Lu Zhang, Fusion Fund - AMOI Studio Interview | LSI USA ‘23

Fusion Fund backs early-stage startups that leverage technical or data advantages.
Lu Zhang
Lu Zhang
Founder & Managing Partner, Fusion Fund


Ben Glenn  0:11  

Say hello to my guest, Lu Zhang here at LSI. 2023. Lu, thank you for coming by the studio.


Lu Zhang  0:19  

Thank you for having me today.


Ben Glenn  0:20  

So day two of LSI, you were on a panel today. How did that go?


Lu Zhang  0:25  

The panel went very well, we have a really dynamic discussion about the future of medtech innovation. You know, last year was a very challenging year for lots of founder. But meanwhile, you know, we always talk about the crisis come along with opportunity. So there's lots of discussion points about what funders should do to prepare for the future market, and also how this new opportunity brought in by AI and data embedded with the existing med tech innovation.


Ben Glenn  0:50  

So are you seeing companies like that? I mean, you've got the fusion fund that you're here. Are you seeing companies that are bringing you the kind of innovation that you invest in?


Lu Zhang  0:59  

Oh, yes, of course. You know, today on the panel, I also mentioned when we talk about in general digital transformation, why industry really needed most is the healthcare sector in general. And now with AI and data play we could provide the better, and the faster and even cheaper solution in the healthcare industry, meanwhile, highly personalized. So for us, we've been looking at digital diagnostic digital therapeutics, Digital Life Science and digital biology, sector, innovation within healthcare in general. And we're also lucky enough to raise a new $120 million founder q1 last year before market crash. So very lucky timing. So we have lots of dry powder to deploy. So since last year, this year, we're now slowing down, we're continue supporting founder, we're continue to identify top founder to help them to grow.


Ben Glenn  1:45  

So when your Fusion fund, what's the stage that you'd like to see entrepreneurs? What's your investment thesis?


Lu Zhang  1:51  

Yeah, so we like to invest in early stage company, which also kind of relate to my background, I was an entrepreneur myself. So it was the passion of really seeing the company from the beginning to get started. We also wanted to support them when their initial guests are was commercialization. So seed round is the typical stage where you invest, we invest a one to $3 million, or when they're getting started. And meanwhile, I reserved who's to x out to 3x of initial investment to support company continuously in the series, a round and beer. So it's not only just one check, want to continue to grow together with a founder?


Ben Glenn  2:24  

Well, that's, that's a great thing to hear about it. I think many entrepreneurs forget that in these later rounds, you cannot have, if you don't have a consortium around you, then you're looking to one investor to sort of see you all the way through that investor may not have the backing the financial capital,


Lu Zhang  2:40  

exactly, I think I do ask, you know, different VC have different investment strategy, there's no right or wrong, just a different choice. But for us have a bigger portion reserved for Porada really helped founder go through the difficult time, for example, last year, and this year, we're discussing about this topic in the panel, that loss of the new series, a round barrel founder really need strong support from internal investor, the inside support also gave them stronger confidence to gather new money. So having this reserved really helped us attract lots of top founder to work with us


Ben Glenn  3:12  

the experience that you had as an entrepreneur, has that changed the way that you think as an investor,


Lu Zhang  3:19  

I think so that's also the motivation I start my own VC firm, you know, it was now easy to start and brand new VC firm, especially backing 2015 consider there are so many established VC for being there like now 1020 By like 4050 years. But I really think at that time after, kind of went through the whole journey as an entrepreneur from beginning to the end successful. So in my company, I was really thinking about what is the best approach for early stage investor to support founder and also how to understand the lifecycle specifically for the pack and the healthcare company. They're very different from consumer company. So carry on all this knowledge and experience I had, I was able to really help first identify the right founder. Second without understanding of the lifecycle, we could support them in the critical matters. And meanwhile, really leverage our resources and connection to help them to grow. For example, loss of founder think about okay, fundraising important when you to achieve like high valuation, one thing I always tell founders, valuation is a solution. The fundamental of your business is a revenue is a partnership. It's a commercialization. So that's been number one thing for us to support founder, we established a strong network, how the CXO network, we have lots of CTO from global one Southern Company, including loss of healthcare company, work with us. So we have company early stage, they are looking for partnership, our contract from the large corporate work will help them get a conversation that much, much faster.


