2021 was a great year for MSA Capital. The venture capital firm was nominated by the Private Equity International (PEI) as the Firm of the Year in China, the Frontier Markets Firm of the Year, the Exit of the Year and two other major awards for its successful investments in IPOs of emerging companies like Boss Zhipin (NASDAQ: BZ) and Yidu Tech (HKG: 2158) last year.

MSA Capital’s MSA Fund 1 ranked first in Asia in Q2 2021 in venture capital performances compared with other funds that were set up in 2015, according to statistics from international data firm Preqin.

MSA Capital has not even disclosed all of its data, the firm’s founder and managing partner Zeng Yu said.

Despite the unstable investment environment caused by the resurging pandemic and government on the tech and education sector, MSA Capital continued to pour cash in investments. According to open information, MSA Capital invested in over 20 projects in 2021, over half of which went to the biotechnology sector. Zeng believes that the biotechnology investment sector is still in its early phase and boasts huge potential. MSA Capital may have the chance to be one of China’s first GPs (General Partner) to go global.

From Zeng’s perspective, MSA Capital’s success lies in the team’s ability to work together, consistently learn new knowledge and make the right judgments.

MSA Capital's founder and managing partner Zeng Yu

A venture capital driven by a unique value system

As a member of the organizing committee of the Future Forum, Zeng and her MSA Capital pay close attention to cutting-edge technology. MSA Capital often organizes internal seminars and invites scientists to brief the team about their work. MSA Capital will engage in discussions with the scientists on the cutting-edge research they conduct and brainstorm ideas that can be useful for guiding investments. MSA Capital aims to develop more understanding of advanced science and technology and future business models in this way.

For instance, MSA Capital invited Professor Ding Hong who studies topological quantum computation in the Institute of Physics of China Academy of Sciences to share his insights into advanced science on December 6, 2021. MSA Capital’s investment managers and the board manager all attended the seminar, in hopes of finding the next investment direction.

“MSA Capital is like a study group,” Zeng said. “We wish to discover new ideas through constant learning. The information we acquire helps us understand specific sectors. Such knowledge can also help us understand company founders and business models better, which allows us to make investment decisions.” Zeng thinks highly of the future of AI, 5G, big data and biotechnology.

MSA Capital currently manages over US$2 billion, specializing in startup companies and long-term investments in healthcare, cutting-edge technologies, Internet and lifestyle. MSA Capital has invested in emerging Chinese companies like Boss Zhipin, BGI, NIO, Meituan, Yidu Cloud and Birentech.

“I have known Zeng Yu for some time. MSA Capital’s operation style appealed to me when we were doing some projects together,” Feng Jiawu, MSA Capital’s investment director of biotechnology said, recalling why he decided to join the team. “MSA Capital was willing to make investments in companies that were still in their early stage. It also had projects of high quality. Our understanding of the market and investment matches.”

Before joining MSA Capital, Feng served as the director of Beijing E-Town International Investment & Development’s Enterprise Development Department and director of the company’s Risk Management Department. Feng also has extensive research and academic experience, including working and studying at the National Institute of Viral Disease Control and Prevention, Heidelberg University and New York University. He has 20 years of work experience in the biotechnology and medical science sector and 10 years of experience in equity investment.

Zeng has emphasized sharing profits and honor with the entire team when the investment projects pay off and pledged to shoulder the responsibilities if the projects go wrong at a number of meetings, Feng told TMTPost.

It is rare to see such accountability and determination at other investment firms, Feng said, commenting that this is part of the special culture that MSA Capital has. The firm sees every mistake it makes a precious opportunity to learn and grow, Feng said.

“A leader like Zeng Yu ensures that the team believes that they are being treated fairly,” Feng pointed out, saying that MSA Capital shares consistent values as a team and everyone recognizes the importance of long-term thinking, teamwork and constant learning.

Many entrepreneurs and scientists recognize MSA Capital’s values. Talent recruitment platform Boss Zhipin’s founder Zhao Peng recalled that MSA Capital was the only investment firm that was willing to provide the necessary cash for the company to gain traction and eventually launch its IPO when no fund was interested in Boss Zhipin.

“The essence of MSA Capital’s value system lies in its recognition of innovation, technology, scientists’ creativity and social values,” Feng told TMTPost.

Making the right judgments

MSA Capital’s first venture capital fund was established in 2015 with US$150 million.

