Lu Zhang - Fusion Fund

[00:00:00] ​

[00:00:00] Lu Zhang: There are no perfect early stage startup. A company in early stage means problem every single day, how to address the problem, how to help founder navigate through different challenges and don't make a stupid mistake, which gonna kill the company, but also learn from the small mistake, continue to grow.

[00:00:20] ​

[00:00:20] Giovanni Lauricella: Hi, everyone. We are in San Francisco today at the MedTech Strategist Innovation Summit. And this is the MedTech Startup Podcast. And I'm very excited about having today time with Lu Zhang, the founder and managing partner of Fusion Fund.

[00:00:37] So we have a hardcore MedTech investor with us today that has a really interesting story of both entrepreneurship and now being an investor, and we're going to jump right into it. So Lu, thank you very much for being here with us today. And I think the best way to start this off is understanding who you are, where you're from, how did you build your life, academia, professional life, what company you sold off, just pop in that bubble and then leading up to the point where you found Fusion Fund.

[00:01:04] So while I have you in front of me, who are you so the world can know who Lu Zhang is?

[00:01:09] Lu Zhang: Thank you very much. First, thank you very much for having me today. So it's a pleasure having this discussion. So I'm Lu, I'm a founder, managing partner of a Fusion Fund, a venture capitalist and also serial entrepreneur.

[00:01:21] So my journey started initially from Inner Mongolian. So I'm a first generation immigrant, same as lots of people in Silicon Valley, came to this country in 2010 for graduate school. So my initial research background was material science engineering. Very nerdy subject, but be able to cover so many different vertical for apply advanced technology for potential commercial application.

[00:01:44] So I did so with my research. One of my research was a biosensor. They had application for diagnostic of type two diabetes. So I create a company out of it. I was 21 years old. Simple, naive, didn't realize how hard it would be, but once I decided to do it as a solo fund, I want to make it successful. So I ran it for a couple years, in the meantime, graduated from the school, and eventually sold my company to Boston Scientific.

[00:02:09] And when I sold it, my ownership was 72%, which contributed a lot to my personal financial return, and also enabled me to continue with my journey in the next phase as an investor. So my previous MedTech company was focused on diagnostics. for type 2 diabetes. At that time, we were able to leverage some of the data analysis already.

[00:02:30] Nowadays, of course, you could use a fancy buzzword. It's AI in healthcare. But at the time, it's just a simple data analysis to help us get more accurate and also personalize the diagnostic result. So when I start to do personal investment in 2014, my motivation was very simple. I want to support other founders.

[00:02:50] Who focus on deep tech and healthcare relate to my personal background. I didn't have a very smooth fundraising experience. I had to focus on Generating revenue and partnership which eventually helped me to maintain the company ownership. So I was able to see that. Okay Great opportunity was founders because lots of great founder was in healthcare deep tech.

[00:03:11] Meanwhile, they're not the most popular Industry to invest from the VC industry before 20 even before 2017 So in 2014, I was able to back lots of founder in that domain another group of founder. I support was immigrant founder. I just want to help them go through their journey. Eventually, out of my total 13 personal investment, I got four IPO, five merger acquisition.

[00:03:34] Got very lucky. Timing is the key. Which also gave me confidence to realize, Okay, this is another approach for me to drive impact. That's my biggest motivation. I want to drive positive impact, but in very commercial, practical way. On one side, I could build a company myself. On the other side, I could enable so many awesome, smart founder to be successful.

[00:03:55] So in 2015, that's the starting point of a Fusion Fund. So since then, it's been eight years. We have a three flagship fund under management and the one opportunity fund under management so far. So in total approaching 400 million.

[00:04:12] Giovanni Lauricella: Oh my God, that is one amazing story. So you. So you were first an entrepreneur, you successfully sold, and then you started doing personal investments successfully, which then led you to doing institutional investments as now the founder and managing partner of Fusion Fund.

[00:04:30] Yeah. So now that we're here, let's talk about Fusion Fund. For all those who've never heard of it before, what is it that you invest in? What don't you invest in? You mentioned that you have series of funds already. So we'll get into that story cause I'm genuinely interested in how you scale those funds each time, but what you invest in, what you don't invest in, size of check.

[00:04:53] Do you continue on? Do you lead? Do you not lead? So is it coast to coast or is it international? So we'll talk about that. But what is Fusion Fund? Tell the world everything that we need to know about what you do.

[00:05:05] Lu Zhang: Yeah, happy to. So since 2015, that's the starting point of the Fusion Fund. We focus on early stage investment.

[00:05:11] So typically putting initial check. See precede a little bit serious a so my typical check size is one to 3, 000, 000 to start with and After that, it's not only one check. We want to continue support a founder become the long term partner So a pro-rata in series a round and be wrong. That's for the main flagship fund So now we're investing out from a flagship found straight, which is a 120 million dollar vehicle and we got also very lucky on timing.

