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October 21, 2018
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China is funding the future of American biotech

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Silicon Valley is in the midst of a health craze, and it is being driven by “Eastern” medicine.

It’s been a record year for US medical investing, but investors in Beijing and Shanghai are now increasingly leading the largest deals for US life science and biotech companies. In fact, Chinese venture firms have invested more this year into life science and biotech in the US than they have back home, providing financing for over 300 US-based companies, per Pitchbook. That’s the story at Viela Bio, a Maryland-based company exploring treatments for inflammation and autoimmune diseases, which raised a $250 million Series A led by three Chinese firms.

Chinese capital’s newfound appetite also flows into the mainland. Business is booming for Chinese medical startups, who are also seeing the strongest year of venture investment ever, with over one hundred companies receiving $4 billion in investment.

As Chinese investors continue to shift their strategies towards life science and biotech, China is emphatically positioning itself to be a leader in medical investing with a growing influence on the world’s future major health institutions.

Chinese VCs seek healthy returns

We like to talk about things we can interact with or be entertained by. And so as nine-figure checks flow in and out of China with stunning regularity, we fixate on the internet giants, the gaming leaders or the latest media platform backed by Tencent or Alibaba.

However, if we follow the money, it’s clear that the top venture firms in China have actually been turning their focus towards the country’s deficient health system.

A clear leader in China’s strategy shift has been Sequoia Capital China, one of the country’s most heralded venture firms tied to multiple billion-dollar IPOs just this year.

Historically, Sequoia didn’t have much interest in the medical sector.  Health was one of the firm’s smallest investment categories, and it participated in only three health-related deals from 2015-16, making up just 4% of its total investing activity. 

Recently, however, life sciences have piqued Sequoia’s fascination, confirms a spokesperson with the firm.  Sequoia dove into six health-related deals in 2017 and has already participated in 14 in 2018 so far.  The firm now sits among the most active health investors in China and the medical sector has become its second biggest investment area, with life science and biotech companies accounting for nearly 30% of its investing activity in recent years.

Health-related investment data for 2015-18 compiled from Pitchbook, Crunchbase, and SEC Edgar

There’s no shortage of areas in need of transformation within Chinese medical care, and a wide range of strategies are being employed by China’s VCs. While some investors hope to address influenza, others are focused on innovative treatments for hypertension, diabetes and other chronic diseases.

For instance, according to the Chinese Journal of Cancer, in 2015, 36% of world’s lung cancer diagnoses came from China, yet the country’s cancer survival rate was 17% below the global average. Sequoia has set its sights on tackling China’s high rate of cancer and its low survival rate, with roughly 70% of its deals in the past two years focusing on cancer detection and treatment.

That is driven in part by investments like the firm’s $90 million Series A investment into Shanghai-based JW Therapeutics, a company developing innovative immunotherapy cancer treatments. The company is a quintessential example of how Chinese VCs are building the country’s next set of health startups using their international footprints and learnings from across the globe.

Founded as a joint-venture offshoot between US-based Juno Therapeutics and China’s WuXi AppTec, JW benefits from Juno’s experience as a top developer of cancer immunotherapy drugs, as well as WuXi’s expertise as one of the world’s leading contract research organizations, focusing on all aspects of the drug R&D and development cycle.

Specifically, JW is focused on the next-generation of cell-based immunotherapy cancer treatments using chimeric antigen receptor T-cell (CAR-T) technologies. (Yeah…I know…) For the WebMD warriors and the rest of us with a medical background that stopped at tenth-grade chemistry, CAR-T essentially looks to attack cancer cells by utilizing the body’s own immune system.

Past waves of biotech startups often focused on other immunologic treatments that used genetically-modified antibodies created in animals.  The antibodies would effectively act as “police,” identifying and attaching to “bad guy” targets in order to turn off or quiet down malignant cells.  CAR-T looks instead to modify the body’s native immune cells to attack and kill the bad guys directly.

Chinese VCs are investing in a wide range of innovative life science and biotech startups. (Photo by Eugeneonline via Getty Images)

The international and interdisciplinary pedigree of China’s new medical leaders not only applies to the organizations themselves but also to those running the show.

At the helm of JW sits James Li.  In a past life, the co-founder and CEO held stints as an executive heading up operations in China for the world’s biggest biopharmaceutical companies including Amgen and Merck.  Li was also once a partner at the Silicon Valley brand-name investor, Kleiner Perkins.

JW embodies the benefits that can come from importing insights and expertise, a practice that will come to define the companies leading the medical future as the country’s smartest capital increasingly finds its way overseas.

