Sujal Patel is the cofounder and CEO of Nautilus Biotechnology which offers a high-throughput, low-cost platform for analyzing and quantifying the human proteome. The company has raised over $100 million from top tier investors such as Andreessen Horowitz, Madrona Venture Group, AME Cloud Ventures, Vulcan Capital, Perceptive Advisors, Bezos Expeditions, Bolt Ventures, and Defy Ventures to name a few. Prior to this, he cofounded Isilon which he sold to EMC for $2.6 billion.
In this episode you will learn:
- The science behind Nautilus and how it is changing things
- How Sujal raised a $76M Series B in the middle of the coronavirus lockdown
- Fundraising strategy during uncertain times
- Why Sujal says perseverance is so important
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About Sujal Patel:
Sujal Patel is a successful technology entrepreneur and executive. He is the cofounder of Nautilus Biotechnology where he serves currently as the CEO of the business.
Sujal Patel also founded Isilon Systems in 2001 with the vision that the rapid proliferation of unstructured, file-based data would necessitate a shift away from traditional storage architectures and toward a new, scale-out paradigm.
In 2006, Isilon completed one of the most successful initial public offerings of the year, with a market capitalization in excess of $1 Billion. From 2007 to 2010, Sujal Patel, as CEO, led Isilon during a period of profound growth, improving operating margins from -37.5% to +20%.
Isilon was acquired by EMC in December 2010 for $2.5 Billion, the largest acquisition in EMC’s history. Sujal Patel served as the President of EMC’s Isilon Storage Division from the acquisition until November 2012, driving significant revenue growth, market expansion, and organizational scale.
Prior to EMC and Isilon, Sujal Patel served in various engineering roles at RealNetworks, Inc., in part as the chief architect behind the company’s second-generation core media delivery system.
Sujal Patel holds nineteen patents in the areas of storage, networking, and media delivery is a well-known speaker on entrepreneurship and has received a variety of industry awards.
Currently, Sujal Patel serves on the board of directors at Qumulo and Rainier Scholars. He graduated from the University of Maryland College Park in 1996 with a degree in Computer Science.
Connect with Sujal Patel:
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FULL TRANSCRIPTION OF THE INTERVIEW:
Alejandro: Alrighty. Hello everyone, and welcome to the DealMakers show. Today we have a guest who is now on his second rodeo, and I’ve got to tell you. His first rodeo was quite an incredible outcome. So, I don’t want to make you wait any further, and I’d like to welcome our guest today, Sujal Patel, welcome to the show.
Sujal Patel: Thank you, Alejandro. It’s very nice being here.
Alejandro: So born and raised in New Jersey from immigrant parents. How was life growing up in New Jersey?
Sujal Patel: Life in New Jersey was good. You know, immigrant parents, they work hard, and they try to push you to go off, and go do something in the world, and to definitely get good grades, and to have a limited amount of fun, but maybe some fun too.
Alejandro: How did you develop this love for computers?
Sujal Patel: That’s an interesting question: how did I develop this love of computers. So, my brother is seven years older than me. If you went back to the ‘80s when the Apple II was starting to gain popularity, being seven years older than me, he was many, many grades ahead and was working with Apple computers, and somehow convinced my dad that we should have one at home. I immediately latched onto it as a tool to learn, a tool to have fun, something that I could input in and get something out of. That’s really the beginning of where my love of computing started.
Alejandro: Obviously, having your parents as immigrants, coming to the U.S. and pursuing, as well, the American dream that we all foreigners look at when we come here, were your parents entrepreneurial? Was there anyone in your family who was entrepreneurial and influenced you with that entrepreneurial drive?
Sujal Patel: I wouldn’t say entrepreneurial in the traditional sense of coming somewhere and creating a business from scratch, but I think that my dad, for example, came to the U.S. to earn a Master’s degree from Worcester Polytechnic Institute. He decided to stay and started a career in engineering. I think that journey of leaving a small town in India and leaving your family behind is a journey that takes a lot of risk. It’s a bold journey, and I think one that has a lot of truths that are shared with entrepreneurial people. In particular, my dad was always someone who had pushed me in an entrepreneurial direction. “Go off and start a business. Go and do something yourself because that’s the way to go off and be successful.”