[00:05:37] We did final clothes in Q1 last year, right before market crash We got lots of dry powder and be able to quickly, you know, continue to deploy active investing company in the last year and this year So for this type of flagship found we already have two third of the found reserved for pro-rata. So when we start working with the founder knows it's not only commitment for one check There's a smaller check to start with one to 3 million, but we could do bigger check in A round, B round, continue to grow with the company.

[00:06:05] And for the Opportunity Fund vehicle, we launched to that's also specific to support our funder to grow beyond Series B round. So we could invest even bigger check, 10 million and beyond. So that's our approach. It's entry point is early stage, but want to be lifelong partner with the founder.

[00:06:22] In terms of the sector, we start with healthcare and deep tech for fund one, which really continue my focus for my personal investment. But later in 2016, 2017, we'll make it more specific. So we still invest in healthcare, a lot of healthcare domain focus, but also more focus on AI in healthcare, how to use AI as a super effective tool to bring data play, platform play, to the healthcare, health tech, and med tech innovation.

[00:06:51] The second sector is enterprise AI network. Lots of not only just AI application, but infrastructure play. Edge computing and data privacy, security, how to use all this ecosystem play to supercharge the application of AI in enterprise domain. And the last one is industry automation. The traditional sector automation, both hardware, software, how to utilize the digital transformation trend.

[00:07:15] So that's the general sector focus. For us and we invest across the United States until 2021, that's when we start to expand it to Canada a little bit. . Now we have three company based in Toronto. Two of them are healthcare company. We really like the talent pool there. And meanwhile, one, to support super talented founder from Canada to penetrate into US market.

[00:07:39] But so far our investment focus has been North America only.

[00:07:45] Giovanni Lauricella: When you look at your portfolio, how much of it is healthcare associated?

[00:07:50] Lu Zhang: Yeah, so I would say healthcare, we have roughly 30 to, 30 to 40 percent, probably roughly 30 percent for the current fund. And also I think it's interesting because the reason we're so early on AI since 2017 is because of healthcare.

[00:08:05] Since we've been focused on healthcare in 2015, very quickly we realized the future of health care is actually personalization. In order to achieve personalization, you need to use AI and data to, to provide solution for digital diagnostic, digital therapeutics, digital life science, digital biology. So we start to look at heavily AI in health care in 2017.

[00:08:27] That's also when we published the report on AI in health care in J during JPMorgan Health Care Conference. And later we found, okay, lots of fundamental infrastructure tech for AI application. need to be invented being commercialized before utilizing healthcare sector. So we expand it to enterprise AI and the network, edge computing play, data privacy, federal learning.

[00:08:48] So that's a really nice synergy. If you look at a purely healthcare company, which means serving healthcare industry, solving healthcare problem, 30%, 30, 35%. But for lots of other company we invested tons of edge computing company, data privacy company, cloud infrastructure company.

[00:09:06] Within their customer, our industry focus, one of them could be healthcare.

[00:09:11] Giovanni Lauricella: You mentioned something very interesting early on that you reserve two thirds of your fund for pro rata. So educate me on this then. So you have a hundred percent, two thirds of it for pro rata. You're very big on keeping that pro rata.

[00:09:23] So you get in early and you're able to stick with your portfolio companies with more than just one check. Having one third for that initial check, does that limit severely the amount of companies you can invest in per fund?

[00:09:36] Lu Zhang: Then I won't call it as a limitation. That's by design. We don't want to invest a lot of company per fund because we typically prefer to be a leading investor.

[00:09:44] We want to take the board seats. When we make the commitment to the founder that we're going to join you as a board member, not only investor, we want to make sure we have enough bandwidth. And also we devote our time and effort to really work with them. So if we have too many companies per fund, how could we really catch up on the board commitment?

[00:10:02] So per fund, we typically invest 25 to 30 companies. We're now leading all the companies. Roughly 50 percent of companies would have the lead position. Of course, as a lead investor, you got a board seat, you spend more time with them. But meanwhile, that's a nice Number to have a relative concentrated portfolios to have nice diversity across three different vertical.

[00:10:22] We're focusing on, and then we're also selective doing the pro-rata in the series A round B round. Of course, we're not doing pro-rata for 100 percent of the company based on who perform better, who grow faster, and also it's beneficial for both side from investors that, of course, good performing company. We keep our ownership out, even increase our ownership while they grow.

[00:10:42] Yeah. And continue benefit from the success of the portfolio. On the other side for founder side, especially in the past couple of years, founder realized it's important to have investor capable of doing pro-rata because when funding market are not in favor to founder have to make a hard decision, whether I dedicate time to increase the sales number of focus on fundraising.

[00:11:03] But if they had good momentum, sales pipeline being created, they just need a couple million dollar to push on the pipeline. Having internal support quickly closing the run is really helpful.

[00:11:13] Giovanni Lauricella: So you like to lead. You've had three funds, 20, 80, and 120, right?

[00:11:19] Lu Zhang: Yes.

[00:11:21] Giovanni Lauricella: Were you, was it always the same philosophy?

[00:11:23] Were you investing in fewer companies and still taking the lead with your 20 million fund and then 80 million fund?

