How Brian Sheng Closed a $112M Round for Aquaria (Brian Sheng / Aquaria - Ep 55)

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Brian Sheng: failure is not an option. It's just simply not an option. And that's, you know, sounds funny, it's like self hypnosis, but it was like, you, you just gotta keep going there. There really isn't another choice. Like, what else are you supposed to do?

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Jason Yeh: The hardest part of raising money isn't just telling investors that your business is worth backing. The hardest part is actually staying live long enough to convince them. Fundraising, especially for deep tech companies and other capital intensive businesses, have a really hard time doing this because for them it isn't just about pitching, it's about enduring.

sometimes it's about hearing no more times than you can count running on fumes and somehow [00:01:00] finding a way to keep going. When it comes to raising capital, founders who make it through don't always have the best decks or the strongest networks, but those that do make it through have one thing in common.

They don't quit.

That's exactly the kind of resilience Brian Shang brought to building aquarium. Brian bootstrapped his business with millions of his own dollars. When investors wouldn't bite, he pivoted, experimented,

and ran countless product market fit sprints over the course of two years. He faced rejection after rejection, almost ran outta money multiple times and still he kept pushing

and good thing he did because Aquaria recently closed a $112 million round to scale its solution for generating clean water out of thin air. But before we get into that round, we talk about the early days, how his upbringing and what he was like as a kid didn't exactly line up with where he is today.

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Brian Sheng: I, I think if you, [00:02:00] if if people met me maybe, I don't know, like 10, 15 years ago, I, they, they would've, they would, they would see that I'm somebody that was actually pretty bad at communications. Um, I, I, I, I was quite expressionless. People thought I was really robotic, really like stern and, and, and stoic. Um, actually, I, I can't really say people thought I actually was that way. You know, let me, let me, let me say that. Like, I, so, so I think, um, which I think obviously now I've gotten a lot better at.

And, and, and that's a very

Jason Yeh: I, I would, I would agree. I would agree.

Brian Sheng: Um, and, and it's just really interesting to look back to see how, how much I've changed as a, as a, as an individual, um, and as, and grown to, to be able to, you know, kind of grow into my responsibilities today as a, as as a founder.

Jason Yeh: Yeah. And so as a kid though, do you remember the things that you were interested in? So as a unemotional sort of robotic kid, um. Were you into entrepreneurship? Did your, did your parents show you the [00:03:00] model of, of, oh, this is what I should do, or, you know, could you have ever predicted, as, you know, an elementary school kid that you might go down this path?

Brian Sheng: I think as an elementary school kid, I thought I was gonna get expelled. I was a really bad student.

Jason Yeh: No way.

Brian Sheng: I, uh, I'm a, I'm, I'm first generation American, uh, and I actually went to school in China until the first grade.

Jason Yeh: Hmm.

Brian Sheng: uh, in that system I was like, considered like the worst student. And I, so, so looking back, I always joke like, Hey, I'm, I'm to my parents.

I'm like, I'm so glad that, you know, you gave me this opportunity to be in America because, you know, I've, I, I went to a good school. I grew up and, and learned so much. I became a founder. But you know, if. I was back, you know, in a different system. I don't know, I might've been juvie or something like, like a totally different

Jason Yeh: Well, so I want to take you down a another path of questions because, um, there's some stuff that sticks out to me around your background before I get there. [00:04:00] So tell me a little bit about your parents. Um, you know, are they entrepreneurs? Are they, you know, they work for big companies? Are they scientists?

Like, uh, what's their background?

Brian Sheng: Yeah, so my mother is the best mother in the world. She doesn't, uh, she just take, took care of us growing up. Uh, so she cared a lot for us as a, as a stay at home mom. Um, and then my father was a scientist, philosopher, businessman, kind of like a renaissance man of sorts. Um, definitely businessman, but but, but had a lot of technical skill sets as well. And then they together, um, you know, uh, very early on, actually in the nineties, uh, came to America and, and, um, they were, uh, looking for better opportunities for us versus being, uh, you know, in, in China. And, and then they brought us over as kind of like a pretty early, uh, wave of immigrants, um, from, from China.

Jason Yeh: Nice. Okay. Well, there's, there's a part of this that sounds very consistent. Uh, first generation Chinese [00:05:00] American. Dad was a scientist, came over the United States, like it all kind of lines up. Uh, one thing that I, I'm just very curious about is that you were, you were a college athlete from what I could, uh, gather, which is not typical when it comes to.

I would say Asian American kids in terms of the activities that they are encouraged to do. And so this is part of your profile that I think is, is slightly unique. I think you played ball, uh, in college. Tell me a little bit about that. What, what, what role did sports play for you growing up as you started to evolve?

Brian Sheng: Yeah. Jason, I think you picked up on a really important thread here is that I think on paper a lot of those things are very consistent with the immigrant Chinese American experience. But growing up, um, I had none of the expectations or obligations of a typical immigrant kid growing up. Um, I wasn't expected to be a doctor or a lawyer or any of those things.

I wasn't expected to. Actually, there was just like no [00:06:00] Tiger Parent type of anything. So I, I kind of had my choice in suing what I wanted to do, what I wanted to participate in. And one of those things was sports. So I started playing football in middle school, um, and, and, and I, it channeled like a warrior spirit and it, it channeled like this energy in me where I devoted a lot of that discipline, a lot of energy into disciplinary, I should say, and developed that.

