Sound investments for the long haul

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

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 Asia, Eight Roads, 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, technologies 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 well-being, 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 standard-setter and a creator of new models, said Auerbach.

Shanghai DeltaHealth Hospital, which opened in September 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 10 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".

"Eight Roads has invested in over 80 companies in China and over 30 of those are in the healthcare space but the story is bigger than that. The inputs, track records and shared contacts of our Eight Roads family in India, Japan and Europe and our associated funds in the US, opens up a global network of healthcare contacts and expertise, providing a very powerful resource for the companies we invest in," he said.

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.