Profile: Lightspeed China Partners’ James Mi

Lightspeed China Partners generally doesn’t do first closes. The firm moved directly to a final close of USD 920m on its most recent fund – beating a target of USD 750m – in late 2021 after just three months in the market. In doing so, it overcame an inability to meet LPs in person and an infamously challenging environment for venture capital fundraising in China.

Despite this success, James Mi, Lightspeed China’s founding partner, doesn’t mind discussing failures. He is an advocate of the “growth mindset,” a concept developed by Carol Dweck, a psychology professor at Stanford University, that captures the circular relationship between the desire to learn – and to overcome challenges in the pursuit of growth – and higher levels of achievement.

It is also the blueprint for Lightspeed China’s internal culture. As part of the annual review, every team member makes two suggestions as to how Mi can improve and lead the firm more effectively. Rather than use failure or success as a yardstick, Mi believes everyone is on a growth journey that can be accelerated by recognizing and learning from mistakes.

He regards turning down an offer from Google to be employee number 30 as probably the biggest mistake of his career. The year was 1999 and Google had yet to emerge from the garage in which it was founded. The garage was owned by Susan Wojcicki, one of Mi’s colleagues at Intel. She became employee number 16 and recently stepped down as CEO of YouTube after a decade of service.

“The meeting was around a ping-pong table,” he recalled. “I asked about the business model, and they said ‘We don’t know, it might be enterprise search,’ not the ad-driven search that became the company’s hallmark. They told me that Google would be a large company with a market capitalisation of more than USD 6bn.”

Alphabet, Google’s parent company, is now worth about USD 1.2trn. Still, at the time, Mi didn’t understand how a company with no clear monetisation model could reach USD 6bn. He decided to launch his own start-up instead.

Bright spark

Mi fit the start-up founder mould. A physics graduate from Fudan University in Shanghai, where he completed a four-year undergraduate program in three years, Mi went to Princeton University to pursue a PhD in electronic engineering. Then fate intervened.

During a summer internship at Intel, he co-invented a multi-level cell technology for flash memory – a significant breakthrough because it doubled the amount of information that could be stored in an individual memory cell. The discovery made the front page of the New York Times and led to Mi accumulating more than 10 US technology patents.

Intel convinced him to abandon the PhD and work full-time on productising the invention. Mi spent seven years at the company, covering every aspect of the chip manufacturing process, from design and electronic design automation to product and market development. He then felt ready to strike out on his own with an ambitious plan to turn the telecommunications industry on its head.

“In 1999, international phone calls were still very expensive. We planned to use the internet to build a service platform that integrated features of telephones, faxes, emails, and video conference calls, offering services at a low price,” said Mi.

The company, iTelco Communications, soon won a Series A funding. However, within four years it had failed, crippled by high costs and a long sales cycle.

First, cloud services providers like Amazon had yet to be invented, so iTelco ran its own global cloud, which was expensive. Second, the target customers were telecom operators, not end-users. Although the likes of Japan’s NTT and Singapore’s Singtel put in orders, they were cautious and therefore slow in selling the service to corporates.

“That was a very low point in my life. One lesson I learned was that we should first consider general trends. If you move too early, starting a business when the supporting infrastructure is lacking, you can hardly expect to thrive,” said Mi. “In subsequent investments, I have tried to invest just before an industry takes off. That is probably the most ideal situation.”

There were many casualties of the dotcom bust. Google wasn’t one of them. It posted rapid growth in the early 2000s and Mi joined in 2003 as the company’s first China representative. He was tasked with building a local operation from the ground up as well as overseeing Asia strategy. Two years later, Kai-Fu Lee – then of Microsoft, now of Sinovation Ventures – was recruited. Mi was one of the interviewers.

Mi came to realise that local companies were better positioned than multinationals to address the unique needs of Chinese consumers. He suggested Google make investments.

Management wasn’t keen initially, Mi persevered, and the results in China soon spoke for themselves. Google backed search platform Baidu, restaurant listings app Dianping, local services marketplace Ganji, peer-to-peer software developer Xunlei, and internet forum Tianya Club. Dianping and Ganji were absorbed into Meituan and 58.com, respectively, while Baidu and Xunlei listed on NASDAQ.

Lessons learned

The experience nurtured Mi’s passion for early-stage technology investing. “To be a founder and start your own business is a most challenging and exciting journey. But I take the next best thing. As an investor, I can help many companies thrive, which is very meaningful,” he said.

During this period, Mi also demonstrated he had learned from his early mistake. He turned down Google in 1999 because he failed to appreciate the importance of product-market fit. Google didn’t have a monetisation plan, but people loved the search engine. Similarly, despite having no business model or revenue in 2007, Dianping managed to cultivate a loyal user base.

Mi took the leap, reasoning that if product-market fit was present, monetisation would come naturally. He paid USD 4m for a 20% stake in Dianping, valuing the company at USD 20m. On merging with Meituan in 2015, the business was said to be worth more than USD 4bn.

In 2008, Mi left the corporate sphere and joined US-based Lightspeed Venture Partners. He spent the first three years investing out of the firm’s global funds, backing the likes of Dianping and Rong360. Lightspeed China launched as an independent operation – though with the blessing and support of the US operation – in 2011. A debut US dollar-denominated fund closed the following year on USD 168m.