And so sports, I think played a huge role in making me understand like, how hard can you push, like what you think you can do versus what you can actually do. Built up the work ethic that you know. Kind of still shapes who I am today.

Jason Yeh: that's a, that's a fascinating background. I'll just tell you like, I, you know, I was a VC before, and every VC has, and every investor has certain things that they like. There's a lot of consistencies around.

Certain characteristics that many investors like. Um, there's one, I'm not sure how many people align, but I I really [00:07:00] appreciate, uh, people that were in the military and played sports at at least a college level. Um, I think both indicate something that you talked about, which is like a real demonstration of investing A lot of.

Time, effort, energy, uh, sacrifice into getting to a goal, uh, and ability to withstand pain. Um, also leadership. So I saw that in your background. I was like, oh, wow. I, I have not met many Chinese American founders who also played college sports at an elite level. And so I definitely wanted to make sure that we, we talked a little bit about that, um, bouncing from there.

So, uh, I think you were at Princeton. Um, coming out of Princeton. Tell us a little bit more about what you thought the road ahead for you was, were you kind of standard down the middle, I'm gonna do something, be an investment banker, or your other, you know, classmates from Princeton, or did you already have the entrepreneurial bug coming out of, uh, of undergrad?

Brian Sheng: [00:08:00] I believe this was 2012 and there was this movie called The Social Network. Um, and so, you know, at the time I watched that movie and I was like, wow, this is pretty cool stuff. And I, um, I used to, uh, I had, I used to be a aspiring uh, mathematician and um, had a bunch of friends in the math, you know, US Math Olympiad Circuit who came to San Francisco and became founders. So, uh, actually when I was a, after finishing freshman year at Princeton, I actually, uh, dropped out for like a couple of years, two years, two and a half years to be exact, and I came to San Francisco and I said. I'm gonna find, I'm gonna go find other founders to work with and, and maybe invest a little bit of capital.

There must be lots of, uh, mark Zuckerberg's around and they're all young. They're all like 20 years old and like, I can go find them. So actually with, um, a couple, uh, uh, one other founder buddy of mine, we started like a micro VC studio of sorts, uh, as a, [00:09:00] as a sophomore in college. And, and, uh, no, I definitely did not take a very normal path.

It, it took me down a totally different road and I was like, uh.

Jason Yeh: Huh, man, your background gets more and more interesting as we go along. So it doesn't seem like you were gonna do anything standard throughout this, this journey. Um, and, and so now like I want to get into the meat of, of Aquaria and what we like to talk about at Funded, which is a lot about, you know, what goes into.

The founders approach and mindset as they're even thinking about the start of their company, let alone the last fundraise that you did. So as you're thinking about this problem, you're thinking about a, a, a pretty core problem to all of humanity, which is access to potable water. Right. Um. As you're thinking about this, I always liked asking founders, when you started, did you know that this was going to be a venture-backed business, or did you feel like you could do this without raising capital from outside sources?

I think I know the answer to this [00:10:00] one given how, how intensive, um, uh, from a hardware and science point of view this is, but tell me a little bit about even starting this company. It's like, holy shit, I have this idea. Absolutely need to raise money. How did you think about this?

Brian Sheng: Yeah. Um, so I think. I think the part where I, I, you know, uh, was thinking like a VC investor for a while actually played into the way I thought about starting Aquaria.

So I've always been a, a thesis driven kind of thinker. I, I always think ahead and before I kind of plot work backwards towards how I build something. And so when I was thinking about starting Aqua, what I did was look at kind of first study like what is the problem with water? And so I actually surveyed many different types of emerging water technologies that had the potential to unlock more abundant clean water. So creating water from the air, that's what Aqua is today. Could have been another [00:11:00] version like, you know, buildings desalination under the ocean or like, you know, cloud seeding or, or, or any number of different novel technologies. But, um. But I eventually, what I realized was that actually all of these took massively massive capital they had to raise. Um, but there was only one option that had the speed and the kind of scalability of the venture game, which was ultimately what I picked, which is atmospheric water generation.

Jason Yeh: So from a, from the very start of this, you were like. There's a massive problem that needs to have a company, um, as big as, as big as it possibly could be. And if you put those things together, uh, you kind of end up at a venture capital backed company. Um. I I, I always talk about the most recent fundraise, but, um, you and I talked once before about the sort of journey of getting, you know, your first dollars [00:12:00] in and, and your sort of the second dollars in.

I wonder if you could walk us through a little bit of that, just so we know that, by the way, we're gonna talk about $112 million round, but I think a lot of times when people see Aquaria raises $112 million, it's like another one of those Ivy League. Silver spoon kids who just like, you know, dances their way all the way to $112 million raise.

I think the early innings of Aquarius, especially from a fundraising point of view, uh, wasn't, wasn't so much that, uh, tell, tell me a little bit about some of the, the sort of twists and turns of that journey.

Brian Sheng: Well put it simply was incredibly challenging. I mean, this is why I'm excited to be on, you know, to be able to share back with the community. 'cause I can remember less than two years ago, I'm on the other side looking at all these videos and you know, learned a lot from the, you know, your course, Jason and I. And I mean, it was, it was like, try anything and everything you possibly can. I mean the, um, you know, going [00:13:00] back into the lore of the founding of aqua, one thing that you know, I did was I, I bootstrapped this business for quite a long time. I put in, you know, millions of my dollars that I had made from previous businesses to, to kick off Aqua. And of course I like to say that, oh yeah, I had a hundred percent conviction. That's, you know, which is definitely true, but also it was because like. Venture investors weren't interested in investing in water. Like that had nothing to do with any of the mental models related to SaaS or, you know, any number of, so I mean like, oh, cool water.