[00:11:29] Lu Zhang: No, I think, we invest in startup, but we also like a startup. when I initially started in 2015. So fund one, we are 50, 50, 50 percent initial check, 50 percent prorata. If you look at total number of the company fund one, it's actually over 30 companies.

[00:11:44] We invest in smaller check only probably the one deal at most. We didn't only have one or two board seats for fund one. So that's the fund one starting phase. It's like a seed round for a startup company. Then fund two. Much bigger size, more capital for pro-rata, bigger check initially, and also learn from the fund one, what we did well, what we could do better, and continue to grow.

[00:12:07] And fund three, that's the new size 120, and the continued strategy proven to be really successful in fund two, and increase our ownership.

[00:12:16] Giovanni Lauricella: For all those investors who want to be investors listening in right now or watching, Educate us. Why is it so important or what are the benefits of leading? We've run into other funds where, or even some health hospital system arms and venture arms that don't lead.

[00:12:33] They follow on, they know that they follow on, or maybe it's a 10 million fund and they'd like to follow on because they can't lead. What's the nuances of being able to lead? And not lead and some of the benefits of being able to lead, if you can.

[00:12:44] Lu Zhang: Yeah. I think from the fund perspective, it's really about the different choice of the strategy, which also goes back to the background of the fund manager.

[00:12:53] For us, the one benefit we have ourself is where a group of technologists, and not only me, all the partners and the principal investment professional recruiting Fusion Found. We all have strong technical background, and we all have formal operational entrepreneur experience. So we went through that journey as entrepreneur ourself and understand how to really help them from 0 to 1 to grow the business.

[00:13:17] So when we serve on the board at early stage startup, we actually could really understand that they'll support founder in the most efficient and effective way. And for, of course, sometimes we also choose to step down from the board. After a series B round. Because that's when company enter into the different phase.

[00:13:33] We may make the choice and also have the discussion with founder. You have new investor coming in, now it's hyper growth. It is better to have new board member coming, or have us, and also for us, we want to manage the total board member, board number. We couldn't have so many while we invest in more and more company per fund.

[00:13:50] So I think that's the one first is our choice, because we think we could add on tons of value as a board member, and also leverage our experience and the network. Another thing from the fund management side we also found as a board member, we also have better access and understanding of the risk profile of each company on one side, no company are perfect at early stage.

[00:14:14] There are no perfect early stage startup. A company in early stage means problem every single day, how to address the problem, how to help founder navigate through different challenges and don't make a stupid mistake, which gonna kill the company, but also learn from the small mistake, continue to grow.

[00:14:29] And also, especially within this market are changing dramatically every week every month, how to adapt into the new situation. That's a part, not only could help fund the credit value. It's also helped us reduce our own investment risk. So that's how we really see that as a value add on to our own investment and our investor as well.

[00:14:50] And meanwhile, another thing is, especially within healthcare portfolio company, one thing we always need to discuss is to think about what is the potential exit. And the loss of exit within house care may happen through merge acquisition, which is different from the consumer side IPO. You're only looking at IPO.

[00:15:07] So merge acquisition is also a different way of looking at exit and how to optimize the value. When to think about merge acquisition, when to engage, how to engage. It's not like I, you want to sell the company, you engage with buyer right away. Three months later, you got the money. Not that case. How to engage with potential partner on buyer early on.

[00:15:25] And also be able to build our relationship and synergy and make it as a one of the really good option. I'm not saying that our founder has to choose that option, but it's always nice to have different options on the table. So that's another thing we think there's lots of value add on we could provide as a board member.

[00:15:43] And meanwhile, it's also beneficial to lower the risk and control the exit multiple for our own investment. Other thing we do as a board member, for example, help founder structure the board. We actually found lots of awesome founders, super smart, very technical founder. They're good at technology, product, even good with customer.

[00:16:01] They don't know how to manage the board. In Fund 1, we don't have any board exposure. But we always have founder came to us complain about, Oh my God, we spend so much time on managing the board. I have the wrong board member. How to really get rid of this board member, etc. We could help them, but we're not on the board.

[00:16:18] It's very limited, but now with more board exposure from the beginning, we tell founder this is our training material, how to manage and lead your board, how to select the correct board member, how to utilize the board at early stage as your resources and connection and have them work for you instead of become the burden to the early stage founder.

[00:16:38] So I think by doing so, it's neutral, beneficial for both side. That's also another reason why founder like working with us.

[00:16:46] Giovanni Lauricella: You oversimplifying what you just shared is value add beyond the check that you give to the portfolio companies you invest in. I want to go back to the idea of having operating experience and then turning into an investor.

[00:16:58] It's a huge value add at different conferences, on different panels. We've heard the benefits, especially in med tech or healthcare. Having operating experience makes a huge difference. An open ended question for you is, and I want to get back to the ability of having operating experience and how that makes you a better investor.