Alejandro: So, obviously, for you, you went to the University of Maryland where you got your computer science degree. Then after that, rather than going at it, you decided to take your 4½ years and join another business that was RealNetworks. What happened there?
Sujal Patel: I went through the journey that everyone goes through after they graduate from college. They think, “What should I go do? Should I go earn an advanced degree in computer science? Should I go and go to the working world?” For me, I immediately realized that I wanted to get out to the West Coast and get to what I viewed as the nexus of the technology industry. I always thought that was California. I went and interviewed at a lot of companies in California. What I realized was that California was just like New Jersey. It was full of strip malls and big highways, except that it also had tech companies. I went to Seattle, which I ended up going, and I realized that Seattle was this large – from my viewpoint, large, but not that large back then in 1996 – large, vibrant city. It had a tech industry that was really established because Microsoft was just beginning to form from a startup perspective, and it was dynamic. RealNetworks, for me, was an opportunity to go and combine my love of computer software and networking and multimedia, which are all things that I explored in college and put them together in a unique way. I thought, “Hey, this is a great first job out of school.” I started my career there and very quickly started to love what I was doing, but as well, start to work on some innovative things.
Alejandro: Got it. Then while you were at RealNetworks, and you’re starting to think about what you could do on your own. Obviously, at what point, Isilon, the idea, like the potential possibility of you going at it. Tell us about this and how you ended up getting that courage to give the notice and doing it.
Sujal Patel: For me, my journey at RealNetworks was a fast journey. I joined the company in June of 1996 as a junior most software engineer. By October of that same year, I was managing a team of software engineers, including managing people, 10, 20 years my senior. By January/February, the year after, I started an initiative to build their second-generation backend software infrastructure. That was the beginning for me to start to do some things that were innovative, that were entrepreneurial. As I continued to grow my career at RealNetworks, I was exposed to customers, exposed to some of the bigger challenges that we were seeing out in the market. For me, the spark of an idea for Isilon, which was my first entrepreneurial journey, was that at RealNetworks, customers of ours would spend a million dollars on software, and they’d buy a million dollars of software that I was creating, and that was great. But then they would turn around and spend 4, 5, or 6 million dollars on storage, and they were buying systems that were never built for digital content. They were built for text and databases. Because of that, their architectures didn’t scale to their needs. So, we would get a small fraction of the dollars that these storage companies were getting, and our solutions wouldn’t work well because the storage wasn’t working well. The idea behind Isilon, which I founded in January of ’01, just 4½ years after I started my career was really that you could build a whole new storage architecture that would scale for this world of digital content and unstructured data. In doing that, you would solve a huge problem that was beginning to emerge into one.
Alejandro: One thing that is very interesting here is that you were not the first mover at all. There were 250 other storage companies. How come you did not get discouraged?
Sujal Patel: Yeah. This is one of the things that was really hard about the storage industry. When we were funded, which was May of 2001 in the wake of the dot-com bubble, not only was the fundraising climate and the investor climate awful because the dot-com bubble has just collapsed, and no one was doing deals, but more importantly than that, in the four or five-year period around the time that we were funded, 250 storage companies were funded before us, trying to do something new and innovative, and 50 companies were funded behind us, out of a class of 300. If you looked at those 300, probably 50 of them sounded just like us. “Oh, we built a storage solution. It’s faster, and it scales, and it does more capacity and more performance at half the price.” The thing that I think was really beneficial for us and the thing that resonated with investors back in 2001 was that we had a very customer-centric viewpoint and a very specific problem that we were trying to solve. We knew the customers in the media and entertainment industry. We’d build and broadcast our mission in publishing in the streaming media world, in the photo-sharing world, on the internet. We knew that all of these customers were struggling with storing digital content media: images, graphics, and video. If you could do that one thing at scale and do it effectively, that you’d be able to build a storage architecture that would be really useful to them. Very few of those other companies took an approach of saying, “We’re going to do this one narrow thing really well. They were all mostly founded by big storage professionals who said, “I’m building something that solves the world’s problems, and it does everything.” Whereas we went out, and we said, “We’re going to do one thing, and we’re going to do it great.” Then we spent the next 10 or 12 years expanding from there.