The year of 2015 was a bad year for a fund to enter the market, Zeng said. At that time, there was incredible hype for the sharing economy and O2O business concepts, generating massive valuation bubbles in the primary market. MSA Capital did not want to follow the herd and invest in things that everyone else was investing in. The firm then invested in around 20 startups, nearly half of which have become unicorn companies in China. The firm’s phase 1 fund had a loss rate of less than 20%, which is far lower than the average 40%~60% loss rate among international venture capital firms.

Zeng pointed out that the innovations in the mobile Internet industry in China in the past ten years were in business models. Such innovations were essentially driven by successful cases from Silicon Valley. Ideas were borrowed from the United States and localized in China, eventually giving birth to many major platforms that Chinese people use nowadays. MSA Capital chose to avoid popular areas and sought to find business models and entrepreneurs with true potential.

Yidu Tech is a perfect case to illustrate MSA Capital’s investment strategy. The company’s founder Guan Rujing already had the idea of starting a company that would combine healthcare and artificial intelligence when she met Zeng. Guan explained to Zeng the prospect of AI and big data in healthcare and how AI could make use of big data to generate innovative healthcare solutions. The idea excited Zeng because Guan’s team and idea were exactly what would constitute “the next big thing” that she had been looking for.

MSA Capital was an early investor of Yidu Tech in its series A round financing in March 2015. The investment firm continued to pour in cash in Yidu Tech in its second round of financing.  Zeng also introduced several sovereign wealth funds to Yidu Tech a few years later. Yidu Tech eventually went public in Hong Kong on January 15, 2021, with a valuation of HK$50 billion, becoming one of the most successful investment projects for MSA Capital.

Besides Yidu Tech, MSA Capital also invested in a number of biotechnology and healthcare companies, including Pyrotech, SINGLOMICS, Singleron Biotechnologies and Amadorbio. MSA Capital participated in the US$60 million series B financing round of Amadorbio. The company is a CRO (Contract Research Organization) that specializes in converting science and clinical drug studies into commercial operation, providing clinical project management service to Chinese and overseas pharmaceutical companies.

Amadorbio’s core team consists of world-class pharmacologists that specialize in quantitative studies and biology experts and clinical management professionals from multinational drug development firm AstraZeneca. The company’s management capacity, quantitative pharmacology and biological analysis technology are industry-leading in the CRO sector in China. The company plans to expand globally through acquisitions and mergers in the future. It is worth noting that Sequoia Capital China and GL Ventures also invested in Amadorbio.

Investing in the biotechnology sector is already a very mature approach for investment firms in developed countries, Zeng said. The Chinese market is quickly emerging now with the support of state policies, investors and international talents. Zeng believes that biotechnology is “the next big thing” she has been looking for.

From Zeng’s perspective, MSA Capital does not try to invest in as many companies in industries with proven opportunities and potential as it can but rather look at industries that are not yet the promising industries in the eyes of investors.

MSA Capital’s investment strategy reflects its value system – the faith in making long-term and hard decisions that are right.

“There is too much noise in the investment business. It is very dangerous for investment firms to make decisions when they are heavily influenced by the noise,” Zeng explained. “It is like if you give the same information to two very different people, they might nonetheless make completely different investment decisions. This requires us to tell valuable information from noise and process information efficiently.”

MSA Capital now primarily invests in biotechnology, other cutting-edge technological sectors, the Internet industry and the lifestyle industry, etc. In the past six years, MSA Capital has invested in major resources in the biotechnology sector, building up a dedicated investment team that consists of top scientists. The company has invested in over 100 projects in TMT and healthcare.

Pyrotech is one of MSA Capital’s investment projects. It is a company dedicated to developing innovative small molecule drugs for infections and cancers. It is one of the first-in-class innovative pharmaceutical companies that are home-grown in China. “It could be considered as a milestone project in China’s drug development sector," Zeng said. MSA Capital thinks highly of Pyrotech because of academician Shao Feng’s leading research findings on pyroptosis. Shao’s findings have potential applications in treating several major diseases. Pyrotech’s co-founder Dr. Deng Tianjing also has an experienced team that understands commercialization in the industry. These are the reasons why MSA Capital wanted to invest in Pyrotech.

