Blog and/or Founders Guide: Blog

This is a recap of our fireside chat with Dr. Mostafa Ronaghi, SVP of Entrepreneurial Development at Illumina and founder of GRAIL, recently acquired by Illumina for $8 Billion. Watch the full talk at pear.vc/speakers, and RSVP for the next.

Dr. Ronaghi's story
Biotech = data + human need 
Technical founders can become skilled in business
Early indicators of success in early stage and Series A
“Simple” advice for biotech entrepreneurs: commit

Dr. Ronaghi’s story 

As a young boy growing up in Iran, Mostafa Dr. Ronaghi was drawn to biology. He figured he should become a doctor — after all, what other career options were there for someone interested in the future of genetics? But, after shadowing his uncle at a local hospital, Dr. Ronaghi discovered that medicine was not for him. Instead, he would follow his passions into the emerging field of biotechnology. 

In many ways, Dr. Ronaghi was ahead of the curve. Today, opportunities are increasing within the biotech space, as technological advances continue to drive innovations forward. Decades later, the journey has taken him to roles as a researcher, serial entrepreneur, company executive, and inventor. 

Since 2008, Dr. Ronaghi has served as the Senior Vice President and Chief Technology Officer at Illumina, a leading developer of life science tools. He is also a serial entrepreneur, having founded several notable biotech companies including Grail, Avantome, and Pyrosequencing AB. In all, he holds more than 30 patents. 

Dr. Ronaghi earned his Ph.D. from the Royal Institute of Technology in Sweden. It was during this time that he began researching pyrosequencing methods — the groundbreaking DNA sequencing method that he would become known for. 

“I started my PhD program on microbial sequencing. And after one and half years, I came up with the idea of pyrosequencing, which was a novel way of doing sequencing,” he explained. 

He was later offered a role as a principal investigator at the Stanford University Genome Technology Center, and was encouraged to apply for national grants to increase funding. Because he was not a U.S. citizen at the time, Dr. Ronaghi began searching for American co-applicants to collaborate with. In 1998, the search led him to the founders of Illumina. 

Biotech companies are driven by both data and human need 

In biotech, metrics matter. 

Dr. Ronaghi’s technological advancements in gene sequencing have allowed for faster processing and increased accuracy. 

This change has been reflected in the markets as well. His work managed to reduce the cost of genome sequencing by nine orders of magnitude. Only one other industry — the semiconductor industry — has been able to accomplish this. 

“Back in 1990, the cost of sequencing the human genome was more than $3 billion. And we reduced that cost to basically $1,000 within 22 years,” he said. “The genome sequencing is about $500 per genome now, in larger scales. And it’s going to go to $200 in the next few years.”

“This has kind of revolutionized healthcare, the impact is going to be enormous,” he added. 

While much of the daily work responsible for a scientific breakthrough centers around minute details and microscopic particles, it’s important not to lose sight of the emotional, human elements.

When Dr, Ronaghi first started working on the science behind Grail, a healthcare company whose mission is to detect cancer early, the company’s business model was not fully determined yet. But Dr. Ronaghi and his team felt that it was unethical not to bring it to market, considering its potential to save lives. 

Today, Dr. Ronaghi says the technology has improved the survival rate of cancer patients by 20%. 

Technical founders can become skilled in business 

Scientists and researchers shouldn’t be discouraged by the business component of biotech entrepreneurship. Dr. Ronaghi cites his own career as evidence that technical founders can learn. He encourages technical founders to try their hand at business, even if they are used to a lab. 

“I feel that it is much easier to develop the technical founder to understand business than the business founder to understand the technology,” he said. “Especially if you are in a high biotech kind of a space. You really need to understand the technology and the market in depth.”

Illumina’s recent 2020 acquisition of Grail was a test of his new business mindset.

Grail was on track to go public, when Dr. Ronaghi and his team switched course and entered an $8 billion acquisition agreement with Illumina. 

There were a few key elements Dr. Ronaghi considered when evaluating the deal. 

First, they had to calculate the basic financials — when would the acquisition be profitable? 

After justifying the suggested price, they moved on to the less tangible components of the deal — what could Illumina bring to the table?