Ben Glenn  4:43  

That's incredible because the I think for many of the entrepreneurs like I looked back 20 years ago when I committed myself to working in healthcare. Many of the companies were I'm going to figure out how to get up to FDA and then it was usually an acquisition Even IPOs, were not that common, when now you're starting to find, I think we've got maybe two generations of entrepreneurs that don't know what happens, even when it gets into a strategic or beyond the strategic, the strategic deploying into the healthcare system into the provider networks. So bringing all that forward, all of a sudden, if you're a product, ready for the strategics, better capable of being deployed into the healthcare system, it seems like that's going to be a value proposition that will really get people excited.


Lu Zhang  5:28  

Exactly. You know, when we talk about, you know, this is a digital transformation happening in the large corporate order one really panic, because they realize it's not nice to have, it's nice to have to integrate with technology, but it's actually taken much more resources and capital to develop that in house. So they try to be more robust and creative working with external startup. So from what we heard surround network, most of large corporates are thinking about, we need to have our data strategy. And meanwhile, they are giving bigger budget to CTO, I'll see I'll try to give contract a partnership with startup This is our the new opportunity for founder to benefit from on that. So you mentioned about IPO market, I think that's also another thing kind of be potential be accelerated by this digital play in the healthcare sector for Lhasa, Mata company, especial medical device company, most of the access will be limited size Mojang, much acquisition. But now with the platform play powered by digital platform, you could bundle different device or different solution, make it a portfolio, so the total size of the company could be much bigger, you will over a billion dollars, make a very attractive candidates for IPO market. So we'll have portfolio company data. So for like different cancer diagnostic turns out to be a very successful example to build this platform play. And also, I think that could be another trend to really diversify the exit opportunity for med tech company.


Ben Glenn  6:49  

It's exciting to think about how the digital transformation going into, you know, I guess this consortium that's internal to the fusion fund, that you have health systems and strategics are all a part of that. So you're really getting insights from, like the two main customers that the startups are going to have?


Lu Zhang  7:10  

Yes, yes, I think we build a CX o network, I launched in 2018. Really, based on my past entrepreneur experience, I was thinking about what I really need, what is the gap there when I even I was working the VC. So now with this network, as you said, we could clearly get a direct connection, close a contract much faster. And also for us, it's a good learning, learning opportunity. Because as an investor on one side, we need to evaluate technology, and also as a cushion the team but one thing we really need to understand better is market timing. Technology has been there for a long time when we talk about AI have been there like 4050 years. But why now is really about market timing. Market timing is now the only decided by the technology, but also decided by the major market player, their mindset, and also their system change whether it's ready for integrators, technology, so that's all the knowledge we could learn from the industry leader, and the pass along to the founder. And meanwhile, without knowledge and research within the technology side, we share the report data with them, we're also cannot influence them, educate them, to really encourage them to get along with the whole innovation ecosystem, find the most sustainable way to integrate new technology to their corporate and then essentially who afford the whole industry, we're gonna enter into this digital transformation. Some of my friends


Ben Glenn  8:32  

that are sort of the leading edge or maybe the bleeding edge of digital therapeutics, yeah, you know, so they're beginning to find a pathway within FDA. Yeah. And so now you're beginning to find where they're learning more about the patient. Yeah. And they have this, you know, it's been very interesting to think about this digital, the digital products as engagement with the with the, the patient, it's just to learn more about them. And then you get to this will, maybe the digital, well, the digital didn't work, that's fine. But it probably opened a pathway for maybe two other diagnostic choices or therapeutic choices that maybe they didn't know them. So I think there's aspects to digital health that we haven't even explored yet.


