21st Century Business Herald Interview | Dalton Venture's Sun Qi: Healthcare Is a Long, Snowy Slope — Time for Systematic Bets Is Here

Editor's Note

Over the past two years, while the healthcare industry has yet to emerge from its capital winter, most investment firms have grown more cautious. Dalton Venture, however, has remained active on the investment front lines thanks to its distinctive strategy and deep understanding of the sector. Recently, Dalton Venture founding and managing partner Sun Qi sat down with 21st Century Business Herald for an exclusive interview, sharing his unique insights into healthcare industry trends and his confidence and resolve in navigating through cycles.

Author | Shen Junhan

Source | 21st Century Business Herald

Founded in 2015, Dalton Venture focuses on early-to-mid-stage investments and industrial M&A in the life sciences. In 2023, the firm invested in numerous medical companies including StarSea Medical, BioChuang, Bingjing Intelligence, Fuer Medical, Boruidi, Hanchen Optics, Jinqin Manufacturing, and Xiran Medical. So far this year, Dalton has successively backed nearly ten projects including Oushisheng Technology, Astribot, Jichen Biotech, Kangyuan Medical, and Shuimu Molecule.

"We expect to invest in roughly the same number of projects this year as last, but we're definitely being more selective. Compared to peers who have slowed their pace amid the broader environment, we may appear more active — but this is actually our normal investment rhythm," Sun Qi told 21st Century Business Herald in a recent interview.

Dalton, firm in its conviction to deploy capital during the winter, remains confident about healthcare's future. Sun noted that while the industry is experiencing a cyclical bottom, national policy support for industrial development hasn't wavered. Over the long term, with China's aging population, market demand for healthcare continues to grow — this remains a sector with a long runway and deep accumulation.

Healthcare Nears Bottom, Systematic Deployment Opportunity Arrives

Over the past two years, while some peers chose to expand into new sectors or even pivot entirely amid the capital winter, Dalton's team deliberated repeatedly and decided to double down on life sciences. From a sub-sector perspective, the firm focuses on medical devices, biopharma, medical services, and anti-cyclical industries driven by biotechnology as their underlying technology — including food ingredients, cosmetic ingredients, health supplement ingredients, and seed breeding.

"Dalton's choice isn't horizontal sector expansion — after all, knowledge and resources have their boundaries. Rather than switching fields, we'd rather stay anchored in life sciences and undertake moderate vertical stage expansion," Sun said.

All industries have their cycles; even the hottest markets eventually cool. For generalist funds, when one sector cools, they can simply rotate to another. For vertical funds, stage expansion offers a way to navigate cyclical fluctuations. "When investment activity slows, project valuations come down — creating opportunities for M&A. When sector heat returns, investing early and at the angel stage lets you lock in high-quality projects with strong growth potential. Accordingly, we've chosen to expand from VC investing earlier into angel investing, and later into M&A investing," Sun explained.

Dalton maintains its normal deployment pace. Sun attributed this to two factors. First, because of its track record over the years, Dalton has continued to receive capital commitments from LPs, with new funds being established in both 2023 and 2024. Having ample investment ammunition is critical to maintaining pace.

Second, in the current environment, some firms are seeing cash flow problems in their portfolio companies, forcing them to focus on post-investment support and follow-on rounds for existing investments while being cautious about new deals. Dalton, however, had already exited some investments when market conditions were favorable in 2021, and urged remaining portfolio companies to manage cash flow carefully — leaving the firm with capacity to continue deploying into new opportunities.

Meanwhile, support for the healthcare industry at both national and local government levels has reinforced Dalton's conviction. The 2024 Government Work Report, for the first time, collectively included innovative drugs, biomanufacturing, and life sciences: "Accelerate the development of frontier emerging industries such as hydrogen energy, new materials, and innovative drugs. Actively cultivate new growth engines including biomanufacturing, commercial aerospace, and low-altitude economy. Formulate future industry development plans, open up new tracks such as quantum technology and life sciences, and create a batch of future industry pilot zones." This signals that biopharma, biomanufacturing, and life sciences will be prioritized in national industrial strategy.