Like we, we don't run out of water in San Francisco. Like, cool. Like, what do we do with this?

So it was very, very challenging.

Jason Yeh: Yeah, I think like one of the interesting turning points is, is kind of when you felt like you broke through. So there, there was early days when, of course you wanted to raise outside capital, but what you were feeling from what you're describing is just like resistance, resistance, resistance. [00:14:00] And um, not many people have one access to their own capital.

But also I think it's more important is like, even though you did have access to that capital, it's like the risk appetite to say no, no, no, like. We have something here and we're just gonna keep pushing because eventually the tide will turn or eventually people will understand. Is there something you can point to that you know, made it feel like, oh, that thing, or maybe this series of events were some of the things that helped turn the tide and allow you to bring in some of your first outside capital.

Brian Sheng: Yeah. So, um, I think it's a mixture of internal and external influences for sure. I think partially internally is we were, we just kept pushing. We kept pushing on, figuring out like, okay, well we obviously understand that investors wanna see a good business. Um, so perhaps that in the early days you can't understand why this is a big opportunity because you also don't see the relevant progress. Okay, so then let's figure out where is there an [00:15:00] exciting enough opportunity with water, um, so that it gets investors excited, and then we also have to build the relevant traction related to that. And that sounds very simple, but it wasn't very obvious because as a water company, we literally could have hit anyone. We could have been a bottled water company, we could have been a water cooler company. We could have been, uh, you know, an a farming company like everybody would hit us up. I go, that's a great idea. We need more water. But. Then it was like, okay, well the feedback is yes, I need more water. So then who is our actual customer?

Like, what kind of business are we?

So, you know, I think, um, for a solid two years, 18 months, two years, we were continuously kind of iterating through that so that we can get to a point where investors like, oh, okay, that's, that's interesting that that's not just like me and my San Francisco water or lack of water problems, but that's something bigger. Then also I think externally, um,

you know, [00:16:00] hurricanes and wildfires and contamination events and droughts and these things that are, you know, uh, just increasing, you know, frequency and severity every, every year. I think that's when people start waking up that, oh wait, this is like an issue we have in America.

Um, not just.

Jason Yeh: I love what Brian is highlighting here. The difference between having a massive problem to solve and actually running a venture backable business. A lot of founders assume that because their idea is very important that investors will immediately see the opportunity, but without clear traction. And the right framing.

Investors can easily see your idea as being too broad or maybe too niche. Brian Sprint years refining both his business model and his messaging, making sure investors saw query as more than just a water company, but as a high growth, scalable solution to a growing crisis with customers ready to pay After the break, we'll talk about the moment when things [00:17:00] finally started to click.

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Jason Yeh: I, I'm, I'm really glad you, you shared that one simple insight, which maybe sounds overly simple, but I think is something that. Founders that have stars in their eyes around, you know, building a massive business, sometimes glaze over, which is just this idea of like, are, are we, are we building a good business?

Right? And we believe that we can build a gr good business, but have we shown enough, have we shown enough to make people [00:19:00] also believe alongside of us that we're, you know, actually on, on the verge of, or in the middle of building a great business? And I, I just think like some people. Kind of put the cart before the horse and, and start talking to investors and kind of assume that that story will get across.

And I'll, I'll just say it again. It's like if you're building a software business and it was like, well, you know, I. They need to see more to like, be able to, uh, show that we're running a good business. You know, you put your head down code a little bit more, work with some customers, code a little bit more like aside, aside from human capital and, and your time, you can probably get there on your own.

And, but for you, like you were iterating with your own capital and, and really just pushing it forward so that. That push is, is super impressive. And then sometimes, yeah, you can't really predict when the world is going to shift in certain ways or sort of towards your problem space. But certainly a lot of things have been happening, certainly where I live in [00:20:00] California that threaten our water supply and, um, all of a sudden stars align.

Your business starts actually, you know, having a little bit more tangible proof point to show, and the world is shifting. Which leads us to, I think, bringing in your first institutional capital. And, and now I want to fast forward to essentially right before you go out and raise this latest round. Okay. So talking about, um, raising the latest rounds, um, what's, what's been reported is that you raised $112 million for aqua, which is amazing.

Tell us a little bit about. Where you were at when you kind of knew that you needed to go raise a round, um, what was happening in the company? Anything that you can share around, you know, is it a, is it a runway driven thing? What was the trigger point that made you go, I think we should go raise now.

Things were happening, were you running outta money? Um, what were the characteristics of a situation that you found yourself in when you [00:21:00] went out?

Brian Sheng: For sure, and this is directly tied to the topic we were just talking about because you know, essentially for, I don't want, I wanna pin it, maybe two years, maybe a little bit more, two and a half years, we were constantly running three months. Six months type of experiments to iterate on, like product market fit, figuring out what that thing is. And along the whole time we're, I was talking to investors the whole entire time to get feedback and try to like, try to go through that. It's kinda embarrassing to look back and I can see my email threads, it's like 2021 deck is totally different from 2022 deck, which is total totally different from 2023 deck. Um, but then we hit a point where we're like, oh wait. This one is like, this is interesting. Where, where the customer, so actually I'll, I'll touch on the exact moment is, you know, like I said before, we could have been a water cooler company, a bottled water company, and another number of type of companies. But then [00:22:00] one day we had a customer that wanted Aach, one of our largest machines, uh, at the time, which can produce, uh, enough water to support the entire house. So they said, I want one, maybe multiple of these for my house. And I was like,

wow, that's like a 60, 70,000, maybe a hundred thousand dollars purchase.

