2021 January AAIA Event Recap

“We are in this together”: Looking at Founding Teams, as seen by founders and investors

On Saturday, January 30, Asia America Innovation Alliance (AAIA) held its first event of 2021, a panel discussion with two guest speakers, Dr. Miles Li of Mightex System and Yigang Yang of WaterStar Capital, hosted by Dr. Sean X. Zhang of AAIA.


Dr. Miles Li is the founder and CEO of Mightex System, a leading developer of light-delivery and  imaging systems enabling scientists to study how brain functions and how neutrons talk to each other. His first startup company was acquired by a public company in 2001. Now he is also a VC investor. Mr. Yigang Yang is the CEO and Managing Partner of WaterStar Capital, a venture capital investment fund. In the past, Mr. Yang has led the international M&A transactions accounted for nearly $4 billion in assets, raised and managed 10 funds, and closed 28 early-stage/expansion stage/IPO deals. From their own unique perspectives, our guests shared their insights into building a startup team and working with all stakeholders in a very inspiring and thought-provoking discussion.


Sean: To begin tonight’s discussion, I’d like to take a trip down memory lane and take all of us back to the late ‘90s early ‘2000s. We’ve all experienced companies’ rapid rises during the dot-com era and the booming of the telecommunications industry. Nortel was one leading and major player in the telecom industry. Miles, can you share with us why you left Nortel at that time and decided to start your own business?

Miles: Echoing what you said, Nortel in the late ‘90s and early ‘2000s was like Google of the time. Companies such as Nortel, Alcatel, and Cisco laid a solid foundation for the telecommunications industry. Nortel had great a company culture and paid employees very well. Back then, it was a dream job for many of us. As a new immigrant and Ph.D. out of school not for long, I took pride in being able to join Nortel’s core business team – the fiber-optic systems team. The first major task I had to tackle after I joined the team was to double the number of channels in a fiber, to double the capacity. To do that, we had to source certain key component from a supplier that would meet our standards. After frequent meetings with multiple suppliers, we just weren’t able to find the right supplier for our required component. Out of frustration, the idea of doing it on my own sparked. I knew back then that fiber-optic systems had a growing demand in the market because it was important to revolutionize the internet age and had a good chance of success in making this component if I went away to do this on my own. And most importantly, I had the passion in what I was doing. So I made a bold move to leave Nortel and started my own business in Silicon Valley.

Sean: What an inspiring story! Can you tell us a little bit more about your team composition when you first started your business?

Miles: At the early stage of my business, it was just me and my partner who is an old university friend of mine. In the beginning, we were very tech-focused, with me being the CEO and CTO and my partner being the VP of engineering. It was a learn-as-you-go process for us and we learned many lessons along the way. The only thing that kept us going and spending 90-100 hours a week is the motto – “follow your passion”. In hindsight, we did take some calculated risks during the process, but I am glad we did. 


We’ve heard many horror stories where personal relationships did not translate into a successful commercial union. I think we had a good mix between Chinese thinking and western thinking. We were good friends, but we also were not afraid to discuss honestly our rights and responsibilities in this venture. We created clearly defined roles and responsibilities from the outset to avoid any unnecessary turmoil down the road. Luckily, my partners and I found a good balance between personal relationship and business union. We had a great team dynamics built on trust, and we delegated authority based on what’s best for the business.

Sean: Therefore, you did not wait to have a complete team before you get started. Yigang, can you tell us what investors look for in a fundable startup team? How important is it to have a complete team when it comes to fundraising?

Yigang: We invest in a wide range of companies from early stage pre-revenue to mid-late stage profitable companies. We look at different things in a team when investing in different stages of companies. Mature companies in the PE round usually have a complete team. On the other hand, it’s rare to see complete teams in early stage startups. For those companies, we look for things such as their IP portfolio and their ability to commercialize their product. When it comes to evaluating their teams, it really comes down to how passionate the founders are and whether the team has a capable leader that can lead the company to the right direction. We’ve had the most successes working with founders who believes in their vision and devotes themselves into the businesses.

Miles: What Yigang said really resonated with me. We followed our passion. We started our company with no business experts, and we filled in the business gaps such as financing, operations, commercialization, and HR ourselves.

Yigang: Before we look at founding teams, we look at a few other factors first. We look for solid share structures, at how shares are distributed between key people. Investors expect the founders to have majority of the shares throughout their Pre-A, A, B, and C rounds. Founders are usually the one or two individuals who are the driving force behind the startup. As investors, we also look at the market your product intend to enter and the industry your product is positioned in. It’s important for investors to assess whether the market has a growing demand for your product, and whether the industry you are in is at maturity or decline. If your environment is right and the market for your product is right, we then examine the team and look at different factors, such as leadership, strategic vision, passion, ability to implement the vision, to cheer the team up, etc.

Sean: Now let’s change our topic from founders to another type of stakeholders. Miles, how did you fund your startup in the beginning?

