ment of some of the re­gion’s most suc­cess­ful in­de­pen­dent busi­nesses and has held key board roles with well-known com­pa­nies such as Alibaba, WuXi Phar­mat­ech, Asi­aInfo and Asia Re­nal Care.

Auer­bach calls early stage in­vest­ments “start­ing from zero”. Eight Roads’ fo­cus is on early stage in­vest­ments be­cause it is will­ing to spend a lot of time bringing value to in­vested en­ter­prises, said Auer­bach. “Five years, seven years, 10 years, 15 years, or even 20 years, we are will­ing to spend time help­ing the in­vested en­ti­ties grow.”

Us­ing Eight Roads’ pro­pri­etary cap­i­tal, the prin­ci­pal in­vest­ment teams back estab­lished growth busi­nesses where pa­tient cap­i­tal can build sig­nif­i­cant value over time.

“Many of the star­tups we have in­vested in, par­tic­u­larly in biotech, pharmaceutical and health­care seg­ments, were quite small when they started but now they are grow­ing to a sig­nif­i­cant size. In 20 years of in­vest­ment ser­vices in China, we have seen a num­ber of suc­cess­ful cases where we started from zero. I be­lieve in this coun­try. De­vel­op­ment of ser­vices, in­no­va­tion, tech­nolo- gies and in­for­ma­tion re­quire long-term support that only pa­tience can pro­vide, which will help them to ma­te­ri­al­ize with a long-term vi­sion,” said Auer­bach.

In­dus­try re­searchers said that health­care seg­ments in­clud­ing med­i­cal ser­vices, biotech and phar­ma­ceu­ti­cals have be­come top op­tions for ven­ture cap­i­tal firms in China in re­cent years.

A re­search note from Bain & Co said that pri­vate equity firms pre­fer them over others, and they will con­tinue to grow as China’s res­i­dents are at­tach­ing in­creas­ing im­por­tance to health.

The Chi­nese peo­ple are also will­ing to spend more on well­be­ing, a bet­ter qual­ify of life, par­tic­u­larly when dis­pos­able in­comes and house­hold wealth in­crease.

Eight Roads as­pires to go be­yond es­tab­lish­ing en­ti­ties. It aims to be­come a stan­dard­set­ter and a cre­ator of new mod­els, said Auer­bach.

Shang­hai DeltaHealth Hos­pi­tal, which opened in June 2016, is one of the lat­est in­vest­ments of Auer­bach-led Eight Roads. The hos­pi­tal has a strong fo­cus on car­di­ol­ogy and car­diac surgery. It is the first and only car­dio­vas­cu­lar hos­pi­tal ad­vised by Columbia HeartSource team in China.

It took Auer­bach and his team six years to trans­form an idea into a more than 200-bed hos­pi­tal serv­ing pa­tients in Shang­hai and the Yangtze River Delta.

Eight Roads did not dis­close de­tails of the size of its in­vest­ment in the hos­pi­tal. But in­for­ma­tion in the pub­lic do­main showed that China Mer­chants Bank loaned $100 mil­lion to DeltaHealth. So, the to­tal in­vest­ment must be big­ger

Many ques­tioned if Auer­bach and his team would see healthy re­turns on their in­vest­ment in the hos­pi­tal. Some even doubt whether the hos­pi­tal project would ever be­come prof­itable as a busi­ness.

In this con­text, in­stead of talk­ing about money, Auer­bach fo­cuses on “serv­ing the pa­tients”.

Un­like PE funds that in­vest third-party in­vestors’ money and hence are con­cerned about short-term re­turns on in­vest­ment and the fi­nan­cial per­for­mance of firms, Eight Roads fo­cuses on bringing long-term ben­e­fits and con­sis­tent care to pa­tients, said Auer­bach.

“We also hope that we can work closely with China’s pub­lic health­care ser­vices sys­tem to in­spire a new busi­ness model (for the in­dus­try) and help re­form the en­tire med­i­cal ser­vices,” said Auer­bach.

Shar­ing his ex­pe­ri­ence of long-term in­vest­ment, Auer­bach said he is a strong be­liever in in­tegrity and pos­i­tive changes over time. “I want to get it right, and get it to the top stan­dard,” he said.

In the con­text of boom­ing in­no­va­tion-driven star­tups and the na­tion­wide cam­paign to en­cour­age in­no­va­tion and en­trepreneur­ship, Auer­bach is glad to see emerg­ing op­por­tu­ni­ties and a num­ber of po­ten­tial in­vestible pro­jects.

As a vet­eran in­vestor, Auer­bach said he sticks to the phi­los­o­phy of in­vest­ing in pro­jects that one is pas­sion­ate about and mak­ing ev­ery ef­fort to in­spire new stan­dards.

“We want to back in­no­va­tion, we want (in­vest­ments) to be prof­itable, we want to make it hap­pen — but we don’t want to rush. There is no short-cut,” said Auer­bach.

Many of the star­tups we have in­vested in ... are grow­ing to a sig­nif­i­cant size.”

Daniel Auer­bach, senior man­ag­ing part­ner at Eight Roads Ven­tures China

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