Why would you want that for your house? And then we kind of came to this unique insight where it was like, oh, actually there was this killer use case where. People would be willing to spend a lot to protect their families in case that their water fails. And there's lots of parts of America where the water supply is not safe and secure, um, that we take for granted in San Francisco. And so I think that insight came. Then we spent another three to six months to validate that, like one of our usual product market fit sprints. And when that's when we discovered like, holy crap, this is like that. Fit what we're looking for. That is big enough, exciting [00:23:00] enough, a killer use case. And also, well, this also is like really big, which means we need money for it.

There's, it's like we can't iterate on this anymore, like, like in like the past. And that's when we decided, let's go for it.

Jason Yeh: Amazing. And so walk me through, walk me through that. Like you're, you're hitting on all the things that I think most founders dream of, of, you know, founders that haven't even gotten the taste of what even initial shreds of product market fit, you know, are like, and so I think you're looking at your co-founder, who by the way, I think is your brother looking at your co-founder and you're like.

We should go. Um, how long from that point till closing did it, did it all take

Brian Sheng: Another 15 months.

Jason Yeh: So, you know, it hasn't been easy. Even, even as we were leading to the exciting point for a lot of founders, which is we have the thing, it's not like people were like, [00:24:00] amazing, like immediately throwing a hundred million dollars in your pocket.

Brian Sheng: No, not at all. Not at all. It still took another 15 months for us to get to that point. Um, in between which we almost ran out, ran outta money. twice or three times and we had to plug in with, you know, kind of safes in between and, and roll up investors who started believing in us. And I mean, we were kind of like a cockroach.

We just never went away. Like there are people that have known me working on this for like five years and every 12 months we might have pivot to a different version of this. And they're like. wow you're still kind of going at this and, and, and, you know, we're just keep going. We just keep going. And, and, and, but it took another 15 months and almost running outta money another two to three times. And then we were able to get to the point where we're today.

Jason Yeh: Man, I, I just love stories like this because again, I mean, we started, we started here, or I started by saying, you know, you look at a headline like Aqua Raises $112 million and. A lot of founders could see that and say like, I don't wanna, I don't even wanna hear [00:25:00] about this. You know, I don't wanna hear this story.

This is not applicable to me. But as we pull back the layers, it is, it's so applicable. And I, I've been thinking about this a lot, uh, in terms of some of the products that we've launched at my company and seeing examples all around as you, as you dig deeper and deeper to some of the biggest companies where it's like, stuff's like not working.

It's not working, it's not working, it's not working. But the core understanding that the founder has and what they're working on is like, it makes sense. Like it doesn't, it's crazy that this wouldn't work, and you find everything that you can to keep pushing and it's like, it's not working in this direction, but it turns out like I.

It's not a full pivot away, it's like three degrees this way, and all of a sudden it like unlocks everything. I just, I love hearing stories like that. Um, you said from knowing that you wanted to go raise this round to, to when you closed 15 months, um, don't have to say who or how much or anything, but, um, whatever you can share.

Do you [00:26:00] remember the moment that you realized like. It's actually going to happen. Sometimes it's a lead investor calling and saying like, I wanna do this. Or you receiving a term sheet. Do you remember when? Like, holy shit. You're like, oh my God, we're gonna get this done.

Brian Sheng: Um, there was no moment like that.

Jason Yeh: No moment like that.

Brian Sheng: It just kept going. Our, our, our actual closing process took about three months and

so basically, so basically, uh, from our kind of lead investors coming in, then I basically, uh, kind of went back and recycled five years worth of investors like this is happening. And then kept and basically ran an entire process around everything I've done in five years. And, uh, you know, the whole time I was also like trying to scale up our, you know, new product market fit business. And so, you know, while running the three months process, it was also like, oh yeah, we're better than last month now. Also this month also better than the last month. [00:27:00] So I think it's like, um, we, I don't think I ever had that one moment or was like, yeah, we did it.

We got that one lead investor who's gonna take down 60% of the round and like, you know, uh, get everything going. Um, no, I, I wouldn't say we had a moment like that. Um,

Jason Yeh: Should we, Brian, should we give you that moment right now and at least have a little bit of. Um,

Brian Sheng: I think I'm having that moment, like, you know, like when we first started our call, like I'm, I think I'm having that moment now, like

today, like this week. Not because we raised the capital, because you know, we raised the mixture of debt and equity, which is like not typical for I think a normal software company, the Valley per se.

So there are strengths attached to them, but when I think about like. Um, you know, the moment is here. I actually think it's like right now for us, where we are starting to scale our business for real, like really, really go into hyper scaling mode. I'm like, we are here, like things are really working and I can see [00:28:00] a pathway towards, you know, a hundred million dollars in the next 18 to 24 months, and I know how that's gonna work.

And the repeat of emotion is there. Like literally this month I feel like we're, we're like here.

Jason Yeh: That's amazing. Uh, I, I love that that kind of realization is coming over you over the last and as it's happening. I like that it's happening here. Um, a lot of times we go in the opposite direction. I'll. I'll land on this like nice, good feeling, but I wanna balance things out. Um, I wanna ask you, you know, over it sounds like three years of challenging fundraising, um, any particularly difficult times, um, stand out to you?