Dr. Ronaghi realized that Illumina could help Grail scale and further expand the product into global channels. From a business perspective, the deal made perfect sense. 

Early indicators for biotech success in early stage and Series A

As a co-founder of Illumina Accelerator, the world’s first business accelerator focused solely on creating an innovation ecosystem for the genomics industry, Dr. Ronaghi is familiar with a company’s earliest stage. He believes the best indicator of success for an early stage company is the quality of the founding team. 

“When you’re picking a company at the earliest stage, like the accelerator stage, the number one important factor is the team. There is no question,” he said. 

If the team is dedicated, smart, and has the skills to create the proposed technology, then it doesn’t fully matter if the business plan is fine tuned or not. 

For Series A biotech, Dr. Ronaghi has separate rules for different categories:

• For therapeutics, teams should have a lead compound identified or have pushed a product through clinical trials.
• For diagnostics, founders should be able to demonstrate that their tests work well and will have an impact on the subject.
• In the software space, there should be recognizable initial customer traction. 

“Simple” advice for entrepreneurs: commit fully to your idea

Dr. Ronaghi’s advice for entrepreneurs interested in the complex biotech and life science space is relatively simple: commit fully to your business idea, and include others who will as well. 

“I see that a lot of people that are in larger companies, and they want to start a company half time. That’s not going to work. You have to leave your academic job or company job and focus one hundred percent on basically creating something,” he said. 

While this advice could apply to entrepreneurs in most industries, it is especially true for a field that centers around science and technological breakthroughs. Dr. Ronaghi believed that most biotech business plans had a window of opportunity that could easily be missed if the would-be entrepreneur did not quickly execute their plan. 

“If you’re not dedicated yourself, you cannot convince other people to join you,” he added. 

Convincing other talented individuals to join the company is key to the success of any business, Dr. Ronaghi explained. In order to accomplish this, founders should be transparent and keep their team in the loop. They also should be generous — and be prepared to give out enough equity in order to retain a great team. 

Once the team and technology is in place, founders should focus on ensuring customer satisfaction and product market fit before expanding into other opportunities, he concluded.

“I understand your technology has a lot of potential. I don’t want to see it now. I want you to focus on this market and show me that you can actually deliver a fantastic customer experience.”

The future of genomics

What’s next in the world of biotech? 

If Dr. Ronaghi were to make a new company now, it would be related to either of the following topics: 1) the relationship between one’s diet, microbiome, and overall health or 2) single cell biology.

“The reason that I’m picking up food is because that’s the number one environmental factor that the human body is exposed to…  There are a lot of leading scientists these days that believe that 90% of diseases originate from the gut,” he said. 

He views single cell biology as an area that has the potential to unlock other biotech innovations down the line. 

“We have to look at biology at the cellular level or subcellular level. So single cell biology is actually very intriguing. I really think that that’s going to actually open up new frontiers in the way we are looking at medicine.”

You can read as many articles and books as you want about value propositions, product-market fit, business model design, blue oceans, and everything under the sun about startups, but at some point, you just need to get started.

That’s something that can only be learned by experience. As the saying goes, “A journey of a thousand miles begins with a single step.” Here are the very very first steps that some of our Accelerator ’20 founders took after coming up with their ideas.

***

We presented for Lean Launchpad and horribly failed because we didn’t understand the market. We did our work, and the initial judges of Lean Launchpad later became our first investors.

—William Steenbergen, Founder / CTO of Federato

***

We interviewed over 100 families to deeply understand their journey from when they decided they wanted to start a family, to pregnancy, and beyond.

We then dove deep into studies and literature to identify the drivers of poor outcomes and understand what interventions could be leveraged to address them.

Through this research and input from our mentors at Harvard, we identified the group model of care as a powerful tool for impacting health outcomes.

We then set up our first beta cohort in early 2020 with 3 expecting women and a provider. They met bi-weekly and messaged over a group chat we created for them.

These beta customers are still with us today, over 9 months later, and continue to see June as a resource to support them through the never ending questions & challenges of being a parent!

—Sophia Richter, Founder / COO of June

***

We used Google Forms quite a bit to experiment including whether or not individuals wanted to share notes in a 1-to-1 or group context. We collected nearly 5,000 notes via Google Forms before transitioning to a more functional prototype.