Alejandro: We’re talking about a different time, as well. We’re talking about before the dot-com bubble bursting and things like that. Here, especially for the people that are listening, before we go into how you guys raise money and what kind of craziness you experienced during that time, what was essentially the business model, so the people listening get it?
Sujal Patel: First of all, what was the purpose of our business? The purpose of our business was to build a new architecture for storing digital content and then build a set of products and technologies that are on top of that that I can sell to customers. This is an era that is just post-dot-com collapse, but before there was a Cloud. Everybody who wanted to deliver media or store media or use images and graphics in their business had to have equipment on site. They had to have servers. They had to have large storage systems that would sit in their own data centers. They’d have to have networks that connected them together, and they had big IT staffs that supported that. For us, the business was to build a product that had a value proposition that was unique enough and advantageous enough that our customers would choose to buy from us as opposed to the two very large companies that were in the marketplace, specifically, NetApp and EMC, which together accounted for, something on the lines of 10 billion dollars of storage sales annually. Those were the two behemoths that we had to go up against. The business model for us was, build a product and then build a direct salesforce to go out and try to sell those products. These are things that companies paid hundreds of thousands of dollars to millions of dollars for when they’re buying our solutions.
Alejandro: Let’s talk about the fundraising because, to a certain degree, I don’t know how you do it, Sujal, but it seems like when it comes to fundraising, you choose the worst times to do it. Now, with COVID, which we’re going to be talking about how you guys did that with Nautilus, but I want to talk about how you did it with Isilon during the dot-com bust. How did you manage to raise all those 80 million bucks that you guys did?
Sujal Patel: It does seem like my timing is pretty bad because I raised a lot of money in times that were awful. Isilon raised 80 million dollars prior to going public, and we raised 8.5 million dollars of that in our first institutional round of funding, which closed in May of 2001. That was a time when virtually no investor wanted to do a deal. So, when we thought about our strategy for fundraising, and we started in January of 2001 on that fundraise, which was just about the worst time. What we first did was: my co-founder, Paul Mikesell, and I sat down with some smart people, other entrepreneurs, and our advisors and lawyers. We came up with a strategy that in order to get this funded, we’re going to have to go and tell a super compelling story, but we’re going to have to go out to a wide group of investors at the same time and try to go and cast a really wide net. We decided the right number would be 50, and we went after 50 investors. On one weekend, we sent out 51 emails. Every single one of them coming from someone who had a personal relationship with the partner at a venture firm that we were trying to talk to. We had choreographed that to start this process off with a bang. Out of those 50-something, around 40 responded back and said they’d like a meeting. Over the course of the next eight to ten weeks in earnest, we basically spent as a founding team, three days in Silicon Valley, and two days in Seattle meeting with VCs. What was interesting about this time is that VC’s, their job is to make investments. So, they were happy to take meetings, but in the wake of the dot-com collapse – and we certainly have some parallels too, this pandemic time we’re in now and what we saw with Nautilus. But back in 2001, they were happy to take meetings, but actually wanting to write a check and do business with us was something that very few investors had the right mindset to do. Of those 41st meetings, many of them took second, third, fourth meetings, but that led to indecision. Many of them would get two or three meetings in, and then they would disappear. I would find out in a month that the venture partner actually went in and took over as CEO of some portfolio company to try to save it in the dot-com collapse. So, there were all these interesting things that were going on, but ultimately for us, we were fortunate that we had a couple of parties that were interested in making that investment. Two parties, in the end, the Madrona Venture Group, which led our Series A funding (they’re based in Seattle) and Atlas Venture split the 8.5 million dollars, and we were off to the races.
Alejandro: Why do you think that the VCs did that. If they were not planning to invest in the first place, why do you think that they were taking all those deals? Were they trying to save face with their own limited partners and their own investors, or what?