I like interactions with VCs or experiences going through the invest Yeah. Fundraising process. Anything that like, you know, hangs in the back of your head like, oh man, that was horrible.

Brian Sheng: Uh, yeah, definitely. Um, so, [00:29:00] you know, there was two PA moments I remember in particular, and I guess they were kind of like, uh, probably following each other, but, um. So I think it was around actually when I joined the program, that was like my first prep, major preparation where I felt that I think we've hit on something really exciting about a product market fit and thus let me do a full preparation, um, and, uh, do a round, uh, whether that's more or less, let's, you know, let's get us going. And it was really devastating because we ran a full process and it didn't work. So, you know, we, we ran a full, full process. We, I hit up all my contacts and preparation and everything and, and, and you know, we, we, we went full force, a hundred percent and it didn't pan out like that was just absolutely devastating. And this was, you know, um, early 2024. It was early [00:30:00] 2024. And I remember in. March of 2024, I started like doing, uh, you know, almost like self-hypnosis of sorts to make sure that I'm in the top mental shape, even though it was just so absolutely, uh, like demoralizing that you ran this whole process and you couldn't get where you needed to be. So I just remember so clear this like middle of March of 2024 or something like that,

where it was like,

Jason Yeh: What, what was your, what was your takeaway from that? I, there's so many things that a founder could think around doing that. Um, were you able to be honest with yourself? Were you, uh, were you defiant? Like I. You meant? I obviously, I know what goes into a process. It's one of my things. It's a lot. It's like investing a lot of time and effort.

And so to come away with that and then to keep going, do you remember what your takeaway from that whole thing was?

Brian Sheng: I think this is one of those moments where I think my, my, my previous experience as a, you know, um, really, uh, experienced [00:31:00] athlete came into play where it was like, failure is not an option. It's just simply not an option. And I, I remember at the time I remembered actually there was a football game in college we played where. We won in like six or seven overtimes. It was like the most crazy, like, you know, and you were like rollercoaster emotion, up and down, up and down, up and down. And it was like, you know, that was kind of like, I, I thought about that moment back then. I was like, well, failure is not an option, so figure it out.

You know? And that's, you know, sounds funny, it's like self hypnosis, but it was like, you, you just gotta keep going there. There really isn't another choice. Like, what else are you supposed to do?

Jason Yeh: That is, that is completely insane. Um. Before we, before we wrap out up and kind of asking you a few other questions about where Aqua is going and maybe some other founders that you're excited about, uh, I wanna touch back on something that I hinted at, which is that your co-founder is your [00:32:00] brother. How, how did investors react to a brother, brother co-founding dynamic?

Um, was it. Was it neutral? Uh, did some people have questions about it? Did people think it was positive? And then, um, once you tell me what, what the investor reaction was, I, I'd love to hear more about what it's like to work with your brother, you know, from the inside.

Brian Sheng: Yeah, I, I think investor receptivity was, um. It was pretty positive because my brother and I couldn't be more different People, like we're

just completely different. Um, there's just nothing similar about us. And just having a conversation with the each of us, it was like very clear that like, oh, like Brian and Eric, they're brothers, but they're like, they, they might as well be on other planets, you know, so and so we compliment each other very well.

Um, and, uh, you know, one of our investors, we, you know, worked with us on kind of like a, um. Founder dispute [00:33:00] type of, you

know, uh, game, not game like simulation of sorts. Uh, we weren't the only founder group. There were like a couple of founder groups and, and the investor, you know, worked with us like, okay, all right, you guys should talk among yourselves.

Like, what happened if your company breaks apart? Right. Most, many times in the early stages because of founder breakups. And so it was like, all right, take five minutes, 10 minutes, and like discuss. So me and Eric, we kind of, we, we literally. Nah, we're good. Like we, we just, like, we don't have anything to discuss.

We, because we hung out there for like a couple minutes and it was like, in that moment I remember forever. It's like, yep. No, we're we're good. We're good.

Jason Yeh: Yeah, I didn't know I, I was also digging around. I think your brother was also an athlete, college athlete or something.

Brian Sheng: Yeah. He was a pre, he was previously a junior Olympian for, uh, for, for, uh, the hammer throw.

Jason Yeh: Jesus. I was gonna say, yeah. I thought maybe in that simulation you're like, well, I think we would just wrestle to figure out, uh, who comes out on top.

Brian Sheng: [00:34:00] That's a good one. Yeah. Yeah, we could do that. We both use the rest as well. Yeah.

Jason Yeh: Um, last question I'd like to ask. Um. Sometimes we find that, you know, people as they get deeper and deeper into, uh, being a startup founder, they tend to be around more and more founders themselves, like other founders. Um, are there any founders, especially in the sustainability space and maybe tangential spaces to you that you've been following that are in your ecosystems that, um, that we should be aware of?

And any cool projects that you've heard of?

Brian Sheng: Hmm. Sure. Um. So, I'm gonna be a little biased here, but I think alluded a little earlier, but I'm really excited about all of the really good founders that are working on highly technical water solutions in the days.

Water doesn't get a lot of love at all from like any kind of investor. It's like I. Too boring or whatever for venture investors.

And it's too [00:35:00] slow and low yield for more of your traditional private equity guys frequently. So it's like water gets no love from anybody except for the government. And, and, and even then, it's kind of like the, the, the, the, the, the, the one left out. So, you know, um. Um, there's a company called Ian that I, uh, recently came across that been studying them a lot.

