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Coronavirus led this company to cut diversity staff. The protests prompted a reversal.

Thumbtack says it will invest more in remedying inequities — and start by hiring a new head of D&I again.

A protester holds up a sign at the George Floyd memorial

Worldwide demonstrations against police brutality are also putting pressure on companies to do more to promote diversity and inclusion.

Photo: Emmanuele Contini/NurPhoto via Getty Images

Thumbtack's co-founder Marco Zappacosta published a blog post on Friday. Like many tech CEOs, he took a stand "against injustice, racism and hate." Included was a pledge that his services marketplace would make practical changes, including recruiting black employees — the company currently has none in senior leadership — and hiring a new head of diversity, equity and inclusion.

But some of Thumbtack's promises weren't new initiatives, but rather reversals of course, a sign of rapidly changing priorities in the tech industry as a racial injustice crisis layers on top of a disease outbreak.

Until March, the company had a head of diversity and inclusion, as well as a D&I team member focused on recruiting. But Thumbtack laid them off along with 30% of the workforce. Now, in the wake of a Minneapolis police officer's killing of George Floyd and the subsequent demonstrations, Thumbtack says it will invest more in remedying inequities — and start by hiring a new head of D&I again.

"As the business has bounced back from the effects of COVID-19, which caused us to lay off one-third of our employees, a new Head of Diversity, Equity and Inclusion is the only new position that has been approved," a Thumbtack spokesperson said. "We are intentionally making this our first before any others as part of a plan to build a more diverse, equitable and inclusive team."

It's an about-face for the company, but not an entirely unexpected one. Diversity and inclusion efforts were already threatened by the coronavirus pandemic, as Protocol reported last month. With protests continuing around the country, many companies are waking to the realization they have a lot of work to do.

The venture capital community in particular, where black investors make up only 3% of all venture partners, is under pressure to diversify firm partnerships and invest in more founders from underrepresented groups. In the last week, firms have rolled out initiatives from increased office hours for black and Latinx founders to new funds, like SoftBank's $100 million opportunity growth fund, that are investing in underrepresented groups.

Before Thumbtack's announcement, the company's previous head of diversity and inclusion, Alex Lahmeyer, posted on LinkedIn that he had seen the number of D&I roles decline over the last few weeks.

"Frankly, I'm scared. Not for my own job search, but for the future of strategic, corporate DEI [diversity, equity and inclusion] work that we saw being placed on a pedestal just a few months ago," he wrote. "While it doesn't surprise me, I'm upset that companies use DEI programs for PR strategy and then slash them like they're deadweight."

Lahmeyer told Protocol he doesn't plan to return to his former employer. "Thumbtack informed the former D&I team that a headcount would be reinstated, but I'm not interested in returning," he said in a statement.

But the tech industry's approach to diversity could be changing. Companies including Medallia, GitHub and The Infatuation have advertised D&I-related job opportunities in the past week.

Work opportunities have also rebounded for diversity and inclusion consultants, said Will McNeil, CEO of Black Tech Jobs, a recruiting platform. "We have seen a surge," he said. "Some due to our marketing and our Coffee, Tech & Opportunity event, but much of it has been pushed by the events on the ground related to police brutality and the protests. There has been a push to action."

McNeil is hopeful he can bring back staff members he had to furlough after clients started dropping at the beginning of the pandemic. "We are looking to do that in the next week or so," he said. "And we may have to hire some contract workers, too. I'm keeping my fingers crossed."

Update: A statement from Alex Lahmeyer was added shortly after publication.

Image: Yuanxin

Yuanxin Technology doesn't hide its ambition. In the first line of its prospectus, the company says its mission is to be the "first choice for patients' healthcare and medication needs in China." But the road to winning the crowded China health tech race is a long one for this Tencent- and Sequoia-backed startup, even with a recent valuation of $4 billion, according to Chinese publication Lieyunwang. Here's everything you need to know about Yuanxin Technology's forthcoming IPO on the Hong Kong Stock Exchange.

What does Yuanxin do?

There are many ways startups can crack open the health care market in China, and Yuanxin has focused on one: prescription drugs. According to its prospectus, sales of prescription drugs outside hospitals account for only 23% of the total healthcare market in China, whereas that number is 70.2% in the United States.

