Deng Feng speaks quickly and logically, making it hard for the average person to keep up. Playing the recording of the interview at 0.8x speed allows for better understanding of many points.
The tall Deng Feng was born in Beijing in 1963 and is now 56 years old. He is currently a venture capitalist and the founder of the VC firm Polar Light Venture Capital. Polar Light manages over 30 billion RMB in assets and has invested in over 300 well-known companies, including Meituan, BGI, Hillstone Networks, and VIPKID, focusing on three main areas: TMT (Technology, Media, and Telecommunications), advanced technology, and healthcare.
Before founding Polar Light, Deng was an entrepreneur. In Silicon Valley, he founded NetScreen in 1997, and four years later, the company went public on NASDAQ. In 2004, it was acquired for $4.2 billion.
With such a legendary background, Deng’s greatest joy now is reviewing projects, saying, “I get very excited when discussing projects with entrepreneurs.” In the three main areas Polar Light focuses on, Deng leads the healthcare sector. In an exclusive interview with Artery Network, Deng shared his thoughts on the healthcare industry.
From Zhongguancun to Silicon Valley: Following Changes in a Great Era
At the age of 50, Deng summarized his life at a family gathering using the mindsets of two 25-year-olds.
“In these two 25-year periods, many things remain unchanged, such as the pursuit of beauty, while some things change, like mindset. The first change at 25 was that the world became larger, and I became smaller. When I graduated with my master’s degree, I was ambitious and wanted to achieve great things, with the world revolving around me. By the age of 50, you realize you are just a passerby in the world; you become smaller as the world grows larger.
However, while you may become smaller, your heart becomes larger. You become more inclusive and open, accepting both your imperfections and those of the world.”
This is Deng’s internal monologue about self-evaluation. If evaluated by the outside world, Deng’s life can be described as legendary.
Over 30 years ago, while studying at Tsinghua University, Deng began his journey in technology entrepreneurship. In 1988, he participated in the first Tsinghua “Challenge Cup” and won the championship with an improved single-board image processing system combined with an electronic digital camera. He then rented three rooms in Tsinghua’s Building 2, gathered a few juniors, and began taking on various projects from Zhongguancun.
Through entrepreneurship, he earned his first pot of gold, paying his followers 100 RMB a day when his parents earned only over 70 RMB a month in the 1990s. Looking back, Deng was among the earliest entrepreneurs in Zhongguancun.
After pursuing a master’s degree in computer science at the University of Southern California, Deng naturally entered Silicon Valley and became a benchmark for Chinese engineers starting businesses there. In 1997, he founded NetScreen, which went public on NASDAQ four years later and was acquired by Juniper for $4.2 billion in 2004. This was equivalent to the combined market value of Sina, Netease, and Sohu at that time, while BAT (Baidu, Alibaba, Tencent) were still in the fundraising stage.
In 2005, Deng returned to China and chose to venture into risk investment, which he viewed as “both interesting and meaningful.” He turned down many offers from star capital and companies, and with an entrepreneurial mindset, he founded Polar Light Venture Capital, with its first office located in the Tsinghua Science Park Technology Building.
Deng was fortunate to catch a good wave. Although the venture capital industry had already passed its pioneering phase, it was still experiencing a long night following the internet bubble since 2001, with no light in sight. According to Liu Zhou, chairman of Dacheng Venture Capital, “Before 2005, local venture capital faced a dilemma—fundraising was insufficient, and investments could not exit, leading many to doubt the industry.”
However, in 2004 and 2005, China’s venture capital market experienced a massive explosion due to favorable policies. In May 2004, the State Council approved the establishment of a small and medium-sized enterprise board on the main board of the Shenzhen Stock Exchange. On April 29, 2005, the China Securities Regulatory Commission issued a notice to launch the pilot program for the reform of the split share structure, marking the beginning of the “full circulation of shares” in China’s capital history.
In addition to Polar Light, other well-known firms like Sequoia China and BlueRun Ventures China were also established that year, and Accel Partners and IDG Capital (then “IDG VC”) collaborated to establish the China Growth Fund.
From engineer to entrepreneur to businessman to venture capitalist, Deng embarked on a new identity. In this new role as a venture capitalist, he found immense joy. His macro judgment on venture capital is that as long as there is change, there are investment opportunities; with significant changes, there are significant opportunities.
A major change arrived around the time he returned to China!