[00:17:18] From your entrepreneurial perspective, what would you tell other entrepreneurs who are looking at potentially taking on money from investors in medtech? That aren't operators. What does that look like? Is that bad money? Is that neutral money? What are your thoughts on

[00:17:33] that?

[00:17:33] Lu Zhang: I don't think so. I think for founder, they need to think about collectively of the, they also are creating the portfolio.

[00:17:40] The cap table is an asset to the company. Who is on your cap table? And you want a diversity within your cap table as well. People bring different perspective, different skill set, different connection. And it would be nice to have some investor with operational experience on your board as investor.

[00:17:56] Doesn't mean you need to have all the investor have the operational experience. You could bring investor strong on the financial side, strong on the customer acquisition side, then collectively. You have a portfolio of the different shareholder could support you in different way. That will be the ideal case.

[00:18:12] And a different type of investor bring different perspective on that value, as I mentioned, because we're former operators. So we always play the position. We'll play the role on the board and more close with founder and understand that the ecosystem, understand the life cycle and help founder set up the right expectation with other investor when they're early stage, because sometimes being practical on the expectation, what is to look like from the surface.

[00:18:36] Everything look amazing tag, hyper growth inside a company. There's a problem here out there, how to have the right expectation on that and focus on finding the solution to solve the problem. Instead of panic, Oh my God, the founder doing a bad job, how to empower founders. So I think that's another thing we help founder communicate with the right investor, but still go back.

[00:18:56] What I mentioned early on doesn't mean you have to get all the investor with operational experience and have a nice diversified background investor would be the best.

[00:19:05] Giovanni Lauricella: You said that you got into the investing game because you wanted to have more of that positive impact, especially after being an entrepreneur.

[00:19:11] But when you were an entrepreneur, it wasn't the easiest road for raising capital, etc. Now that you have both sides of the table in terms of perspective, but you're on the investor side. Do you have more sympathy for the entrepreneurs that come and ask you for money at this point? And what nuances that have you learned where you didn't understand how the investors worked when you were an entrepreneur?

[00:19:36] But now that you're an entrepreneur, you're like, Oh, that's why that happened.

[00:19:40] Lu Zhang: Yeah. Yeah, of course. I think starting from the first year I launched Fusion Fund, even when I was doing angel investing, I think I definitely changed some of the, my perspective on investor. Compared with when I was a founder, when I was a founder, be honest with you.

[00:19:53] One time I even said I hate a VC. I will never become a VC. And the later, when I launched my own VC firm, I have found a friend joke about Lou, you went to the dark side. You sounds like shark now. I'm like, I could be dolphin, still a predator, but a smart, full of compassion and be supportive. Right now, necessary shark.

[00:20:12] But that's that's starting Fusion. But later after having so many meeting with founder, I'm like, Oh. Actually, I appreciate that when I started my company, I got lots of harsh feedback because all this feedback, straightforward feedback helped me the most, helped me rethink about whether I launch a business in the correct way, whether I have the most efficient business model and what I should focus on because I was not a very experienced founder when I started.

[00:20:36] I was 21. Of course, I didn't know too much. I just hope that the approach, the way to get feedback will be nicer, not that rude. I think that's the thing. Of course we can do and also we continue wanted to be the investor, give honest feedback to founder. So I feel that's one thing I really want to, I keep telling founder right now is using every opportunity to talk with VC as a free consulting session.

[00:20:59] When you treat it as a free consulting session, you change your perspective. You don't feel, you won't take it personal when people say no to you, but you feel like my focus is what I could learn from this conversation, what I could get out from it. Maybe get off as the money, like the investors say yes to the investment.

[00:21:14] If not money, maybe the knowledge, the feedback. Investors say so many companies, what I could learn from them, even specifically like competitive landscape, any other interesting company you saw. And I also encourage founder, always ask one last question before ending the conversations do you know anyone else in your network you think I should talk to be able to help me with my company?

[00:21:34] Most investors may be open to help and also give feedback. I feel sometimes investors hold down on their straightforward feedback because they are afraid the founder feels offended and seeing that, oh, you're not a very founder friendly investor. So I think having this more open conversation, discussion will be all more beneficial to the founder.

[00:21:54] Giovanni Lauricella: I want to go to the idea that you brought up of Fusion Fund even being a startup. 20 million, 80 million, 120. So you're growing. So I want to ask a few questions on that and I don't want to call it being, Oh, everyone wants to be a VC. It sounds super sexy, right? And really don't have much of an idea about that.

[00:22:16] Unless you have some experience prior or at least a notion of raising capital and what that could look like. My question for you is, for all those people out there looking to become a venture capitalist or even start their own fund, you had an exit. You were an experienced entrepreneur. You went through an exit.

[00:22:33] You have that track record to show When you go out and you wanted to start your own Fusion Fund even after being an angel investor Educate us, but why didn't you jump right into the hundred and twenty million dollar fund? Why did you have to start at 20? Why is there this step approach? Why did you take that approach?

[00:22:53] How does that work?