Big fan. They're the ones actually building the subsea desalination. I was like, wow, this is awesome. Like 500 meters under the sea. Um, and, and, you know, get, get rid of all of his problems with desalination, with l less energy use.

Amazing. Like unlocking more water supply and none of the problems or less of lesser of the problems of desalination.

Super cool. Um, there's, uh, there's another founder, uh, I believe his name's Augusta Rico. He's working on cloud seating. Another, another,

Jason Yeh: I know

he's in Southern California.

Brian Sheng: Yeah, I don't know him personally, but I came across a lot of what he's working on. I think that's really cool on cloud seating. Um, um, and [00:36:00] then, uh, there's a company out of the Netherlands that are doing, uh, they're basically pointing a series of mirrors, concentrating solar power and then boiling the ocean literally. And, and,

and this, so for Deamination. Um, but, but, um, yeah, so, so there's a couple of companies and founders that have been following that are in different parts of the world, working on bringing more water to us that I'm, uh, I'm really excited for the work they're doing.

Jason Yeh: Love it. Well, um, Brian, it's, it is been really fun to follow you and see everything you're doing. It's a, it's a really important problem. I don't actually know why more, uh, civilians aren't freaked out about this and why more investors aren't putting, uh, time and effort and obviously capital into this space.

Uh, but I'm, I'm in Southern California. Maybe I'm, uh, in the minority that is like acutely aware of this. Uh, but, but we're proud of everything you've done and we're excited to see everything you do from here on out.

Brian Sheng: Thanks for having me, Jason, and hopefully this was the, you know, helpful session and [00:37:00] I'm really glad to be part of the community. Thank

Jason Yeh: Awesome. Thanks Brian.

That was Brian Chang, founder and CEO of Aquaria, a company working to solve one of the world's biggest problems, access to clean water. His story is a reminder that even the best ideas don't always resonate with investors right away. It took years of bootstrapping, multiple near death experiences and relentless iteration before he finally broke through.

But he got there and after countless pivots and conversations, aquaria closed a $112 million round to scale its technology. When we come back, we'll hear my producer Paige's thoughts on our conversation.

​ [00:38:00]

Jason Yeh: Hey Paige,

Paige Randall: How you doing? Jason? Do you wanna share our secret?

Jason Yeh: Okay, yes. We [00:39:00] had technical difficulties, but I thought our intro conversation was worth repeating. So

I'm gonna ask you again.

Paige Randall: mm-hmm.

Jason Yeh: How's it going with South by where you are? I meant being in Austin for the first time for South by, that's a, that's an experience.

Paige Randall: Well, you know, like I said, like it's crazy here I am in a very busy area, um, auditorium shores for those who are aware of Austin right next to Terry Black's, like you also mentioned. Um, so you know, my streets closed down again and things are complex and, and whatever, but it's so cool to. To be like living here in this time because I have access to so many different types of events, so many different types of people.

You know, I was at Capital Factory this morning, uh, hearing from some, from some industry experts in the venture industry. So yeah, there's a lot of life here going on right now and I enjoy it.

Jason Yeh: Tons of founders coming into the city. Tons of investors, people that we know in our community. Uh, it's cool to be able to have the [00:40:00] excuse to see people face to face. Like tons will be in town for sure.

Paige Randall: Yeah, I know. I'm, I'm just buckling down. I'm, I'm gonna, uh, recharge because even though I am extroverted in my nature, I really am an introvert at heart. So I'm gonna do probably nothing tonight and recharge for this, this weekend of events.

Jason Yeh: Makes a ton of sense and my transition was like talking about Austin. Speaking of Austin, our guest, our guest is in Austin.

Paige Randall: Mm-hmm. I don't know if he's currently in Austin. I should probably ask him, but I think he is. Um, yeah, I mean, there's a lot of opportunity here for what he's doing, right, because Water. Water is

Jason Yeh: top of is. It is tough, tougher to come by here. Like there is, it's so weird moving from the Northeast where water is so plentiful by the Great Lakes and here there's like scheduled days where you can use water, right?

Paige Randall: Like for, for sprinkler systems. I've never lived somewhere like that. So definitely co gonna be cool to see how his technology changes that [00:41:00] because he is literally pulling it from the air. So.

Jason Yeh: Yeah. And the whole journey was, uh, was actually pretty crazy to hear. So, um, what'd you think? What.

Paige Randall: Yeah, yeah, yeah. Let's talk about it. So my favorite part of this episode was how much focus he put on finding product market fit, finding your target customer, because I do gen. Genuinely think when you're raising, I. Earlier round, even though I don't know what you would classify this round as, but in general, when you're raising the earlier round, it's so important to tie it in to, you know, a specific.

Like problem being solved, a specific customer being able to niche down in order to, you know, be able to explain, um, how you're gonna build traction or how you've built traction thus far around this very specific problem being solved and being able to play that into a story that leads to the next milestone, et cetera.

So he had kind of shared about how they struggled to [00:42:00] raise at first for a while and.

Jason Yeh: I, you know, the, the thing that I see and like that you're picking up on is a lot of founders are like, oh, it ta it took me so long to raise capital. The fundraising process takes a really long time, but a lot of times when the story is that, and that was part of, uh, that was part of Brian's story, which is like, gosh, it just took so long and we were raising forever.

I actually think a lot of that is. Many times founders will start fundraising before they've locked in who their ICP is, or you know exactly what product market fit is going to look like. And so what ends up happening is they start these conversations and investors are professional investors for a reason.