GV and Founders Fund look to keep the Valley competitive

Despite heavy investment by China’s leading VCs, Silicon Valley is doubling down in the US health sector.  (AFP PHOTO / POOL / JASON LEE)

Innovation in medicine transcends borders. Sickness and death are unfortunately universal, and groundbreaking discoveries in one country can save lives in the rest.

The boom in China’s life science industry has left valuations lofty and cross-border investment and import regulations in China have improved.

As such, Chinese venture firms are now increasingly searching for innovation abroad, looking to capitalize on expanding opportunities in the more mature US medical industry that can offer innovative technologies and advanced processes that can be brought back to the East.

In April, Qiming Venture Partners, another Chinese venture titan, closed a $120 million fund focused on early-stage US healthcare. Qiming has been ramping up its participation in the medical space, investing in 24 companies over the 2017-18 period.

New firms diving into the space hasn’t frightened the Bay Area’s notable investors, who have doubled down in the US medical space alongside their Chinese counterparts.

Partner directories for America’s most influential firms are increasingly populated with former doctors and medically-versed VCs who can find the best medical startups and have a growing influence on the flow of venture dollars in the US.

At the top of the list is Krishna Yeshwant, the GV (formerly Google Ventures) general partner leading the firm’s aggressive push into the medical industry.

Krishna Yeshwant (GV) at TechCrunch Disrupt NY 2017

A doctor by trade, Yeshwant’s interest runs the gamut of the medical spectrum, leading investments focusing on anything from real-time patient care insights to antibody and therapeutic technologies for cancer and neurodegenerative disorders.

Per data from Pitchbook and Crunchbase, Krishna has been GV’s most active partner over the past two years, participating in deals that total over a billion dollars in aggregate funding.

Backed by the efforts of Yeshwant and select others, the medical industry has become one of the most prominent investment areas for Google’s venture capital arm, driving roughly 30% of its investments in 2017 compared to just under 15% in 2015.

GV’s affinity for medical-investing has found renewed life, but life science is also part of the firm’s DNA.  Like many brand-name Valley investors, GV founder Bill Maris has long held a passion for the health startups.  After leaving GV in 2016, Maris launched his own fund, Section 32, focused specifically on biotech, healthcare and life sciences. 

In the same vein, life science and health investing has been part of the lifeblood for some major US funds including Founders Fund, which has consistently dedicated over 25% of its deployed capital to the space since at least 2015.

The tides may be changing, however, as the recent expansion of oversight for the Committee on Foreign Investment in the United States (CFIUS) may severely impact the flow of Chinese capital into areas of the US health sector. 

Under its extended purview, CFIUS will review – and possibly block – any investment or transaction involving a foreign entity related to the production, design or testing of technology that falls under a list of 27 critical industries, including biotech research and development.

The true implications of the expanded rules will depend on how aggressively and how often CFIUS exercises its power.  But a lengthy review process and the threat of regulatory blocks may significantly increase the burden on Chinese investors, effectively shutting off the Chinese money spigot.

Regardless of CFIUS, while China’s active presence in the US health markets hasn’t deterred Valley mainstays, with a severely broken health system and an improved investment environment backed by government support, China’s commitment to medical innovation is only getting stronger.

VCs target a disastrous health system

Deficiencies in China’s health sector has historically led to troublesome outcomes.  Now the government is jump-starting investment through supportive policy. (Photo by Alexander Tessmer / EyeEm via Getty Images)

They say successful startups identify real problems that need solving. Marred with inefficiencies, poor results, and compounding consumer frustration, China’s health industry has many

Outside of a wealthy few, citizens are forced to make often lengthy treks to overcrowded and understaffed hospitals in urban centers.  Reception areas exist only in concept, as any open space is quickly filled by hordes of the concerned, sick, and fearful settling in for wait times that can last multiple days. 

If and when patients are finally seen, they are frequently met by overworked or inexperienced medical staff, rushing to get people in and out in hopes of servicing the endless line behind them. 

Historically, when patients were diagnosed, treatment options were limited and ineffective, as import laws and affordability issues made many globally approved drugs unavailable.

As one would assume, poor detection and treatment have led to problematic outcomes. Heart disease, stroke, diabetes and chronic lung disease accounts for 80% of deaths in China, according to a recent report from the World Bank

Recurring issues of misconduct, deception and dishonesty have amplified the population’s mounting frustration.

After past cases of widespread sickness caused by improperly handled vaccinations, China’s vaccine crisis reached a breaking point earlier this year.  It was revealed that 250,000 children had been given defective and fallacious rabies vaccinations, a fact that inspectors had discovered months prior and swept under the rug.