[00:22:54] Lu Zhang: Yeah, so first I want to say that there's no certain profile saying that only this type of profile people could become a VC or start a venture firm. I think the key thing is really having a consistent methodology, have clear differentiation, and also have unique value proposition. I think this kind of enable anyone with different background to start something within VC industry.

[00:23:18] And go back to your questions about why I choose like smaller size and go from there. To be honest, I didn't really have a full 10 year plan when I start Fusion Fund. When I start initially, I just want to have a quick start. With money came to me, with my some of my personal capital, I quickly start to form a fund and start to deploy.

[00:23:37] Because the benefit I had at the time is I have a line of high quality deal flow. I have a group of zero entrepreneur. We've been very strong with. The relationship with the repeating founder. Like my Foundry is 30 60 percent of the founder we invest in so far are repeating successful founder. Who had a successful exit before, now decide to launch another business.

[00:23:57] Of course, they're high quality, they have access to data resources, and they choose to work with us instead of some brand name, billion dollar fund. Fund 1 will have 30%. I have that ready. I just want to quickly have the capital and start to deployment. And also, meanwhile, I also have a humble attitude. I feel I'm a new in this industry.

[00:24:17] I was also quite young at the time, 25 years old. I got this question from journalists a lot. They're like, the average age in this industry was 40. It's 45. You're probably 20 years earlier than, most of the other people. I'm like, Oh, I have other partners who are like golden age. So joke about it.

[00:24:35] But on the other side, I have a humble attitude. So I think starting smaller sites. Quickly proven out my methodology is important. It's similar mindset as founder raising a seed round. Seed round means you are still trying to find a product market fit. Try to do the go to market. Having too much capital might not be a good thing.

[00:24:52] Because if you do things right, great. If you're making mistake, you're making big mistake. But with the smaller size, be able to quickly tune. And also when you have limited capital, people are extra cautious and become smarter. When you have too much capital, even smart people may make stupid. Mistakes. So I think looking back, I think I did made the right decision.

[00:25:12] Start small, quickly prove out our methodology. And also there, since we do well, since we want to further improve. So we're further improving found to with a bigger size, adjust the strategy sector focus. Okay, prevent to be successful track record found straight, amplify what we did well. And in the meantime, also, I feel for lots of people Want to get to know VC they probably think about our life is so simple, just giving money to entrepreneur, which is not true, as it's a very complicated process and also running a VC firm, be a venture capitalist, it's not only about just the writing check to founder, not to mention from sourcing the best deal to due diligence and also all this work just only for investment after investment portfolio management is a very important part.

[00:26:00] How to be a qualified board member, how to provide value to a different founder, that's important. And meanwhile, you also mentioned, as a fund manager, to raise capital, who, from where to raise, how to raise, how to find LP who have strong synergy with the fund manager is also important. So there's lots of different aspects for becoming a venture capitalist and running a VC firm.

[00:26:23] Another thing for us, we're also being very active building up different community and the network because this is a very competitive industry. We're not only competing with early stage investor. We're competing with billion dollar found who are super interesting early stage in the past couple of years, and they have billion dollars.

[00:26:41] They have tons of capital to have tons of people, but how we compete with them, we leverage our ecosystem. We build up the super founder network. Which have 60 over 60 zero entrepreneur who not only become a sourcing channel, also refer founder to us. We build up expert network that's a talented industry leader, industry expert with technical background to help us with industry reference for due diligence and serving as independent board advisor to our founder.

[00:27:08] We have CXO network. This is a network leading by one of my partner Shane. He's a former CTO at HP. So now within this network, we have 44 CTO from Fortune 500. Including lots of from healthcare sector. Why we do that? Because we want to make sure we could help founder on the most critical piece at early stage, which is revenue, which is the contract market validation.

[00:27:31] So when founder has a product ready, we could directly connect them with the key decision maker, who is a CTO. Control the budget in their target large corporate, quickly get a contract done. Once they have one or two contract, one to two million dollar revenue. Take it from there. They could do hyper growth.

[00:27:48] So community like this. We did a lot. And since couple past couple of years, we also wanted to contribute back to the ecosystem. As you said, there are many people interested in VC. They might be potential good VC candidates in the future. And we also want to looking for this good candidates to join us in the Fusion Fund.

[00:28:07] We're expanding with double the size of the team during COVID time. So we launched a program called VC Fellowship. It's a three month part time program. We, every year, within two weeks, we got 400 applicants. Wow. High quality one, either, product manager, senior engineer from the top tech company or the top researcher from the university, PhD, MD, JD.

[00:28:29] So we select only 20 of them from 400 applicants and one through three months part time training. And within the training, it's like a mini MBA. We really use all the internal training material for our own employee about how to do institutionalized sourcing, due diligence, market analysis, research report, portfolio management, etcetera.

[00:28:49] So once through the whole training, eventually all these fellow graduate, not only they help us with deal flow in the future, because now they're well trained. They know what we're looking for. They align with us. They could go back to their ecosystem and bring deal flow to us. And also identify future candidates.