From 0 to 1: Polar Light’s Approach and Strategy
Deng never chases trends.
However, Polar Light, positioned as “technology, early-stage, value-added,” did invest in a trend once.
In 2011, the trend was “group buying,” with thousands of group buying websites emerging, leading to what the industry called the “Battle of a Thousand Groups.” Although Deng felt the barriers to entry for group buying were low, he considered it from another perspective and invested in a company that was not in the top three—Meituan.
Deng stated, “Investing in Meituan was mainly about the people,” as he was impressed by Wang Xing’s entrepreneurial spirit, deep thinking ability, and strong execution. In 2018, with Meituan’s IPO, Polar Light Venture Capital reaped about 60 times the return.
Besides Meituan, Polar Light’s long list of investments includes over 300 well-known companies such as Hillstone Networks, BGI, VIPKID, and Burning Rock Medical. How did Polar Light achieve this? How did it earn a reputation for being “Professional and Decent” in the industry?
Deng Feng teaching students at Tsinghua University
A significant pain point in VC is that whether a company is good or bad can only be determined years later, which is why many funds are willing to gamble, as if results are not achieved in two or three years, LPs may not provide further funding.
From the perspective of LP structure, Polar Light does not need to “rush”; most of its LPs are long-term capital, with contributions coming from long-term institutional investors, including university endowment funds, pension funds, and foundations. Dollar-based institutional LPs can accept fund durations of 14 years or even longer.
The source of the fund also determines that Polar Light can adopt a “long-term view and strategic approach,” leading to comments in the industry that “Polar Light has the genes of Silicon Valley.”
In terms of strategy, Polar Light adheres to a “strategically aggressive, tactically conservative” approach. “When we focus on a particular field, we must first enter it. Even if we initially pay tuition, we need to invest in one or two projects to conduct reconnaissance. For example, we start with follow-on investments in later-stage projects, and once we have a clearer understanding, we can make significant investments in both capital and talent, gradually moving to early-stage investments.” Deng specifically explained that this “early stage” does not necessarily refer to early-stage projects but rather the early stage before a wave arrives, the early stage of the entire field.
As the founder of a VC firm, building a strong team is also crucial. Deng’s strategy for this is “rolling snowball.”
“At the beginning of the team’s formation, we hire younger, potential investors, giving them opportunities to grow gradually.At Polar Light, investment is not just about optimizing a single case but looking at how to optimize a company or a fund in the long term.For individuals, the team also looks at how to optimize their career paths over the long term, and as individuals accumulate experience, the team will improve over time.“Deng said that being a VC requires rapid learning and evolution, and the best learning opportunities come from entrepreneurs.“When we meet entrepreneurs, we spend half our time learning from them, brainstorming together about what we haven’t thought of and what our blind spots are.”
For this reason, Deng often tells his colleagues not to think that sitting across the negotiation table makes them superior; they must maintain an open mindset and keep an equal, level relationship with entrepreneurs. “Don’t think you’re superior when meeting Jack Ma, and don’t look down on someone without a background; treat everyone equally.”
In today’s VC competition in China, it is not just about who has better judgment but also about who has better deal flow, which comes from networking. “Polar Light hopes to be equal partners with entrepreneurs, growing together. After exiting, we can still sit together for tea, reminiscing about how we worked together, and entrepreneurs are willing to introduce their friends to us.”
Taking on the Healthcare Sector, Aiming for Early Waves
Among the six current partners at Polar Light, under a flat management structure, each partner focuses on their respective sectors, with Deng responsible for healthcare.
Deng describes it as a long and wide track. In the healthcare sector, Polar Light’s investment list includes companies like BGI, CITIC Pharmaceuticals, Burning Rock Medical, and Taimei Medical, covering five sub-industries such as medical devices, biopharmaceuticals, and medical services.
According to data from the National Health Commission, China’s total health expenditure in 2018 is expected to reach 57,998.3 billion RMB, accounting for 6.4% of GDP. Healthcare is seen as a future industry that will surpass real estate and automotive sectors to become China’s largest industry.
In 2009, Polar Light made its mark in the healthcare sector. In this field, Polar Light continued its strategy, beginning its unique approach of “gradually entering this industry, aiming for early-stage investments.”