They like, they pick up on these things. They're not quite sure if there's like a great fit or if they found the thing, but along the way. Right. The good founders out there just focus on their business, keep iterating, trying to find the things that work. [00:43:00] And then along the way, when it starts hitting, they've already started conversations with investors.

They've developed relationships. And so when that progress starts coming up and they're able to share that, it actually doesn't then kicks off the part of the fundraise where it starts working. And so, yeah, I, I just think timing can be a thing in, in making sure that the business is doing what it's supposed to do is, is maybe one of the more important lessons from this. Um, and

Paige Randall: I, I think this was a topic that we started talking about recently too, about raising around raising, um, during inflection points. Of, of the business. So like even being able to, for them to say, we've decided this is exactly what we're building for, for them it was, um, you know, uh, targeting homes and homeowners that want their own water system, which is their technology, and saying, this is specifically what we're doing.

This is what we've, the need has been proven through this. This is the traction we currently have. It's so, it makes it so much easier for the investor to [00:44:00] see the big picture. But I see how a lot of early stage founders, it's scary to get so specific in niche because then you feel like they're not gonna see the big vision because we could become so much more.

But I feel like when you pick something specific, naturally, they'll understand. There's always gonna be more that can be built from it. And you can hint at that, but it's hard for them to grasp. How you know the company's gonna grow and build if they don't have like a specific starting point.

Jason Yeh: I also, I also like that you pointed out, uh, that as a possible inflection point, which is like deciding on a niche. And one of the things that I'll call out is investors know that in early stage companies, I. A lot of the work is just learning. A lot of the work is cutting off paths that didn't work and saying like, oh, this actually isn't it, and we figured out this, isn't it?

And we learned all these things. And so for Brian to say like, we have these, um, systems for homes [00:45:00] that pull water outta the air, provide, you know, water for, for homes based on the, uh, available water in the ecosystem. To be able to say, we tried a bunch of things, and this is the thing that we uncovered from our last experiment, which caused us to double down on this, which is how we got our first customers to be able to communicate that to an investor.

Shows that a lot of work, in fact finding and data gathering has already happened and in an investor's head it's like, oh, I don't have to pay for that LE lesson. I don't have to. Um. Invest now and and waste, have the founder spend money and effort to figure out those lessons. They've already learned those lessons. I get a chance to come in after and reap the benefits of everything that happened before me.

So absolutely that can be an inflection point.

Paige Randall: Yeah. I, I really, um, I feel like. The market. [00:46:00] You know, I'm, I'm newer to the space still even two years in. Like I understand that it's gone through so many changes. Um, and times were different before and I feel like there was this area during Covid maybe or a little bit earlier where I. That wasn't even a necessary inflection point at times.

Like they didn't, they were more willing to throw money and be like, figure out your target customer, like you have this technology, or you have this thing that you're building. Like they were more lenient it seemed like, with founders having that time period of figuring out how specific they wanna get and what that niche is.

Correct me if I'm wrong, is that like.

Jason Yeh: You are spot on. Spot on. When in the, in the Zer era and Covid, when money was flowing, uh, you know, flowing crazily, um, I. Investors were just actually looking for more opportunities to deploy capital. And so they were getting super aggressive in terms of, well, when do we want to take a bet? Like when do we wanna actually give founders capital?

And a lot of it, a [00:47:00] lot of the time, it's just like, this is kind of interesting, kind of an interesting founder. We'll pay, we'll pay up to learn. Uh, alongside the founder and let them experiment alongside of our, our, uh, dollars. Certainly now, and certainly as, as Brian was raising, it's just not the same.

It's not the same at all. And having enough evidence that, uh, on the early days that you validated the problem, that you understand the customer, you know, that they're willing to pay, all those things have become much more important and were very important for, for Brian to have before he raised this monster round.

Paige Randall: Yeah, and he, he cracked the code. He spent the time doing exactly that and was able to pull together a really awesome round, which still, and this is my other favorite part about the episode, and you guys touched on this, you see a hundred, a hundred plus. Million dollar round, like, wow, you know, that just must have been some big raise.

Everyone piled in. It happened fast and it was just huge and, and amazing. But this took years in the making [00:48:00] and he just never stopped. Like he said, I think he said, I, I was just like a cockroach. I wouldn't go away like. He, there was so many opportunities where people probably were like, you're crazy. Like you're crazy. Like let it go. And he was just like, no, I'm not going to. 'cause he believed in what he was doing. So I feel like that's also a, such a nice flag, like green flag for investors. I guess some could view it differently, but for the right investors, they're like, wow, he's not gonna stop. He's not gonna stop.

Jason Yeh: Yeah, I, I think that's a, a good segue into maybe one last thing to bring up, which I'm, you know, I don't think it's come up on any of our previous episodes, but I had the opportunity to ask him about. Um, growing up around sports and being an elite athlete, you know, he, he played college football at Princeton. His co-founder and brother was a, uh, college athlete in, in track and field. And, um, a lot of, a lot of the grit that he demonstrated in getting to this round, getting his company into [00:49:00] this, this stage. After all the challenges, I think. Um, maybe could have been predicted just by the fact that he has done some really hard stuff in order to become a college level athlete, a division one athlete. Um, I personally, as an investor, um, and I said this in the episode, I, I really love backgrounds like, uh, college athletes, military because I know that they've gone through a lot of really hard training and they've been able to. Look beyond months and months, if not years and years of really hard work in order to get to a goal. Um, and, you know, they're, they're able to chew glass with the best of them. So, uh, it was cool to hear that. I also love the fact that he's like an Asian, Asian dude who. I would say most, most Asian kids growing up in, in the States don't get the opportunity to devote so much time and effort into athletics.