Fracturing public trust around medical treatment has serious, potentially destabilizing effects. And with deficiencies permeating nearly all aspects of China’s health and medical infrastructure, there is a gaping set of opportunities for disruptive change.

In response to these issues, China’s government placed more emphasis on the search for medical innovation by rolling out policies that improve the chances of success for health startups, while reducing costs and risk for investors.

Billions of public investment flooded into the life science sector, and easier approval processes for patents, research grants, and generic drugs, suddenly made the prospect of building a life science or biotech company in China less daunting. 

For Chinese venture capitalists, on top of financial incentives and a higher-growth local medical sector, loosening of drug import laws opened up opportunities to improve China’s medical system through innovation abroad.

Liquidity has also improved due to swelling global interest in healthcare. Plus, the Hong Kong Stock Exchange recently announced changes to allow the listing of pre-revenue biotech companies.

The changes implemented across China’s major institutions have effectively provided Chinese health investors with a much broader opportunity set, faster growth companies, faster liquidity, and increased certainty, all at lower cost.

However, while the structural and regulatory changes in China’s healthcare system has led to more medical startups with more growth, it hasn’t necessarily driven quality.

US and Western investors haven’t taken the same cross-border approach as their peers in Beijing. From talking with those in the industry, the laxity of the Chinese system, and others, have made many US investors weary of investing in life science companies overseas.

And with the Valley similarly stepping up its focus on startups that sprout from the strong American university system, bubbling valuations have started to raise concern.

But with China dedicating more and more billions across the globe, the country is determined to patch the massive holes in its medical system and establish itself as the next leader in international health innovation.

News Source = techcrunch.com

Early-stage SaaS VC slip snaps recovery as public software stocks soar

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A few months ago, Crunchbase News reported that a longstanding period of SaaS investment stagnation had come to an end.

However, the investment boom times didn’t necessarily carry over to the seed and early-stage end of the subscription software businesses.

The chart below displays deal and dollar volume of seed and early-stage venture investments1 made into companies from around the world in Crunchbase’s SaaS category. Note that it is subject to historically documented reporting delays, which are most pronounced in seed and early-stage deals.

As can be plainly seen that Q3 2018 took quite a turn in terms of investment into SaaS. And it’s a bit bewildering as to why.

Overall, the venture market in Q3 hit record heights, and nearly every stage of investment saw more dollars and more rounds. Yet, as shown above, SaaS startups don’t appear to be beneficiaries of this influx of cash.

The public comparison

The picture becomes even more distorted when we account for public market SaaS comps, which set the benchmark for private companies. And that benchmark hasn’t been suffering. Public cloud companies have enjoyed a steep run up in asset value over the past several years.

The newly revamped BVP Nasdaq Emerging Cloud Index (formerly known as the Bessemer Cloud Index) tracks a basket of publicly traded SaaS stocks, including the likes of SalesforceAdobe and more recent debuts like DropboxDocuSign and Okta, among others.

Public cloud stocks soar

Public companies in the Bessemer Cloud Index grew their public valuations much faster than more broad-based indices like the Dow Jones Industrial Average and the S&P 500. Carried by the high and still-growing value of recurring revenuewarm reception of SaaS companies new to public markets and (with the exception of the past couple of weeks) generally stable markets overall, public SaaS companies have done well. Despite a pretty absurd rate of growth on the public side, no such consistent growth could be found on the early-stage, private end of the market.

However, rather than viewing Q3 2018 as a disappointment for the early-stage SaaS investment market, it’s more like a reversion to the mean. It’s the first half of the year that’s the outlier, not Q3.

Big deals, slowing pace

The first half of 2018 had some truly huge early-stage deals cross the wires. In March, Robotic process automation software company UiPath raised $153 million in its Series B. (UiPath just raised another $225 million in a Series C round in September.) Collaborative email inbox Front App raised $66 million in its January Series B. Rival Chicago logistics software companies FourKites and project44 each raised $35 million Series B rounds earlier in the year. On a one-off basis, these are big rounds, but collectively they add up to a huge pile of money.

The conclusion we’re drawn to here is that we were perhaps premature in declaring the long-time downtrend snapped to the upside.

  1. On the seed-stage side, that includes pre-seed, seed and angel rounds, as well as smaller convertible notes and proceeds from small equity crowdfunding campaigns. Early-stage deals include Series A and Series B rounds, as well as larger convertible notes and equity crowdfunding campaigns.

News Source = techcrunch.com

Free societies face emerging, existential threats from technology

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Silicon Valley is currently, and correctly, under fire for the failure of leading platforms such as Facebook, Google and Twitter to protect against the spread of disinformation, hate speech and efforts to disrupt our elections. I don’t know why these companies behaved as they did.