The first project they invested in was CITIC Pharmaceuticals, a downstream company in the industry chain engaged in pharmaceutical distribution. Polar Light entered at a later stage, participating in follow-on investments. Deng revealed that although they approached it with a tuition-paying mindset, this first investment was not a failure, as they sold it a year later for three times the return.
In the field of gene sequencing, Polar Light first strategically followed BGI, and after entering this field, began to lead early-stage projects. Currently, they have invested in six projects in this area. For instance, Polar Light led an 80 million RMB investment in Burning Rock Medical during its Series A round in 2014, and by February 2019, Burning Rock’s Series C financing had reached 850 million RMB.
With this approach, Polar Light has entered more and more sub-industries, and the projects they invest in have gradually expanded from downstream to upstream in the industry chain. Meanwhile, the snowball effect has begun to show, with the team becoming increasingly mature, brand reputation improving, and deal flow becoming richer. On the last day of 2019, Polar Light’s invested company, Zai Lab, received approval from the CSRC for its IPO registration on the STAR Market.
Data Source: Polar Light Venture Capital
However, beyond the approach, Deng places greater importance on forward-thinking. “Looking ahead to the next 5 to 10 years, entering early before the big wave arrives. Healthcare is an industry that will undergo significant changes in China over the next 20 to 30 years. Many billion-dollar companies may emerge from life sciences and healthcare, including biopharmaceuticals, medical devices, diagnostics, services, and data healthcare, all accelerating forward.”
Below is the dialogue between Artery Network and Deng Feng:
On Venture Capital and Probability
Artery Network: It is often said that venture capital is like gambling; what do you think?
Deng Feng: To some extent, it is indeed like gambling; they both involve probability. No one can guarantee that a company will succeed because there are too many uncertain factors.
I think the difference is that venture capital relies more on accumulation. For example, in roulette, the next round is not significantly related to the previous one, and the probability varies for people based on how long they have been in the game. However, venture capital involves accumulation; for instance, the more you observe people, the easier it is to judge what type of person they are; the more industries you observe, the more you understand the development cycles of those industries. Secondly, gambling is about seeing results immediately, but venture capital is a long-term endeavor, and after investing, you can still add value.
On Disruption
Artery Network: How do you think disruption will occur in the healthcare industry?
Deng Feng: I think it is unlikely to happen suddenly, but this industry will undergo tremendous changes over time. Disruptive innovation will come from cross-industry collaboration, as the fusion of knowledge leads to cost reductions and efficiency improvements, which I see as a form of disruption.
On the Traits of Excellent Entrepreneurs
Artery Network: What common traits have you observed in excellent entrepreneurs?
Deng Feng: At the level of values, they first have ideals that transcend financial returns; secondly, they possess an innate sense of responsibility that grows with the company’s growth. Initially, they are responsible for themselves, gradually becoming responsible for employees, investors, and customers. As their sense of responsibility increases, it enables them to persist. The third trait is magnanimity; with a broad mind, they can attract people, share good things with others, and take on the bad themselves, acting as a big brother in the company.
I believe these three points are common among excellent entrepreneurs. Of course, excellent entrepreneurs also possess the ability to learn quickly and have deep experience.
On the Future of the Healthcare Industry in 10 Years
Artery Network: As an investor, what do you envision for the healthcare industry in 10 years?
Deng Feng: I am very optimistic about the future. From China’s perspective, the percentage of GDP accounted for by healthcare will continue to increase rapidly, and there will be more innovative products from China, along with progress in healthcare reform.
In ten years, the aging population will undoubtedly be a huge issue, presenting significant opportunities. We have been paying attention to this, but it is not yet clear what aspects of the aging economy or silver economy will be light or heavy assets.
China’s healthcare going global is definitely a major trend, with more and more companies becoming competitive internationally, and integration will occur. In the pharmaceutical field, several billion-dollar companies like BeiGene will emerge from China.
On Opportunities of the Era and Personal Destiny
Artery Network: How do you view the topic of opportunities of the era and personal destiny?
Deng Feng: I was born in 1963. There is an article online stating that people born between 1963 and 1972 are the luckiest in Chinese society, and I agree with this. The reason is that this generation has experienced tremendous changes, from an agricultural society to an industrial society, then to an information society, and now to an intelligent society, undergoing such significant transformations.
All entrepreneurship and investment stem from change; it is difficult to find significant opportunities in a stable society. From this perspective, our generation has experienced a truly great era.
Written by | Fan Xin
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