Lu Zhang  9:14  

You're so right. And also, I was on the panel in JPMorgan conference earlier this year, and we're talking about their jobs, therapeutics, and now the FDA seems catching up. So the US you're seeing more and more companies get FDA for digital therapeutics company much faster. But on the other side, were also looking forward to see the change on the insurance company sides, how to getting reimbursed. And once I definitely it's also because they wanted to see more data points from the clinical trial in order to have strong market validation, they could reimburse the solution but on the other side is also you know, really the mindset shift be able to understand the value of the data provided by the digital therapeutics company, because you're so right that all this digital platform will be able to connect all the dots used to be asked All right, it was in healthcare system and law, the large no matter pharma company healthcare company, they want to get patient engagement data, they want to understand how to provide more targeted, personalized medication services, or even like therapeutic solution to different types of patients. And now we are able to connecting the dots, I'll just


Ben Glenn  10:21  

I'll carry on with the example which was in Crohn's disease, and the the main, there's like three main pathways. And using the digital solutions, you can begin to identify maybe a stronger probability or eliminate others. Even that is where before I think it was using, you know, surgeon intuition, and maybe something from you just had a chance that would be right. And it seems like some of the digital platforms may be able to enhance that care decision.


Lu Zhang  10:50  

Yeah, exactly. You know, one of my strong passions really was a mental disease. And we didn't see too much of the progress in the mental disease the past 20 years. Now, with the digital solution, especially AI, we could find a better correlation, because different patient got certain mental disease for different trigger point, progression will be different as well, then they need personalized, so syrupy would explain this thing could be done now with other digital platform. And also we're able to assembly all the data together, potentially for pharma company to provide better solution in the future.


Ben Glenn  11:23  

So one of the advantages of COVID, if you will, was the advent of telehealth and telehealth becoming accepted just because we had to be remote? Do you see aspects of that for mental health and how mental treatment happens?


Lu Zhang  11:39  

I think definitely, there's lots of, in general, we didn't invest much in telehealth in general. But I can say that that's a really efficient way to collect the more relevant data. And the meanwhile, you know, for mental health sometime, it's not just a one point of diagnostic, you have to do continuous monitoring in order to get more precisely diagnostic, I think on that, and it's very helpful.


Ben Glenn  12:02  

When the when you look at the investments that are made in the fusion fund across the sort of that array of digital health solutions. What's the trend that you see coming that everyone's going to benefit from?


Lu Zhang  12:14  

Yeah, so digital Therapeutics is one thing we've been focusing on. And also, as we discussed early on, you know, lots of good momentum on the regulator side. And also we're seeing insurance companies are breaking up. And digital therapeutics also was able to integrate lots of new technology into the traditional therapeutic solution. So that's the power really like, and meanwhile, that's also a really interesting platform to potentially advocate large corporate like pharma pharmaceutical company to understand the value of the data and also invest more in the sector. Another two area is a digital life science and digital biology. I'm personally super passionate about digital biology last year was Alpha followed by DeepMind. Now we have the protein folding structure of 200 million protein in the universe, which is quite impressive. And this year, when people talk about generative AI, genuine AI going to have huge application healthcare, especially in digital biology, and also Digital Life Science, we have company launched the first January the AI platform for life science industry already and also for medical imaging, etc. So I think that's another area where I really spend lots of time out. But in general, go back to what I mentioned generative AI, I know Chad GPT being created a lot of password, and also even some bubble in the valley. But really it was in healthcare sector, we have huge amounts of high quality data, which generative AI need large language model to train, this is a perfect matching. And it used to we have lots of concern about data privacy, right? Because you will have a total number of the data is huge, but it's isolated from different hospital healthcare service provider, we also have company focused on farther than learning further learning is a new also AI algorithm be able to protect the privacy of the sensitive data lacking healthcare. And then the company could directly leverage tons of the data across different data owner and be able to train their models. So we have a company they're working with hundreds of hospital right now be able to help them not only just share the data to benefit that the AI company, but also help the hospital, the data owner to do monetization. So there's lots of good, you know, innovation could benefit from the AI trend.


Ben Glenn  14:24  

Yeah, we're doing last year the Biden administration passed the chips and science act. revolutionising pieces of National Science Foundation. Oh, yeah. You know, broad, you know, just sweeping changes that they want to make, not only for semiconductor, but I think there's huge upside is that. Yeah, and I look at this, and then you talk about data, and I'm, I think, look at all the federal research dollars. And where is that data and getting just if we could just find a pathway to gather that then everything coming out of our research institutions would come in with this. I don't know the data common denominator. Yeah. Do you want to call? It seems like that's, you know, it's federally funded research, getting access to those data rights there?