Sujal Patel: I don’t think that they have any nefarious motive or they have any saving-face to do. Their business is investing, so meeting with entrepreneurs and spending time is their business. I think that what ends up happening is, is that someone gets excited about the opportunity. Then they look at, “Well, how hard is it going to be to do it in this environment? Oh, my gosh, there’s so much uncertainty.” They talk to their partners, and each partner has a different opinion about when the market is going to come back. How deep will this recession be? They just talk themselves out of it. It’s really easy, I think, as a venture capitalist to get talked out of making an investment, and it’s really hard to get the consensus that you need to make an investment. So, I think that’s the sort of dynamic that we ran into. The venture game is about investing in hits, and you’re going to miss a lot of them. There’s not a lot of downside to missing them, but putting a lot of capital in something that doesn’t work out is what you want to make sure you avoid. We felt a lot of that as we were going off and trying to raise that Series A back, which is almost two decades ago.
Alejandro: How was it for you? Here you are from leading a private company to leading a public company. Was there a big difference for you, or was it like a clean shift?
Sujal Patel: Certainly, yes. This was a journey for me personally that started when I was 26 years old, and it ended when I was 38 years old. So, we sold when I was 36, and then I ultimately left the acquired company after growing the business to a billion-revenue run rate at the age of 38. One, there was a huge amount of personal growth that I had through that period, but a ton of learning, as well – learning how to build a direct sales force, how to go and build the types of channels that we needed for distribution, figure out how we were going to manage an engineering team of hundreds of software engineers, building an entire executive team, and then transitioning into a public environment where we were held to our calendar of quarterly earning results and going and talking to public investors, and then ultimately trying to deal with the complex M&A process, which led to the sale of that business for $2.6 billion.
Alejandro: Let’s talk about that M&A process. At what point, this inbound or these inquiries start coming in, and why do you decide it makes sense to entertain them, and then how does that lead to the ultimate sale of the business?
Sujal Patel: I think that throughout the process of building Isilon, every so often, companies would show up. They would want to talk to us and maybe talk about potentially combining forces. Those conversations were fairly lightweight – nothing we took very seriously. We were really heads-down, focused on building our business, and as a public company, moving the business toward high growth and profitability and so forth. In 2009, as the U.S. started to come out of the recession that was caused by the financial crisis, our business started to perform really well. We hunkered down dramatically during that recession. We got some staff. We trimmed our expenses, and we had our first break-even quarter in 2-4-2009 – break even on a non-gap basis. In 2010, our profitability and our growth rates really, really accelerated. Sometime in April/May, springtime, EMC actually did something sort of funny. They left a voicemail on our company’s general voicemail box, just calling the front desk. They’re like, “Hey, we’re EMC, and we’d love to talk to you about partnering in scale-out storage.” I kid you not. This is how it went down. So, I’m like, “Okay. Well, the person who’s calling has the title of president, so I should go and pick up the phone and talk to them.” That started a conversation around partnering. We’re not naïve. We know that partnering could mean partnering; it could mean M&A; it could mean I want to learn everything I can about you and then steal all your ideas; it could mean a lot of things. So, we entered into those conversations very carefully and very thoughtfully. As we continued making business progress, the conversation started to accelerate. At some point, the conversation accelerated to the point where they said, “Hey, Pat Gelsinger,” who at the time ran all of EMC’s storage products, and today is the CEO of VMware, which is a piece of the Dell EMC empire. “Pat Gelsinger happens to be in Seattle. He wants to come by and meet you and spend some time over dinner, and we’re going to have some other folks come by. We’ll have a meeting, and we’ll talk.” I’m like, “Oh, he wants to have dinner and then have a meeting the next day. This sounds like a good time for me to go down and see [20:50] because I should make sure that conversation’s warm in case this starts gaining some speed.” And I did do that. It turned out the only logistical way to do that was that I was going to fly to California, meet the CEO of NetApp, fly to Seattle, just barely make it in time for dinner with Pat Gelsinger. We had a great conversation. Pat Gelsinger and I sat down for something like three or four hours at dinner. At the end of it, I’m like, “What are we going to talk about tomorrow because it seems like we’ve talked about everything?” Pat’s like, “We’re going to talk about how we can partner better, and I brought someone else with me.” He brought the head of corp dev. I’m like, “Oh, I know what that means. Crazy. Let’s go have the conversation.” I think we had four hours on schedule for that meeting. They came in the room, and their head of corp dev outlined a deal structure and said, “We’d like to buy the company.” They poked at me eight different ways to try to figure out what’s my reaction, and I’m trained very well by our own bankers. I told them, “I have no reaction, and I’m going to take it to my board because that’s my job.” I told them, “I’m really happy with Pat that we’re on. I’m flattered, but,” I had nothing else to say. So, 20 minutes into our four-hour meeting, they left. They got back on their private jet and flew back to Massachusetts. That basically started a process that put us into play. We talked to a number of acquirers. We had a bunch of start-stops with EMC. They’re an aggressive negotiator and one that I respect a great deal. They do great deals, and they negotiate hard. We did as well, and that process took months from there, but we eventually had a deal.