Four more funds – not including companion growth-stage vehicles – and USD 3bn in assets under management later, Mi’s portfolio spans cloud computing (Innolight), autonomous driving (Plus.AI), artificial intelligence (Laiye), semiconductors (InventChip), biotech (Neural Galaxy), and software-as-a-service (BlackLake Technology).

His early years at Google crystallised into a robust industry network, including talented engineers who went on to launch their own start-ups. Colin Huang of Pinduoduo is among the best-known.

Mi passed on Huang’s previous start-up, e-commerce services provider Leqee: he saw the path to profitability but questioned the size of the market opportunity. Another business idea, focused on online-to-offline manicure services, was rejected before it left the drawing board: Mi had already studied the space and concluded that the growth efficiency was too low.

Huang’s eventual breakthrough was inspired by US-based e-commerce start-up Jet.com (later acquired by Walmart), which had devised an online version of wholesaler Costco. Mi and his US colleagues liked the concept but identified a fundamental weakness: customer acquisition fees were as high as USD 100 per head. What could be done to bring them down?

“We did brainstorm session with Huang, and he cleverly found a way through by leveraging WeChat's traffic flow to acquire customers,” said Mi. “It was what came to be known as social e-commerce.”

Pinduoduo, now known as PDD Holdings, was established in 2015 and Lightspeed China participated in the early institutional rounds. It achieved CNY 100bn (USD 14.6bn) in gross merchandise volume (GMV) within two years and went public with a market capitalisation of USD 24bn after three. The company is now worth approximately USD 118bn.

Know your entrepreneur

Other opportunities, however, slipped away. Mi was approached by Yiming Zhang, founder of ByteDance, about joining a Series B round in 2013. They discussed Zhang’s concept of a personalised news service for an hour, but Mi wasn’t convinced: Surely the technical barriers weren’t high enough to deter China’s incumbent media giants, which could enter the market at any time?

“Zhang is a very deep strategic thinker, but this didn’t register with me during our meeting. I regret not talking to his early investors to learn more about him. In short, I didn’t really know him well enough,” said Mi.

Lightspeed China introduced two rules to reduce the chances of this happening again. First, try to build an in-depth understanding of the founder by exploring different channels. Second, even if you pass on an initial opportunity to invest, keep tracking the company and stay in contact with the founder, so there is the option of joining later rounds if there’s significant new development.

These rules proved useful when backing Hesai, a developer of sensors used in autonomous driving, which recently became the largest Chinese company to list in the US in nearly three years, ending a protracted regulatory-induced logjam. Lightspeed China and Lightspeed’s global funds are the two largest external investors with 7.1% and 7.8%, but the path to the bourse has hardly been smooth.

In 2014, Hesai was working on laser-based solutions for remote gas detection. Mi liked the team’s technical capabilities, but thought the market was too small, and passed on the Series A.

At the same time, scanning LiDAR – where lasers rotate on a spindle – was being deployed in Google’s prototype autonomous cars at a cost of USD 100,000 per unit. Mi responded by looking for start-ups focusing on solid-state LiDAR, which has few to no moving parts and was regarded as a more cost-effective mass-market solution. He didn’t find anything worth backing.

The solution was to persuade Hesai to pivot in that direction. Impressed by the prototype, Lightspeed China moved with conviction, participating in five consecutive funding rounds through its venture and growth funds. It led the Series B and C rounds even as other GPs hesitated.

Mi also recommended that the company target the mid to low end of the market, where the term L2 autonomous driving is often used interchangeably with advanced driver assistance systems (ADAS). Cars can change lanes, overtake, and park automatically, but they fall short of the higher levels of autonomy characterised by L4 and L5. The argument was that focusing on L4 and L5 would cost market share.

“Entering the ADAS market, Hesai can attack from a higher dimension, offering LiDAR of a much higher quality than any competitor but at an affordable price,” said Mi.

Hesai shipped 80,400 units in 2022, of which three-quarters went to ADAS customers. But progress almost came to a shuddering halt in 2019. Velodyne Lider, the global market leader, scaled back its Asia Pacific operations amid rising competition and then filed a patent infringement lawsuit against Hesai in the US. Mi flew to the US to address the issue and the parties reached a settlement the following year.

This cleared the way for an IPO on Shanghai’s Star Market, but Hesai withdrew its application in 2021. This was essentially a move to accelerate commercialisation. Companies cannot raise new private funding during an IPO approval process and the company needed capital to build a new factory to cope with rising demand from electric vehicle (EV) makers. A Series D of USD 300m closed one month later.

“Our key decisions regarding Hesai are all based on long-term assessments. It would be great to be listed on the Star Market, but EV is an irreversible trend. Seizing the opportunity offered by leading players towards scalability is more important,” said Mi.

Going green

His appreciation of EV is representative of a broader belief in green-tech as the next transformative investment opportunity in China, following consumer technology and deep technology. Lightspeed’s Chinese name now translates as Lightspeed Photosynthesis in recognition of this strategic shift.

While green-tech is dismissed by some investors as the latest in a long line of China fads that inevitably fade away, Mi’s commitment is underpinned by a deeper worldview. He regards climate change and inequality as the two primary challenges facing humanity and wants to play a role in addressing them.

There are no caveats or quantifiers. Mi believes he is right – and, more pertinently, he is not afraid to risk being wrong. A misstep or miscalculation is not necessarily a hindrance if one learns from the experience: it is all part of the growth journey.

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• Topics
• Greater China
• GPs
• Technology
• Lightspeed Venture Partners
• China