While vacationing in the US during the Chinese New Year

early February, I attended a Bay Area event organized for VCs (venture

capitalists) and medical device entrepreneurs. I was a bit surprised by the

sentiment voiced by the panelists and the audience that “there is plenty of

venture money available in China”

and “given the tough funding environment in the US,

companies should look to China

for alternative sources of venture money”. “Aren’t the roads there paved with

gold?” a Chief Medical Officer for a Bay Area biotech startup jokingly asked

me. As an active healthcare VC in China in the past few years, I know

this view is far from accurate.

It is not hard to understand why investors and entrepreneurs

might view China

as a bountiful source of financing. At the end of 2010, China held over

$2.8 trillion of forex reserves. The Chinese government has played white knight

in an effort to help stabilize the Euro zone economy, by buying

euro-denominated Portuguese and Spanish debt. These facts have been widely

reported in the US press,

and I’m sure that US biotech entrepreneurs have also heard about the

hyper-active PE (private equity) and VC industries in China.

There is no comprehensive list of all the PE and VC funds with

a focus on China

who are actively investing. However, there are probably over a thousand of

these funds, and it is quite possible that more than half of them probably

raised fresh money over just the past two years. Statistics from ChinaVenture

suggest that such funds raised more than $12.3 billion in 2009, and over $30

billion in 2010 alone.

Moreover, the Chinese government’s 11^th and 12^th

five-year development plan spanning from 2006-2015 places a high priority on

biotech. As a result, dedicated central government funds have been allotted to

incentivize new drug development, and dozens of biotech parks have sprouted

around major cities to support biotech companies.

So is China

a good place for your biotech startup to look for money? Think again!

Over the past two years, I have come across a fair number of

entrepreneurs from North America and Europe,

with deals ranging from pre-clinical or phase I/II therapeutics to

prototype-stage medical devices. Many of these entrepreneurs had included some

sort of China-related story in their business plan. But most of them have

ultimately not been able to implement the Chinese dimension of their plan, even

after half a dozen trips to China

and many meetings with local investors and bio-parks. As a consequence, they

have left the country empty-handed — though after a series of eye-opening

experiences, and probably a sense of repletion after several elaborate banquets.

So the people I met at the Bay Area event are not so very

different from many bio-entrepreneurs who came to China with high hopes but major

misconceptions. Many of them appear to believe that: 1) there is plenty of VC

money available around China

for biotech startups; and 2) startups can get free funding from the government

and local bio-parks.

Unfortunately, I can tell you that if you are a starving

early stage biotech startup, chances are slim for you to get funded in China.

In next blog post, I’ll be explaining why.

(Karen Liu is a healthcare investor at a leading China based PE

and VC fund. The views and opinions expressed here are entirely personal and may

not represent those of her firm.)

Karen Liu