But whatever the reason – naiveté, excessive focus on near-term profits, or simply a lack of proper attention on mind-numbingly complex problems – it’s clear they have to do a better job of making sure technology makes our world safer, freer and more stable rather than the opposite.

But it’s not just these big companies that need to up their game. As venture capitalists, we need to do more to find, fund and help a new generation of technology companies that build the infrastructure and applications to deal with technology-based threats to stability and security. Yes, Facebook and Twitter must deal with unintended consequences of their massive platforms. But if history is any guide, it will be new companies that come up with the bold new visions and business models to address fundamental, once-in-a-generation challenges.

I don’t use the word fundamental lightly. Just think about all security failures you now take for granted, that once would have been unthinkable. Our PCs and other devices are patched every few hours or days, rather than every few months. We are routinely warned by merchants—sometimes even credit agencies!—to change our passwords because they’ve been hacked. We are relieved, rather than annoyed, when the credit card company calls to verify our recent purchases.

We feel abused when we read how our online identity has been monetized without our knowledge or used to micro-target us with ads by groups seeking to polarize our politics. And there are deeper-seated concerns, like the nagging fear of a terror attack or a lone-wolf gunman when we enter an airport or let our teenage kid go to a concert. Our physical and cyber selves feel threatened on a regular basis. Like it or not, we are too often under attack, as individuals, consumers and as citizens. But like the proverbial frog in a pot, we don’t seem to notice the rising water temperature.

If we stick with the status quo, that water is only going to get hotter. We already know the Russians (and the Iranians, and the North Koreans) are again targeting U.S. voting systems in advance of the midterm elections, and the Russians also have the ability to shut down large parts of our electric grid. It hasn’t happened yet, but will Americans start worrying about congregating in public spaces, whether it is to protest, attend large rallies, or go to concerts? I grew up in Pakistan, where horrific gun and bomb attacks on civilians are more common. I can’t help fear the same scourge will come to our shores.

If this sounds like scare-mongering, so be it. There is no getting around the fact that more people have more ways to do large-scale damage than ever before. Thankfully there are technologists and entrepreneurs working diligently to find ways to defend us from such harm.

Our portfolio company Evolv Technology, for example, is using advanced sensors and AI in weapons detection systems that can screen hundreds of people per hour  without making them slow down or empty their pockets and purses. Companies like ShieldAI, Convexxum, Echodyne and others are using machine vision and advanced radars/lidar technologies to prevent people from being put in harm’s way by drone-type attacks.

A drone flying and filming over Dubai

Funding such companies can be different than the deals Silicon Valley VCs are used to.  In most cases, these firms must collaborate with trusted government actors, intelligence agencies and enforcement organizations–not to mention comply with their regulations. To be successful, they need to share information with other companies, including competitors.

But I’m betting the trouble will be well worth it. History tells us that companies that overcome big obstacles to create new markets often enjoy years of rapid growth, and few competitors.

Most of all, I believe a nervous world is ready to reward companies that make it feel safer. Just as Uber and Airbnb caught the front edge of the sharing economy boom, companies whose mission is aligned with a change in the societal zeitgeist can create huge value.

Investors are already doing their part. DCVC recently invested in Fortem Technologies, and Shasta Ventures in AirSpace, which make Star Wars-ish systems of AI-based drones whose only role is to automatically detect, identify, and slam into drones that wander into unauthorized airspace — say, over a private estate, or a factory.

General Catalyst invested in Mark43, which makes a cloud platform to help police departments and their detectives investigate crimes more quickly and effectively.

While these mission-oriented companies may not provide the fastest or steepest ramp to riches, the best of these mission-oriented companies will create technology that affects each of us every day, and businesses that will be resilient to economic cycles, fads and fashion. For investors, it’s a twofer of enlightened self-interest — both as investors, and as citizens. To paraphrase JFK, we should invest in such companies “not because it is easy, but because it is hard.”

News Source = techcrunch.com

Gearing up to step into virtual reality

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Editor’s note: This post was done in partnership with Wirecutter. When readers choose to buy Wirecutter’s independently chosen editorial picks, Wirecutter and TechCrunch may earn affiliate commissions.

For the past two years, we’ve been closely following the advances of new VR experiences. Much of this gear is still in development, but if you’re eager to dive in and get a sense of what’s available right now, we’ve put together our current recommendations for mobile, PC, console and budget VR headsets.