Alejandro: Wow. What was that day like after ten years putting your tears, sweat, and everything into this business where you are signing it and to a certain degree giving it away for $2.6 billion? What was that day like?
Sujal Patel: I think it’s always bitter-sweet. We were performing incredibly well as a business. On the Q4 that I didn’t get to post because we were acquired would have been our first quarter where we’d booked 100 million dollars in a single quarter. It was a positive-20% uprating margin in quarters. It was very profitable. The market would have responded really well. But 2.6 million dollars is a lot of money, and if you look at the math in terms of what we would need to accomplish and what the return is in our risk-adjusted basis, it made sense for us as thinking about it as shareholders, it made sense for our team and for me, as well. It’s a long journey. I have operated through two recessions, including the financial meltdown, which was a deep recession. We had lots of ups and downs – stock prices that went from $2.00 to $33.00. It’s a long journey, and it takes a lot out of you, so I think there was some relief in there, but certainly a lot of mixed emotions.
Alejandro: Absolutely. Then, after this, you did the integration and stayed for a little bit, but then there were four years where you were looking at what you could do and what would be that next phase or that next journey because, as they say, once an entrepreneur, always an entrepreneur. So, Sujal, what happened there?
Sujal Patel: Yeah, I think you have just hit the nail on the head: once an entrepreneur, always an entrepreneur. I thought this was going to be six months. Six months – let me figure out what I’m going to do next. Let me go and spend some time with my family and go off and do the next thing. It wasn’t six months. It took me a year just to figure out, “Well, do I want to be an investor?” I made lots of private company investments – 70 over the course of the last 15 years. I sat on many corporate different boards. I sat with VCs and worked with them. I thought to myself, “Is this a world that I want to go do?” What I realized after a year was, “I have to go and build something. I have to go off and build a company and do something again.” But I didn’t want to do something that was the same as what I’d done before. Isilon was great. We built a product that is incredibly valuable to a wide range of companies. The ultimate of the owner of that technology today, which is Dell EMC, sells billions of dollars of that technology every single year, and it’s quite a bit profitable for them. It’s got a great impact, but it’s not something that I could tangibly say, like, “This thing changed the world in a way that was huge.” I wanted to go do something like that. I looked at things in the consumer space. I looked at ideas in health care. I looked at ideas in clean energy, and even things as far as space. That process of exploration outside of your core skill set is going to take a long time. By the time that I blinked, it had been four years since I had a full-time job. I was excited when this idea behind Nautilus came to me – not one that I came up with but came to me and one that so far, in 3½ years in, has proved to be a great decision to go off and start.
Alejandro: How did the idea come to you?