Lu Zhang  15:06  

Yes. Yes. You know, actually, that's a really good topic right now I do have friends from Stanford, they're working on them profit are focused on the healthcare data, how to really have a third party be able to host our data for a startup company out different corporate to use it, and further learning the technology I mentioned, and be able to have a technology solution to really reduce people's concern regarding the privacy. And I really want to echo what you mentioned about the strong push on the National Science Foundation and the National Institute for house. I think now the new mandate there is to prioritize, sponsor and supporting the project, or more closer to commercialization versus used to be okay, really, whether you have the best technology published or bad, best paper. Now, it's very practical. I think that's really good thing for healthcare innovation in general as well. Actually, one of my partner's saying he was a former CTO at HP, he also was an adviser to the US president, regarding the technology and the science, innovation. And they also have a big contribution to the new policy regarding the NIH and NSF.


Ben Glenn  16:09  

I welcome this, I was so excited whenever I started to read about this. And, and even inside of there, they focus on some of these big, big technology challenges. A lot of it's quantum computing and down inside the Department of Energy, you know, clean fuels and those kinds of things. But then when you abstract up, its manufacturing, AI, you know, computing, all these things that are you know, as you mentioned, digital biology. That's a massive computing problem. Yeah. And as we begin to have these new tools, bringing that in leveraging all this data that we have within the health system,


Lu Zhang  16:44  

yes, yes. You know, it's really interesting. You mentioned about the computing power is really critical because it is when we're thinking about handling huge amount of high quality data, like Empower AI even for generative AI for chat, GBT. The fundamental is really the computing power. While we're having conferences here, you know, this week is also the NVIDIA GTC conference, and they also talking about how they could prefer the push the, the boundary of the computing the chip capability in order to power the next generation of AI. So we definitely are looking forward to this abiding future of digital power, the healthcare industry, and also probably in general digital transformation across our different industry. And going back to the Journal of biology, I mentioned, you know, their dental biology people would think about the first application was in pharma was in healthcare, but digital biology also have huge impact in the food industry, in chemical industry. And even you know, for chemical industry, this is a good solution potential help learn to comply with ESG. So there are so many good consequences of leveraging technology right now.


Ben Glenn  17:45  

Yeah, across so many different fields. Exactly. Yeah.


Lu Zhang  17:48  

You can see like, when I talk about the attack, oh, my god, I'm so excited. Because that's the reason I feel passionate about my work every single day. Because we're part of the great movement right now. We could potentially support and be part of the great company in the near future. Yes. Now, the general economy. Situation is now good. But as I said, mentioned, I mentioned early on crisis come along with opportunity. And most of the great technology companies started during the economic downturn. And again, we're at a time that, you know, technology, innovation is the only tool we could use to improve the productivity, and also efficiency, essentially, you know, help us overcome this challenge of the economy downtime and move to the new air.


Ben Glenn  18:33  

Go to the Navy in 1995. I worked for Applied Materials, semiconductor guy, and so mature


Lu Zhang  18:38  

scientists from Stanford, so I know semiconductor plant material science very well.


Ben Glenn  18:43  

So it's crazy. I look back at how we made chips, then. Yeah. And then you fast forward to now here and that's another reason I love the chips and science act. I'm like, Oh, my gosh, here's the industry. I started in when I left the military. And now here I am in health care seeing these come together? Exactly. It's crazy. The advancements? I mean, the the I don't think we could have imagined the fabrication technologies that are now becoming, of course, we're going to do it that way. Such dense structures and complicated, you know, the way that the interconnects are now happening. It's unbelievable.


Lu Zhang  19:16  

Yeah. And also on the other side, you know, also the exploiting healthcare sector, also our impact on the technology trend, like AI. I was literally talking to a friend this morning. I'm like, Okay, you if you look at a new newer generation of the AI top scientists expert, these most of them also have on neurology on your science background. Oh, that I didn't know that. Yes, those Yeah, no, that's very fascinating, because they also tried to figure out how does our brain work, cautious, cautious, and in order to help them design think about a better model for AI in the future. Lou, thanks


Ben Glenn  19:49  

for coming by. I wish you every success with the Fusion fund.


Lu Zhang  19:52  

Thank you. Thank you very much, John, take two marker




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