Yuanxin started with physical stores. Since 2015, it has opened 217 pharmacies immediately outside Chinese hospitals. "A pharmacy has to be on the main road where a patient exits the hospital. It needs to be highly accessible," Yuanxin founder He Tao told Chinese media in August. Then, patients are encouraged to refill their prescriptions on Yuanxin's online platforms and to follow up with telehealth services instead of returning to a hospital.

From there, Yuanxin has built a large product portfolio that offers online doctor visits, pharmacies and private insurance plans. It also works with enterprise clients, designing office automation and prescription management systems for hospitals and selling digital ads for big pharma.

Yuanxin's Financials

Yuanxin's annual revenues have been steadily growing from $127 million in 2018 to $365 million in 2019 and $561 million in 2020. In each of those three years, over 97% of revenue came from "out-of-hospital comprehensive patient services," which include the company's physical pharmacies and telehealth services. More specifically, approximately 83% of its retail sales derived from prescription drugs.

But the company hasn't made a profit. Yuanxin's annual losses grew from $17 million in 2018 to $26 million in 2019 and $48 million in 2020. The losses are moderate considering the ever-growing revenues, but cast doubt on whether the company can become profitable any time soon. Apart from the cost of drug supplies, the biggest spend is marketing and sales.

What's next for Yuanxin

There are still abundant opportunities in the prescription drug market. In 2020, China's National Medical Products Administration started to explore lifting the ban on selling prescription drugs online. Although it's unclear when the change will take place, it looks like more purely-online platforms will be able to write prescriptions in the future. With its established market presence, Yuanxin is likely one of the players that can benefit greatly from such a policy change.

The enterprise and health insurance businesses of Yuanxin are still fairly small (accounting for less than 3% of annual revenue), but this is where the company sees an opportunity for future growth. Yuanxin is particularly hoping to power its growth with data and artificial intelligence. It boasts a database of 14 million prescriptions accumulated over years, and the company says the data can be used in many ways: designing private insurance plans, training doctors and offering chronic disease management services. The company says it currently employs 509 people on its R&D team, including 437 software engineers and 22 data engineers and scientists.

What Could Go Wrong?

The COVID-19 pandemic has helped sell the story of digital health care, but Yuanxin isn't the only company benefiting from this opportunity. 2020 has seen a slew of Chinese health tech companies rise. They either completed their IPO process before Yuanxin (like JD, Alibaba and Ping An's healthcare subsidiaries) or are close to it (WeDoctor and DXY). In this crowded sector, Yuanxin faces competition from both companies with Big Tech parent companies behind them and startups that have their own specialized advantages.

Like each of its competitors, Yuanxin needs to be careful with how it processes patient data — some of the most sensitive personal data online. Recent Chinese legislation around personal data has made it clear that it will be increasingly difficult to monetize user data. In the prospectus, Yuanxin elaborately explained how it anonymizes data and prevents data from being leaked or hacked, but it also admitted that it cannot foresee what future policies will be introduced.

Who Gets Rich

  • Yuanxin's founder and CEO He Tao and SVP He Weizhuang own 29.82% of the company's shares through a jointly controlled company. (It's unclear whether He Tao and He Weizhuang are related.)
  • Tencent owns 19.55% of the shares.
  • Sequoia owns 16.21% of the shares.
  • Other major investors include Qiming, Starquest Capital and Kunling, which respectively own 7.12%, 6.51% and 5.32% of the shares.

What People Are Saying

  • "The demands of patients, hospitals, insurance companies, pharmacies and pharmaceutical companies are all different. How to meet each individual demand and find a core profit model is the key to Yuanxin Technology's future growth." — Xu Yuchen, insurance industry analyst and member of China Association of Actuaries, in Chinese publication Lanjinger.
  • "The window of opportunity caused by the pandemic, as well as the high valuations of those companies that have gone public, brings hope to other medical services companies…[But] the window of opportunity is closing and the potential of Internet healthcare is yet to be explored with new ideas. Therefore, traditional, asset-heavy healthcare companies need to take this opportunity and go public as soon as possible." —Wang Hang, founder and CEO of online healthcare platform Haodf, in state media China.com.

Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.

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