Sujal Patel: It’s an interesting story. I’m going to take the story back to my days from Isilon, my previous company. I told you earlier that we started by selling into media and entertainment companies, and internet photo-sharing companies, and streaming media companies. But one of the things we did as a strategy was is that we would expand every few years into new vertical markets where digitization was transforming businesses. So, manufacturing, semi-conductor, oil and gas exploration, and then eventually, life sciences became a major market for us. Life sciences, driven by genome sequencing, high-resolution microscopy, and basically, the move of science from the petri dish to the data center, drove our business dramatically. For many quarters as a public company, life sciences were the biggest vertical market for us. Back in 2004, my cofounder at Nautilus, Parag Mallick, became a customer of mine. At the time, he was at Cedar Sinai Medical Center running clinical proteomics, which is the study of proteins. Parag became a large customer of mine, and I got to know him pretty well. You know what it’s like. When you’re a startup CEO, and somebody goes and buys 10-12 million dollars of your equipment, they quickly become your best friend. You take then to dinner all the time. You ask them to speak at your sales conference, make reference calls. So, through that process of getting to know him, I learned to respect the work that he was doing and as a person. Nine years ago, he went to Stanford, and his lab at Stanford said that the intersection of computer and life sciences, he’s a unique animal that has degrees in both biochemistry and computer science. My wife and I were so impressed with the work that he was doing in personalization of medicine or for cancer, in particular, we decided to philanthropically support the Stanford Lab, which we’ve done for the last nine years. That built a really close relationship between Parag and I. In 2016, Parag brought this idea to me very early in the process and said, “Hey, what do you think of this? Give me some advice.” At the time, it was a crazy idea. It was a big idea to transform this space of protein research and build something that could have immense utility for the good of humanity by accelerating drug development and improving personalization of medicine, and actually, truly delivering on this dream of personalization of medicine. I quickly got excited about it. I thought to myself, “Well, if anyone on the planet brought me an idea like this, I would probably show it to Parag and say, “Parag, what do you think about this?” It was Parag bringing me the idea and telling me he has to go and put his Stanford career aside and go after this thing. I couldn’t help but teaming up with him very quickly to bring his dream to reality.
Alejandro: What was that conversation like when the two of you really fell in line and said, “Okay. We’re doing this together?”
Sujal Patel: I had a one-hour phone conversation with Parag. Parag’s in Silicon Valley. I’m based in Seattle, and our company is split across both of those geographies. I told Parag, “This is super interesting. Why don’t you come up? We’ll spend a whole day at the whiteboard, and it will be like 10 or 12 hours, and let’s go through the business plan, the model, how it works. I need to catch up on biology and understand what you’re trying to do here. We sat at a whiteboard, and at some point in this conversation, Parag says to me, “Here’s the thing. I think if I get one person to work with me for a year, and we start working on some of the basics of this idea, we could make some real progress here. I probably need like a quarter-million dollars. I think I’ve got an investor who will give me that.” I went to Parag, and I said, “Parag, let’s look at what this plan looks like. Let’s say we raise 2 million dollars, and we hire ten people. What do we get done faster? Because you’ve described to me that you want to build a new technology that would be transformative to the world. We should try to get that done fast. We start out writing this on the board, and we look at it, and I’m like, “It sounds like we need 2 million dollars.” He’s like, “Yeah, where are we going to get that? Do you want me to write a check now?” He kind of chuckled, and his answer to me was, “I didn’t know that was a possibility.” So, that conversation quickly turned to Parag, “I’m willing to help you do whatever you want. Do you want me to write you the check? Do you want me to go and work with you full-time? Do you want me to be Exec Chairman? Let’s go think about how this works.” It wasn’t very long before Parag came back to me and said, “No, I want you to run this thing, and let’s go and do this.” I quickly got together with him on it, and we came up with a structure to do it, and I signed on as founder and CEO and wrote the first check.
Alejandro: Wow! What happened next?