[00:29:06] Joining Fusion Found and potentially we have some good candidates. They will join other VC firm as well, become a good collaborator for us. So there's so much work are happening and I'm probably only touch 50 percent of our workload. So just want to share all of this with anyone who interesting VC and know what you are going to expect.

[00:29:25] And once you have that right expectation alignment, you still have strong conviction. You want to become a venture capitalist, then go for it. I think that's one of the most rewarding job you could get.

[00:29:35] Giovanni Lauricella: I wish we had five more hours together, but there was so much there that I definitely want to pull on.

[00:29:39] And I know in previous conversations you mentioned, even if you go to the Fusion Fund website, you have a tab called community that if you click on community, you can see exactly what you're building. Yeah. And tomorrow you're on a panel of mine called the MedTech Startup Equation. And it's people plus money plus community equals milestones, right?

[00:30:00] Because we can't do it alone. So people is the team, it's the board, it's whomever, it's the actual people involved. The company needs money, and then you can't do it alone with just people and money, just in one company. There has to be this community effort. And you're a huge, strong believer in community, so I'm really glad that you just shared that.

[00:30:20] With regards to That community. Is that what all portfolio companies can expect to have be an asset for them when fusion

[00:30:28] funds an investor in them?

[00:30:29] Lu Zhang: Exactly. That's the reason we, that's the purpose of the community building. We'll build up community to serve. Our portfolio founder and also attract a future founder to work with us.

[00:30:39] And also we want to another thing we also launched in the past couple of years. They want to make it very easy for founder to get a hold of us. I always heard founder in different conference or discussion saying that is how to reach out to you, how to get a hold of you. On one side, it's hard saying that I'm going to give time for our founder want to talk with us because there's so many of them.

[00:30:58] But on the other side, go back to what I mentioned, we want to give feedback to founders. So we opened up this Fusion Fund office hour since last year. So every quarter, one or two of my teammates will dedicate at least an hour a week for office hour for founders. So they don't need to schedule here or there, just block that time.

[00:31:18] You could do one click on my website and block 10 or 15 minutes of my team member. And they have specific domain expertise. So a founder could come in, just ask questions. Ask them anything, getting feedback. And meanwhile, it's a good process to get to know each other.

[00:31:31] Giovanni Lauricella: How many people approximately are in Fusion Fund at this point?

[00:31:35] Lu Zhang: 12 full time.

[00:31:36] Giovanni Lauricella: Wow, okay. The other things that I wanted to touch base on So this idea of commercialization, you brought up commercialization, and I know that you love helping companies get to first contract, but you also get in very early. So having that pro rata and watching those companies go from early stage to late stage or commercial stage, what is the nuances of product development stages versus commercial stages?

[00:32:02] And what I mean by that is the engineer or the physician or whomever who starts that company in a product development phase. who has never done this before. They don't know what commercialization lies ahead of them for all they know, their big hurdle is design freeze and then clinical trials and then maybe FDA clearance or approval.

[00:32:22] And then all of a sudden the game really starts with commercial. Yeah. In your experience, what do those product developments, CEOs, that you invest in early don't even realize what game they have to play when they have to start going

[00:32:33] commercial?

[00:32:34] Lu Zhang: To be honest the fund we investing, they have to have that.

[00:32:37] Perspective, they have to understand, think about commercialization early on, even in the super early phase of the design product, because essentially the industry not necessarily always need the best technology. They need better, faster, cheaper. And also when we talk about a faster, cheaper, it's not only cost of technology.

[00:32:54] It's also the integration cost. Another thing is we want industry want to. We want founder to create something people need, not necessarily people like. The difference is if that's something industry really need, they're going to pay for it. So that's a strong indication, no matter you like it or not, showing the early commercial potential.

[00:33:13] So when we work with founder, we want to see, yes, it will take time for the company to evolve and technology to be ready, even ready for regular regulation. But the wider founder has a mindset, have a clear idea of who they are selling to. What is a key pain point for the end customer? How they potential integrate to their existing system to provide a solution in a low cost and low cost in terms of integration and also efficient way.

[00:33:41] And meanwhile, what our founder think about build up the channel and the pipeline to potentially reach that commercial stage, including which type of investor they're looking for, which type of advisor they put together. Yes, for healthcare tech, sometime we have to wait for the milestone for FDA in order to get a product ready to start selling official product.

[00:34:00] But before FDA approval, is there any other way to get early indication from the market? Because contract is one thing, but it's not only about money. It's really about validation that the thing you're creating have true value to the industry people are willing to pay. So if they could think about finding some early partnership with the end customer.

[00:34:18] Providing the technology as a service starts to show, okay, how much value I'm creating for you, getting feedback, that could be very valuable indication for us as well. So I think for us, we're not looking for a company at an early stage to have everything ready. No way. They won't have anything ready. For example, recently we have a founder who just invested in capital, and when we're doing due diligence, we said, oh, this is a three major concern we have.

[00:34:41] So we talked with the founder. The founder said, yes, that's also my three major concerns. On the company, and I don't have a perfect answer for all three thing because something, for example, regarding market timing and also future fundraising requirement. I don't have a absolute answer for now, but I thought about it.