Miles: My partner and I started our business in March 2000, right between the dot.com and telecom bubble bursts. We were lucky to have raised funds from friend investors before the telecom industry collapsed. But as the market plunged later in the year, our investors became increasingly concerned with their investment. They would frequently come to visit and meet with us, from weekly meetings to then almost daily meetings, which hindered our progress on building the product. This was an example of “bad money” from investors, even though they were all very good friends. I think the lesson learned here is to consider the added value your investors can bring to your business. Another lesson learned is to hire a professional lawyer to look at your contract when raising funds from your family and friends. You should have a legal binding document outlining the business relationship. For example, we did not know anything about shareholder agreement, nor whether investors can have rights to constantly have meetings with us. I know the cost of hiring a professional is hard to justify in the early stages, but my experience has taught me that the price you have to pay to fix things later is much higher. When we did the next round of fundraising, we had all of our legal documents completely re-written.

Yigang: We sometimes use the 3 Fs to summarize the types of investors in early angel or seed stages – family, friends, and fools. All jokes aside, as a startup founder, it is a hurdle to find investors who believe in the business vision from the very early stage. For that reason, many startups seek funding from existing relationships. When you are raising fund from family and friends, it is important to understand the type of investment. To help build trust, you should illustrate a clear vision of your business and help them see the potential of it. Investing in a startup is very risky, not everyone is willing to take a leap of faith.

Sean: Investors as a type of stakeholders do not always have the same interests as founders. A startup has many different types of stakeholders. What are your thoughts on handling the relationships between and among these different stakeholders and keep them all “in” this together with you, to bring the company to success?

Miles: There are a number of stakeholders and a number of relationships to balance. I believe the secret to build a successful team is to have all stakeholders’ interests aligned. One important lesson we learned is to establish early on expectations on investment and return, and link the return to efforts made and the risks took by each person. To do this, you have to deal with the relationship between founders. You have to deal with the relationship between founders and the company. And, there is the relationship between the investors and the company. And, the relationships between the employees and the company, etc. The importance of understanding the relationship between the founder and the business is often overlooked by many. Early startup founders typically conclude that there is no need to have separate representation because the founder “is” the company.  However, as your business grows, you will learn that while this is true for many purposes, it is not true in other situations. There are many examples of founders not having the same interests as the company and examples of founders being fired by their “own” companies. My suggestion is to hire a lawyer to look at your shareholder structure and vesting schedules to avoid messy co-founder exits. With rights, return, risks, responsibilities and obligations all properly shared and clearly defined, it helps to have founders, company and investors align their interests.


Yigang: Echoing what Miles said earlier, consider hiring a lawyer to look over all your contracts before you accept money from investors. From an investor’s perspective, we always ask founders whether the contracts they already have are put together by an established legal service provider. Besides having lawyers to advise you on team formation and shareholder structure, I also recommend hiring an IP lawyer if you business has valuable IP assets that need to be protected. Your company’s IP represents some, if not the most important assets that can directly impact your growth. Hiring an IP lawyer to advise you on the proper use of IP, licensing, and other IP strategies will help you maximize the value of the IP. You also need professional help from accountants. It is important to get professional help to give you company a good structure and prepare good legal documents to define and minimize your potential risks. Then, your company can go far.


Miles: I agree with Yigang, you need good legal advice on structuring your company and the relationship among all stakeholders. This is like giving your company a very solid foundation. It is very dangerous if your company does not have a very solid legal foundation. Just like a building, once you have the building constructed, you cannot see the foundation but the foundation is absolutely necessary. Another lesson we learned is that you will need to write down, as legal contract and agreements what you have agreed. These legal agreements and legal structure become your company’s foundation. Same with your IP. For example, patent is to use law to protect your technology and commercial interests. You cannot rely on your engineers to write good and effective patents.

Sean: Before we conclude, do you have any advice and tips for our audience who are looking to start their own business?

Yigang: We look at many companies to identify investment opportunities. For example, we looked into 585 companies last year and 59 this year so far. Based on my observations, in those relatively successful companies, the average age of a startup founder is 40. Starting a business right out of university and turning it into a profitable business is very challenging. My advice for young entrepreneurs is to acquire some experience by working at a well-established company before starting your own. Working for a reputable company can help you pick up essential skills from the leaders in your industry, and help you build a strong personal network. My other piece of advice is to learn industrial knowledge, understand how products are made. Learning such things will help you broaden the breadth and depth of your knowledge. Lastly, develop your critical thinking skillset because most successful entrepreneurs are critical thinkers.


Miles: I agree with what Yigang said, it’s important to gain hands-on experience before you start your own business. From entrepreneur’s perspective, my advice is to find your true passion and follow it. If you do not love what you do, you will get burned out quickly. My second suggestion is to balance passion with wisdom. While passion will consistently drive you to reach your end goal, understanding your product potential by conducting extensive market research is also crucial. Lastly, it’s ok to take calculated risks, don’t take foolish risks. Calculated risks are risks you’ve evaluated enough to know that the chance of success is higher than the chances of failure. In summary, do the right things and leave no regrets!

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