Sujal Patel: The next thing we did was, we spent the first six months as just the two founders proving out the core premise of what we were trying to do. Just for background, I’ll give you a one-minute quick timer on what we do. The world of genomics has been conquered over the course of the last two decades. For $1,000 and a day or two, you could take a drop of blood, put it into a DNA sequencer that you can buy from any number of companies, and 99% of the DNA will be read and given to you, and it’s reliable, and it’s commodity. The thing is, is that your DNA doesn’t change the day you’re born to the day you die. It’s basically the same. If you think about understanding the real-time state of the human being, you have to understand what goes on at the protein level because proteins make up your cells, and your cells do all the work in your body. The world’s best technology for measuring proteins in that same drop of blood is completely different than the genome. If you take the traditional solutions that are out there, and you spend a month and $50,000, not $1,000 trying to analyze it, at the end of that process for blood, you’ll only have identified 8% of the proteins – single-digit 8%. What Parag came up with is a very unique, completely new way of solving that problem to give you 95%, not 8%, and do it like genomic sequencing, to democratize this that we could do it for $1,000 in a day, and you’re doing that dramatically because it’s already [32:32], personalization, and medicine. The core thing that we had to do in that first six months was prove out this core algorithm that Parag had conceived on that combines lots of fuzzy data points together to create accurate identifications of single protein molecules and then combines that together into a complete analysis. That six months was just the two of us, me working largely computationally, Parag working largely in the lab, and trying to make sure that those fundamental building blocks were sound. As soon as we realized those were sound, we went off and raised a seed round, which is another 5 million dollars, and get us off to the races.
Alejandro: Very cool. Now, for the company, how much capital have you guys raised to date?
Sujal Patel: We raised that seed round of 5 plus the initial money that I’d put in. Then we raised another 27 a year later. Then two years after that, which was just at the beginning of this year, 2020, we raised $76 million. So, in total, that’s about 108 million dollars.
Alejandro: Tell us about the $76 million, the last trans because you literally closed that the end of May, like probably got you in the middle of the pandemic. How did you manage to do that, Sujal?
Sujal Patel: Yeah, it’s definitely an interesting story. Maybe I should back up and tell you about the strategy for it to start with.
Alejandro: Go for it.
Sujal Patel: This was a Series B for us. We had a large Series A, $27 million. We still had half of it in the bank at the beginning of this year, but we knew that we were going to have to raise expansion capital because we had a lot of hiring to do. We started to work through all of the core pieces of research that we needed to. The product was being pushed from research into development, and we needed to accelerate our spending and grow our headcount dramatically. For us, it’s so funny. At the beginning of the year, the things we were thinking about were so different than what ended up happening. The beginning of the year, we were thinking, “Okay, we’re still a product development stage company. That means that we want to have investors that invest in product development stage, but also investors who are willing to pay a nice valuation because of how important this technology is and how big the market size is. We were thinking about the fact that we would probably cash out by the end of the year, but there was an election coming up, an election meaning uncertainty. We had come up with the strategy that we would start with these early pre-marketing activities at the beginning of the year, and that we would go out and fundraise formally starting in the beginning of April with the goal of being done before summer because everything slows down in the investor world around summer. When I say pre-marketing, what that means is basically going out and taking the opportunity to just meet with investors, tell them our story, no slides, just let people know who we are and what our background is so that when we go to formally pitch, we’re not going in cold for those conversations. I’m a big believer in pre-marketing, and I always try to do that when I can. So, we started that pre-marketing formally. Like in the 2nd week of January, there’s a huge healthcare conference, the JP Morgan Healthcare Conference, which meets once a year in San Francisco. We started talking to investors there. Then over the next few weeks, those conversations started to accelerate. Fast-forward now until February. February 10th was the first time that we met with Vulcan, which ultimately led our Series B. Vulcan is the family office of Paul Allen. They’ve got a ton of experience investing in life sciences companies. They have huge scientific institutes, which are full of Ph.D.s, which are assigned to the research. This is something that’s very near and dear to their heart. They and one other venture capitalist, a traditional VC in Silicon Valley, got very excited and started to take meeting after meeting. In fact, Vulcan went through six meetings in the course of five weeks with us in person – Parag and I flying up, meeting with them and talking to them about what we’re doing. March 8th, they put a term sheet down. By March 11th, we negotiated it and took a term sheet to do our Series B. Think about March 11th from a timing perspective. It’s unfathomable when you think about the world and what it looked like at the time. So, January 11, was the first COVID death in China. That’s just before the JP Morgan Conference I told you about. January 20th was the first time that they announced a case in the U.S. That was the week after the JP Morgan Conference. Just before Vulcan and Nautilus were negotiating that term sheet, the stock market began that huge decline that it had, and that decline ended up becoming the fastest decline in history. A week or two after we signed that term sheet, the market hit its low, which was like -25% S&P and -30% for the Dow – it was a huge, huge decline. We had set out initially to raise 60 million dollars. We signed a term sheet with Vulcan to raise anywhere between 50 and 70 million dollars. The first 50 was really difficult. Vulcan had pledged to do some piece of it. And then we had to go and raise the rest of the money. We were out talking to investors at a time where every single day, the news was getting worse and worse. Cases in the U.S. were spiking, the markets were in free-fall, and our terms with Vulcan said that we had to get this first 50 done by April 11, which means we had one month. They moved so quickly that no other conversations were advance. So, we had to go and advance conversations with many investors. We had to go and talk to our existing investors and try to make sure that their commitments were firm during this time of unprecedented uncertainty, and it was a complex process. Parag and I had days where we would get up, and our first meeting started at 6:00 am, and we were done at 10:00 pm that night – just a really hard process and lots of surprises. One of the venture firms that we thought was probably going to participate ended up having a COVID diagnosis in their partnership.