Moreover, cities including Shanghai, Beijing, and Guangzhou have continuously introduced supportive policies for the biopharma industry. At the end of July this year, Shanghai formally signed and launched three pilot industry母 funds for integrated circuits, biopharma, and artificial intelligence, with total scale of 90 billion yuan — demonstrating Shanghai's emphasis on the biopharma sector.

"While our investment pace remains unchanged, Dalton's investment logic has adjusted somewhat in this winter environment," Sun said. Previously, most of Dalton's investments were in Pre-Revenue companies. Starting last year, more than half of the main fund's capital went to companies with revenue. However, for projects with sufficient innovation and foresight that can solve "chokepoint" problems — even if unprofitable — Dalton continues to invest.

How much longer will the capital winter in healthcare last? Sun noted that industry cycles typically last three to four years; it has already been two and a half years since June 2022. Data from Shanghai's Science and Technology Commission shows that Shanghai's biopharma sector bottomed in March this year and has grown for seven consecutive months since. Based on Shanghai's recovery, the national market may follow, compounded by consecutive Fed rate cuts, stimulus policies from Chinese authorities, and明显回升 in secondary market valuations (including Hong Kong-listed biopharma). The industry is now approaching its bottom. The next 18 months starting from 2025 represent a favorable entry point for systematic investment deployment in healthcare.

"What particularly encourages us is that China's research environment has continuously improved over the past few years, with growing emphasis on and incentives for technology commercialization. Under these conditions, success rates for technology transfer will improve, and source innovation will continue to emerge — forming the foundation for healthcare's next wave of prosperity," he said.

Four Embrace Strategies: Industrial Collaboration, Global Expansion, AI Empowerment, and Cross-Industry Commercial Application

Describing Dalton's current investment strategy, Sun summarized it as "four embraces."

First, fully embrace industry. In recent years, national policy dividends have increasingly tilted toward high-tech industries; purely market-driven financial institutions need to better integrate with industrial enterprises. Dalton has chosen to embrace industry across the entire investment lifecycle — from fundraising through exit — engaging in deep exchanges with industry leaders, exploring M&A along industrial chains, and considering partnerships with listed companies to establish industrial M&A funds.

In Sun's view, healthcare investing is shifting from an era of incremental growth to one of stock competition. New high-quality projects are becoming scarcer, while many existing projects remain in the market — some of which can grow stronger through M&A integration. Meanwhile, with IPOs temporarily tightened, M&A has become an important exit channel. This year, national authorities have introduced multiple policy measures encouraging listed company M&A.

M&A is an important development direction for Dalton, but doing it alone is difficult. Accordingly, Dalton has chosen to partner with listed companies and industry leaders to explore M&A along industrial chains. In selecting partners, Sun believes that first, they should seek listed companies with moderate market capitalization — firms with the ambition to build greater value. Second, these companies need healthy financial performance and ample cash flow to fund acquisitions.

Second, embrace global expansion. Dalton considers overseas expansion capability as a standard requirement for portfolio companies; management teams' global vision and international BD capabilities have become part of the investment evaluation criteria. As corporate globalization becomes consensus, funds themselves must also consider going global and becoming more international.

Third, embrace AI. Sun believes AI will be the most exciting systemic variable in healthcare over the next decade. Beyond medical imaging and surgical navigation, AI products can empower medical device and drug R&D. Accordingly, Dalton is actively investing in healthcare AI.

Fourth, embrace cross-industry applications. Currently, facing resource scarcity and long R&D cycles, healthcare startups can proactively embrace cross-industry applications — after mastering an underlying technology, exploring multiple application scenarios to create additional support points for financing and valuation.

For example, in biopharma and innovative drugs, fundraising is no longer as easy as in previous years; capital has become more precious. Companies typically suspend pipelines that are further from commercialization. When pipelines are paused, R&D teams' capabilities become underutilized. At this point, companies can leverage this redundant R&D capacity to find new scenarios closer to revenue, expanding from pure medical applications to health supplements, pet care, cosmetics, and beyond.

"This can bring precious cash flow to the core business and diversify funding sources. It can also generate new narratives and themes that help with fundraising. Dalton hopes to invest in this type of cross-industry startup, and encourages portfolio companies to explore cross-industry opportunities based on their specific circumstances," Sun said.

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ID: daltonventure

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