And so hearing him and his journey, uh, to go through [00:50:00] that and then become a very successful venture backed founder was, um, some of my favorite parts of the conversation. For sure.

Paige Randall: Oh yeah, it was badass. And I have one more like quick question that I wanted to ask and touch on because it's not, it's something I don't fully understand. So I just wanted a quick take of yours. So this was like. As mentioned in the episode, a mixture of debt and equity. I know about venture debt now, I believe for the most part, I understand what it is.

Debt. When he says debt and equity, is that, is equity what's classified as like a regular round like it? What is

Jason Yeh: Yeah, it depends. Regular is a subjective terms. It depends on, you know, who we're talking to. If we're talking to debt investors, then maybe a regular round

is a, is a round. But I, I would say when people talk about raising capital, uh, especially in our worlds and, and, and in the media cycles, for, for us, they are talking about raising equity.

Um, [00:51:00] and just the, I think the things for you to understand in terms of differences. Is when you're investing in equity or you're raising equity, you're selling ownership in the company. So people

own the equity. Um, debt is giving people money and expecting to be paid back with interest. I think that's like the simplest way to think about it. Um, the other difference to consider are, um, a lot of times when you raise debt, debt is collateralized or, or, um, given a backstop and trying to. Simplify it based on a couple things. It could be you are making enough revenue where you can raise against that, and debt investors will say like, oh, there is some sort of value here that we don't have to guess is coming through.

We'll lend you money because we know that you're making cash every, every month. Um, it can also be, uh, based on assets. So for instance, when you're a [00:52:00] hardware company, you could. Uh, raise debt capital and collateralize it with the hardware that you're buying or building. When,

when, and when we say collateralize, it means that debt investors have, if you don't, if you don't pay back your money, a debt investor needs to be able to grab something and, and take it back for themselves to

get paid back. So if, if there's hardware and you don't pay them back, they can go, well, all that hardware is ours now, and now we're gonna liquidate it and make the money that we need to make. And so. With, I don't know exactly what it was with Brian, but with Brian, because there is a lot of hardware and stuff, I, I assume some of that is, uh, raising money against the hardware that he needs to buy. Um, but a lot of times these company will then mec mix raising equity with debt. I.

Paige Randall: All right. That makes overall, that makes sense. My last thing that, my last question that came up while you were saying that is, um, so an early stage founder, for the most [00:53:00] part, you're not really gonna get venture debt like off the bat because you don't have So you, you can't raise debt. I mean, it would be very hard for a very early stage founder to

Jason Yeh: just raise debt on its own.

Now, venture debt is something different where. It's often, uh, it's collateralized by the, I might be actually mixing this up just a little bit, but venture debt is a, is a little bit different in that, um, these debt providers are giving or loaning you capital, but mostly we'll only do it alongside

venture capital equity investors because they believe that a venture investor putting in money. De-risks their, um, their investment a little bit,

and then they collateralize it a little bit by saying, if, if things don't work out a certain way, we're gonna take. Equity in the company we're gonna take over, uh, take control of the company. So, [00:54:00] um, it's a way of adding on a little bit of capital, um, alongside equity.

And a lot of people consider debt to be less. I don't know why this is blinging. Uh, a lot of times people will talk about, um, debt as being less expensive than, um. Then equity,

because if you own a percentage of the company and the company becomes massively big, well then the equity investment pays out.

And people, you, you are essentially giving them millions and millions of dollars. Whereas debt is capped debt. You have a specific payback that you owe. Uh, people.

Paige Randall: seems like it'd be a nice move down the line so that if you didn't wanna give away more ownership. That's a nice option. Wait, you're, you're nodding like I'm saying something right? It's No, no, that it's, it's very right. Um, I think you know nothing, there's no free lunch

Jason Yeh: in, in finance. And so, um, [00:55:00] yes, that is nice that you don't get to, you, you get to not give away as much equity of your

Paige Randall: Mm-hmm.

Jason Yeh: Um, but debt covenants. Basically payback periods and the interest that you have to pay back can put a big strain on a company.

Um, and if you don't, if your company isn't growing in the right way and all of a

sudden you have to service this debt as in payback money that you can't afford to pay back at that moment, it can cripple a company. It can actually put companies out of business. So

Paige Randall: Pick your battle Pick But let's end this on a positive note, because there's so many ways that things could go, but I just think it's incredible. Like the amount of effort that Brian and, and Eric, his co-founder and brother have been able to put into this, like building the product like this is huge.

Like this is stuff that we haven't seen yet in the world. Which is most of, you know, startups that are on the rise, but specifically this, I just [00:56:00] feel like it's a company that we have not seen something like this before, ever, where like water is being pulled outta the air and, and the thought of having that attached to all these different homes, like especially in places like Arizona or Austin or in Texas, it's just so cool to be able to hear about this company raising this massive round and being able to see what they do with it.

So I'm very, I'm very.

Jason Yeh: like it's talking to founders like Brian and hearing about his, uh, you know, projects like this that make what we do so fun.

Like actually creating the future, changing the way humans are going to live. Um, yeah. Coolest part of the job for sure.

Paige Randall: Yeah. All right. Well, cheers to Aqua. I think that's the debrief.

Jason Yeh: I think that's it.

​[00:57:00]

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