Alejandro: Oh, my gosh.
Sujal Patel: And they all just disappeared. Their deal-making came to a halt. They wouldn’t pick up the phone anymore. So, lots of uncertainty, but we managed to get that first 50.4 done, and that was a first close that we did. Then we spent the next five weeks closing out the rest. The thing that happened in the next five weeks was that the market started stabilizing a little bit, and the strength of our story and how important an innovation this was, really became the most important thing. Not only did we get the 70 done, but we were oversubscribed and had to start cutting back some investors and ultimately ended up with 76, which is kind of the group that we wanted and the size that we wanted. I told you that at the beginning of this year, we hadn’t even spent through half of our Series A. Even today, we have almost 87 million dollars in the balance sheet now because we managed to close this round basically, at the time, we were intending to start it. It turned out to be a really good thing because had we started in April, we would have faced all the uncertainty of COVID, and it was just great to get it out of the way and get it done so quickly.
Alejandro: That’s amazing. Imagine if you go to sleep tonight, and you wake up in a world, Sujal, where it’s five years later, and the vision of Nautilus is fully realized. What does that world look like?
Sujal Patel: What that world looks like in five years, we will not only have brought this technology initially to the world, but we will have gotten to a point where our technology is ubiquitous in the scientific research world. So, inside every pharmaceutical company, inside of every diagnostic company, inside of every company that’s pursuing a dream of personalization of medicine, they are using our instruments to advance their drug development programs, their diagnostic programs, and build new therapeutics and build better therapies that are making their way out to patients and doing good. In doing that, we’ll build a very successful business.
Alejandro: One of the questions I typically ask the guests that come on the show is – obviously, now, two rodeos, incredible journey as an entrepreneur, Sujal. If you had the opportunity to go back in time and have a chat with that younger Sujal that was thinking about maybe starting something, what would you tell your younger self, and what would be that one piece of business advice that you would tell to that younger Sujal, and why, knowing what you know now?
Sujal Patel: What I would tell my younger self is I would really try to highlight the power of perseverance. My entire career is about perseverance. We, in my last company, had to go to 50 investors to yield a couple of term sheets and get a couple of yeses and get our business off the ground. We had many times in that company’s life where I needed to replace the key executive or two executives. I had a product recall. We had two layoffs. We had two recessions. We had a point where our revenue growths lowered to basically zero because the world was in really bad shape, and what that did for me personally is it created a lot of anxiety, a lot of uncertainty, and a lot of stress. What I would tell my younger self is that if you surround yourself with great people, you go after big, bold ideas, and you persevere, and you work hard, just trust that you will get through it, and it will be okay on the other side.
Alejandro: I love it, Sujal. So, for the folks that are listening, what is the best way for them to reach out and say hi?
Sujal Patel: The best way to reach out and say hi is LinkedIn. You can easily find me on there and list my experience with Isilon and Nautilus on there. I welcome anyone to reach out and ping me on there.
Alejandro: Amazing. Well, Sujal, thank you so much for being on the DealMakers show today.
Sujal Patel: Absolutely, Alejandro. Thank you very much for having me on the show and for a great chat here.
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