[00:34:57] This is my plan, how I address it, how I be able to try to work around it to reach early market validation and commercial stage. We like that answer. That's the type of founder that we're looking for. As long as they thought about it, have the right perspective. That's good enough.

[00:35:12] Giovanni Lauricella: Would you ever jump into an investment that's not early stage?

[00:35:15] I know that you're big on pro rata, but would you ever invest in a company that maybe you didn't find years earlier, but you would get in at a series B or series A or later?

[00:35:25] Lu Zhang: No, the mandate of the Fusion flagship fund is really early stage.

[00:35:30] Giovanni Lauricella: Okay. And the one thing that I also wanted to go back to is you're really build big on building teams and boards, and you've been very wildly successful with building this community that you mentioned earlier.

[00:35:42] And by the way, the educational piece on training those VCs, is it similar to the famous Kaufman Fellowship?

[00:35:49] Lu Zhang: Oh, no, of course. They're they're more, they're official program being there for so many years. For us it's more like a part-time in-person zoom, like training training kind of program.

[00:35:59] So we don't. We have some practice of sourcing central. We have training session goes through the training material by one of the partner at a firm. Definitely not as a sophisticated as a Kaufman Fellow, but I think the purpose is similar.

[00:36:12] Giovanni Lauricella: Okay. Yeah. So then going back to helping out the portfolio companies with their teams and their boards.

[00:36:19] Does this community that you've built, like how intricate do you work with these companies on building their teams? Do you actually find independent board members for them? Do you find their CTOs? Do you give them engineers? How does that work?

[00:36:32] Lu Zhang: First our position is always enable, enable founder to make the best decision.

[00:36:36] So yes, we're going to proactively providing candidate profile to Founder. Remember founder now might be a good time to consider independent board member. Now might be a good time to consider set up the advisory board. And then we have this amazing candidates you could consider and to select from.

[00:36:52] But the final decision making power is at founder. So they could decide who they really want to work with. But we'll just assist them and help them providing the best channel.

[00:37:03] Giovanni Lauricella: I want to keep on leaning and we'll wrap up with the idea of. Leaning on your entrepreneur abilities and skill sets and background, and now you're investor one.

[00:37:11] You've raised capital as an entrepreneur. You're now deploying capital as an investor. What are the similarities and what are the differences of raising capital as an entrepreneur of a product company like what you had to do before selling the boston scientific and then now raising capital as a V. C.

[00:37:31] Having to go out to your limited partners and raise Institutional capital for your funds. What are the similarities between raising for a product based company as an entrepreneur and raising for a fund as a VC? And what are those differences?

[00:37:44] Lu Zhang: I think the similar the part that's similar is really about aligning the vision.

[00:37:49] It's really about matchmaking. As an entrepreneur, you're looking for an investor, and once the investor's drawn on board, it's a long journey. You want someone really aligned with the vision, believe in the future and potential of the technology, and also could provide lots of value. So when we, now I run a VC firm looking for a different LP to work with, same thing.

[00:38:07] Now, healthcare, AI, deep tech is now for every investor, every LP. Some LP would prefer consumer, some LP would prefer different type of industry sector. So we're also looking for a mind liked LP who could really go with us is also a long journey. Early stage fund term is 10 years.

[00:38:26] So that thing remain the same. I think synergy, alignment is important. And on the other side, the difference is also clear. When you're raising for a specific product and company, that's one thing. You just want to really tell the details of story of how you really start a technology, move on from there in the future.

[00:38:44] It's one single company. As a fund manager, I think it's more about the methodology. Becauseyou couldn't guarantee you invest in 20, 30 company, everyone going to be successful. How you manage the portfolio to balance the risk and potential outcome, how to have a consistent methodology, which will be the ultimate guideline for the whole firm, instead of a sometime early stage investor, easy to follow the buzzword.

[00:39:09] And especially in Silicon Valley, good and bad were benefit from tons of data information, but on the other side, it's also overwhelming. How to pick and choose the right information to integrate into our own system and strength our methodology versus just follow the best word. That's also important. So I think that's the difference between how to fundraise as a founder and also as a fund manager.

[00:39:33] Giovanni Lauricella: And regarding the investment piece, and we can talk about the entrepreneurship as well, but you as an investor, is investing in health tech or med tech, from what you know, how much is luck and how much is effort? Meaning, you built this company, you sold it, and then you became an angel investor, and you also had very wild successes that led you to be an institutional investor.

[00:39:55] Do you chalk it all up to just being Lu and in the right place at the right time, or is it all effort, or do you believe in both?

[00:40:03] Lu Zhang: Of course believe in both, but I think essentially luck is also a capability. You could make your own luck, and the more hard working you are, the More luckier you are, that's always the case, but essentially I think making the right choice is important.