The Oculus Go is light enough to wear comfortably, but it’s still a bit front-heavy. (Photo: Signe Brewster)                          

Standalone Headset: Oculus Go

The Oculus Go is a standalone headset  that doesn’t require a PC, game console or mobile phone to run. The Go comes with a sharp built-in screen and a comfortable controller that convincingly puts your hand in whatever virtual world you’re exploring. It’s compatible with Oculus games and shares the Stream VR app library with the Samsung Gear VR, so there are enough games to keep you busy for hours.

You can also watch movies and TV via streaming services. Its straps fit around the sides and over the top of your head and it’s light enough that you’ll forget you’re wearing it. Although its field of view is wider and its lenses are better than Gear VR’s, its screen resolution is lower. While you can move your head from left to right, up and down, and forward and backwards, your view won’t change when you tilt your head.

For what it currently offers, we think the Oculus Go is bit pricey, and some people might want to wait for the Oculus Quest next year. But the Go’s hardware is impressive and it’s the best overall standalone headset for most people right now.

Photo: Signe Brewster

VR Headset for PC: Oculus Rift + Touch

Whether you’re a beginner or seasoned gamer, the Oculus Rift + Touch VR headset for PC provides an enjoyable experience that’s easy to navigate and deeply immersive. The Rift + Touch has three cords, one that’s tethered to your PC — which gives the system more processing power — and two that are connected to its included sensors. It’s the most comfortable headset we tested, fitting to wear over long periods of time, and easy to set up. Playing games with it calls for a bit of space; Rift recommends at least a 5-by-5 box.

We found that gameplay in a larger area (a 5-by-11 space) is even better. You’ll be able to interact within and see different parts of virtual worlds through head movements and by stepping from side to side. We like that its controllers are balanced and that the system comes with its own set of headphones. Like the Oculus Go, the Rift + Touch can be used with Oculus and Stream VR games.

Photo: Signe Brewster                                                                                                                                                   

PS4 Headset: Sony PlayStation VR Bundle

If you already own a PlayStation 4 and want to give virtual reality a try, we recommend doing so with the Sony PlayStation VR. This system’s tracking isn’t as powerful as a high-end PC’s, but it still offers an incredibly immersive experience. Tracked by the PlayStation VR camera, the Move controllers are responsive and one of the system’s best features.

The bundle we recommend comes with two Move controllers, a camera, and the Skyrim VR game — it’s important to note that PlayStation VR bundles are frequently discontinued and the only difference in the newer versions have been the featured game. Unlike our VR headset for PC picks, PlayStation VR does not have separate screens for each eye and it has a higher refresh rate for a high-quality visual experience. The headset fits more like a hard hat as opposed to goggles, but it’s one of the most comfortable headsets we tested.

Photo: Signe Brewster

Mobile Headset: Samsung Gear VR

Samsung Gear VR is the best VR headset made for a phone — but it’s only compatible with Samsung Galaxy and Note smartphones. It can be used with a broad variety of apps and games, and overall offers the best mobile VR experience. We like its UI and that there’s more to explore within its app ecosystem than with than with our runner-up pick, the Google Daydream View.

Its headset has adjustable straps, comfortable padding and a lens adjustment dial. The Gear VR’s controller is intuitive, easy to hold and connects to your phone over Bluetooth. Instead of tracking every hand movement, the remote is primarily limited to pointing and clicking, but its trigger button and trackpad feel natural and still give you a sense of immersion. It’s a bit heavier to wear than other mobile VR headsets we tested, but it fits better to the face for some and is more secure.

Aside from puzzle, shooting and adventure titles, you can download any Oculus games you already own and play them with the Gear VR for free. If you don’t own one of Samsung’s flagship phones, we recommend the Google Daydream View, or the standalone Oculus Go.

Photo: Signe Brewster

Budget VR & AR Headset: Merge VR/AR Goggles

If you don’t need the absolute best experience and want an inexpensive way to try VR for the first time, Merge VR/AR Goggles for Google Cardboard is the best offering. Compared to the other six budget headsets we tested, we preferred its combination of adjustability, price and comfort. It’s an upgrade from Cardboard and is still compatible with Google’s ecosystem of apps.

We like that it doubles as an augmented reality headset that can be paired with the Merge Cube and Merge’s curated VR library. You can play games, go on virtual expeditions, and watch films with the Merge VR/AR Goggles. It works with more phones (including iPhones). But that makes the quality feel a bit lower than experiences tailored for specific mobile systems. So long as you have a smartphone with a large screen and high resolution you’ll get a decent introductory VR experience.

These picks may have been updated by WirecutterWhen readers choose to buy Wirecutter’s independently chosen editorial picks, Wirecutter and TechCrunch may earn affiliate commissions.

News Source = techcrunch.com

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