MSA Capital partook in AI drug development firm Silexon AI’s 100-million-yuan series A financing round in July 2021. Later in October, the investment firm invested in Pyrotech’s equity investment and genome sequencing and diagnostic equipment maker AXBIO’s million-dollar financing round. In November, MSA Capital moved to engage in the US$100 million financing round of Singleron Biotechnologies, a company dedicated to applying single-cell analysis technologies to clinical diagnosis and drug development. At the year’s end, MSA Capital led the million-dollar Pre-A+ financing round of INFI BRAIN TECH that focuses on digital healthcare solutions for brain diseases. There is no doubt that MSA Capital is allocating a lot of its resources to the biotechnology sector.

Working with overseas partners to accelerate international investments

MSA Capital builds an investment portfolio on its base in China. The Chinese investment firm’s international projects are spearheaded by American businessman Ben Harburg. Harbug is a managing partner of MSA Capital.

Harbug has helped MSA Capital attract several partners outside of China and build MSA Capita’s international culture.

Brazilian fintech firm Nubank is a perfect case to illustrate MSA Capital’s international operation. In June 2021, MSA Capital participated in the US$750 million series G round financing of Nubank, the biggest fintech unicorn in Latin America. Warren Buffett’s Berkshire Hathaway and Sands Capital also funded Nubank.

Nubank went public on the New York Stock Exchange on December 9, 2021. Nubank’s debut on the stock market was the third biggest IPO in 2021. The company is now valued at over 280 billion yuan, which makes it an important international investment project for MSA Capital.

MSA Capital looks at the development of fintech companies in other regions while referring to the successful cases in China’s fintech industry, Harburg said, stating that China’s experiences enable MSA Capital to evaluate fintech projects better. Nubank will become the biggest digital bank in Latin America and learn from Chinese best practices from Chinese investors.

Besides Nubank, MSA Capital has also discovered and invested in several unicorns in countries of the Middle East and North Africa, South America, and India.

Nubank debut on New York Stock Exchange in December 2021

The best time for Chinese investors is here

The report The Great Tech Rivalry: China vs the U.S, published by the John F. Kennedy School of Government of Harvard University and Cambridge University, concludes that China has chances of overtaking the United States and becoming the number one country in AI, 5G, quantum information science, semiconductor, biotechnology and green energy.

The report shows that China has become a leader in basic research of biotechnology in the past two decades. Research papers in biotechnology from China registered year-on-year growth of 20% on average between 2007 and 2017, only second to the United States. In 2019 and 2020, China’s Nature index in biology surpassed that of Germany and the UK, ranking second. China has also witnessed a surge in biotechnology patents. China’s global share of biotechnology patents jumped from 1% in 2000 to 28% in 2019, with that of the United States slumping to 27%. China is also a leader in cell therapy patents in terms of total patents and growth.

British academic magazine Nature pointed out in an article that China’s life science companies are innovating with policy support from the local government, a massive market and human resources. Chinese companies might challenge the dominance of the United States in the biotechnology field.

China has launched a series of regulatory crackdowns on the Chinese Internet industry, especially the fintech sub-sector. By contrast, the Chinese government continues to provide policy support to the biotechnology industry and other cutting-edge technologies. In the 13th and 15th Five-Year Plan periods of China, the central government stated that China needs to make breakthroughs and innovations in cutting-edge technologies, such as artificial intelligence, quantum information and integrated circuits.

It is apparent that China is betting its future growth on technological innovations. As long as China continues to value and develop its market economy, there will be new opportunities for investors. From MSA Capital’s perspective, the best time for investing in China has come.

MSA Capital has been making more frequent investments in the past two years as the Chinese investment landscape underwent massive changes. MSA Capital’s recent development was driven by its belief in making the right judgments and not follow the herd. The investment firm believes that investors need to think creatively and make the right investment decisions when the market encounters downturns.

“It will continue to be a good time for Chinese investors in the future, not only in terms of investing in China,” Zeng stated. The stock markets in Hong Kong and mainland China and local governments have been providing supportive policies for the biotechnology sector, which generates more opportunities for MSA Capital to make investments.

“AI, new energy vehicle and biotechnology did not receive a lot of attention in the past. When we invested in NIO seven years ago, the entire world did not believe that a Chinese company would be able to actually make an electric vehicle. But now, everyone can see that the electric vehicle industry has seen apparent growth,” Zeng said.

Knowledge is important because it is the foundation for one to make the right decisions in making investments, she concluded.