[00:40:18] How will you define lucky? You already defined it, means choose to be at the right place, engage with the right people, at the right time, making the right decision. That's called lucky. But how to enable yourself to make all this right choice? Whether you have the knowledge to be at the right place, whether you have the network to engage with the high quality people or attract the best talent to work with you, how to really understand the industry trend to know what is the best timing eventually make the right choice, including all this due diligence we talk about choosing the right founder and also go with the right partner.

[00:40:52] So I think all this on the surface look like it's a lucky decision on the background is whether how much effort you put in to enable you to become the lucky one. So I think you need both. I do feel very grateful that I got lucky on many things, but on the other side, if I'm not a hardworking person, I may not even know there's a chance to be lucky.

[00:41:15] Giovanni Lauricella: My final question for you is, I speak with a lot of people who are doing career assessments. There could be founders and leading companies right now that they precipice of selling off and they're like, I don't know what I'm going to do after. Or maybe they did just sell their company or they're in another company and they've gone through multiple startups, for example.

[00:41:34] But they want to go into VC because maybe they don't know. If you could speak to all of those varying styles of people who are aspiring to be venture capitalists, what would you tell them are the pros and cons? This is what you should psychologically be prepared for. It's fun because of great.

[00:41:51] And if you don't like to do this, you might want to reconsider, is VC right for you? And I'm sure you go through that on your training that you've developed, but leave off with. What? What are you getting involved in? Or what should you be expecting being a VC?

[00:42:06] Lu Zhang: Yeah. So I think the first hour to talk about the workload of the institutionalized VC firm, like how much work you have to do from fundraising to investment to portfolio management to access to community building to All this different thing all came together, administration, operation.

[00:42:23] So there's lots of work. So it's not an easy job. I think that's the first expectation. I know sometime I heard people, Oh, I want to have a semi retired life. So I want to start a VC firm. You could do but in this very competitive market with that type of commitment, may not be able to get to the best deal.

[00:42:41] It's just the case, right? Eventually, as an investor, you want to invest the best funder. Which means it's the less than top 1%, the top 0. 5%, right? How to get into that percentage. It's important. So it's not an easy job, require lots of commitment, lots of hard work. And meanwhile, there's a big difference between angel investor and institutional VC.

[00:43:00] I experienced it personally. Sometime I joke about, oh, I don't know whether I made the right choice, because as an angel investor, you got your own financial freedom. You start to invest in personal check. You have lots of flexibility and also have lots of Very little limitation. For example, I like this company.

[00:43:17] This company may take 15 years to really exit on maybe another five, seven years to do commercialization. I just love the check. I just a really big fan of founder. I could put personal check, but as a fund manager, fund term is 10 years. We really need to do a good job on the risk management and also the pacing of the exit to really be responsible for the LP, the investor of the fund.

[00:43:41] So that's a different way as angel investor. You are, I like this company. I know they may potentially be acquired by 30, 50, a hundred million dollars in two years. It's good for my personal check. I should put in capital as a fund manager. I have a over a hundred million dollar fund. If company exit potential is the lower than half a billion dollar, doesn't make sense for me to put in capital because that's a move the needle for the total fund return.

[00:44:04] So things like that really make it very different between angel investing as a personal. Behavior practice versus institutionalized the VC, but why choose institutionalized the VC is still go back to I want to drive bigger impact this bigger impact. First, of course, I want to back the best founder. I want to be part of the journey when great company being made.

[00:44:25] I'm part of it accelerating the process. That's the most rewarding. Experience I could have. And meanwhile, I want to drive impact and changes in this VC industry. As I mentioned, when I was founder, I not necessarily have the best experience working with VC, but whether I could really build up what fusion it is and also including the motivation during this VC fellowship, tell people our methodology, our approach, engaging with founder, how we support founder And they try to help the next generation we see think slightly differently.

[00:44:58] Or maybe change piece by piece to make the ecosystem more sustainable and friendly and also more healthy relationship between investor and founder. That's another motivation. And meanwhile, another thing is as an institutionalized platform, we continue to grow big. Even as an angel investor, at most you could become a super angel.

[00:45:17] The check size is limited. The resources you could bring in is also limited because it's only one person. But with an institutional VC, we could leverage so many top talents, people in our community bring so much value to the founder, and also not only the capital, but also all this other value add on services to the founder.

[00:45:36] I think that's what's being enabled as an institutional VC. But eventually, I know I've been focusing on the challenge and the reality, the practice of the VC, but I still think if a founder sold their company, thinking about next thing you, if you're now thinking about building another company, another good option will be become a tech investor, early stage investor.

[00:45:57] And that will be one of the most rewarding experience you're gonna have.

[00:46:02] Giovanni Lauricella: Lu, I cannot thank you enough. , for all of your insights, for all of your experience, and for sharing that with us today. And I want to say thank you again for spending your time here with us. This is the MedTech Startup podcast where we just spent a long time learning about the head, the heart, and the guts of this amazing health tech med tech entrepreneur as well as VC. So thank you so much for your time. I really appreciate it.

[00:46:27] Thank you very much for having me ​

[00:46:30] Great. I'll do it ​

‍