—Sohale Sizar, Founder / CEO of Illume

***

I called every person I knew that worked in data science to understand if they also had the problem. I tracked each of the calls in a spreadsheet and gathered notes. I also called people that were on the OTHER side of the equation (the data owners) to understand their frustrations with the process. The idea evolved quite a bit from these conversations, but it gave me real confidence that this was a ubiquitous issue in almost every company.

—Austin Osborne, Founder / CEO of Spotlight AI

***

Immediately after having the idea to create workflow-ready video conferencing, we built an initial version for use within our professional connection platform and in our team meetings. We were delighted to find that we genuinely enjoyed using our own platform much more than all other alternatives and realized that it had a potential far beyond what we’d initially thought.

—Martin Aguinis, Kamil Ali, and Josh Payne; Founders of AccessBell

***

We started building a website and speaking with early adopters.

—Robert Monaco, Founder / CEO of Exporta Technologies

***

We went to a freight event and stood up on stage to pitch it!

—King Alandy Dy, Founder / CEO of Expedock

This case study is about Pear portfolio company, Xilis, founded by David Hsu and Xiling Shen.

Using academic research to help patients
Go commercial, or continue academically?
Pitching a technical product to investors
What’s ahead for Xilis

Using academic research to help patients and make a real impact

Xiling Shen still remembers the moment he bumped into David Hsu in the hallway at Duke University during his first job interview. The two chatted only briefly, but David made an impression. Later, David formally interviewed Xiling for his second interview, and the two discovered that they shared many research interests. 

“I just remember…sometimes, you just feel like it’s love at first sight,” Xiling jokes. 

“As an academic junior faculty, you’re focused on publishing papers. But when I was talking to David, he asked ‘How do you think about how to help patients?’ and that suddenly opened a door—that’s where you really make an impact. 10 or 20 years down the road, do you really want to be remembered for how you published this many papers that probably no one reads anymore?”

The conversation also convinced Xiling that he had to move down to Duke. There, he and David worked together over the next three years. They focused on the big question of how to use patient-derived models of cancer as a potential diagnostic tool. 

Patient-derived models of cancer are created by growing small versions of tumors taken from tissue donated by patients.

“Patient-derived models of cancer are great for research or discovering new tools for discovering new drugs. The problem is, they’re not very useful in a clinical setting,” says David. “The main reason is that a lot of these models take too long to make, so I can never use them in real time to guide patient care. I don’t have time to grow these models to do all this testing.” 

That was where Xiling fit in, with his biomedical engineering research and expertise in organoid formation. The two developed “micro-organosphere technology,” a microfluidic-based method of growing miniature organoids. David saw that this new technology had the potential to be used as a diagnostic assay in real time to guide patient care.

“I’d been doing patient-derived models of cancer for a decade, and until we started making these droplet organoids, I never felt that there was going to be a patient-derived model of cancer that I could potentially use clinically as a diagnostic tool,” says David. “I’ve worked with cell lines, regular organoids, patient-derived xenographs. Because of the limitations, they were never going to be able to be used from a clinical perspective, and there’s plenty of companies who have tried and it’s been very difficult. 

Go commercial, or continue academically? How to evaluate and make the decision

With the discovery, David and Xiling faced two options: continue researching academically, or try to create a company around their new technology. The two ultimately decided that they could develop the technology faster by commercializing. 

“When you work in an academic lab, sometimes there isn’t that urgency. When we’re running the lab, we have 20 other projects to do—so, sometimes we lose our focus because we go on other tangents, depending on what piques our interest,” says Xiling. “From a company standpoint, you have to meet deadlines, you have timelines.” 

Understanding which path is right to pursue requires understanding the differences in the two “worlds”. Academia is a publication-focused model of research, thus novelty is more important, and it’s okay if the research works, say, 70-90% of the time, as long as it produces groundbreaking knowledge. 

For research that is intended to be commercialized, the technology obviously needs to work 100% of the time and meet market needs. There is heavy emphasis on quality control and product development, which often cannot be done in academia. Moreover, these are not the typical kinds of projects that graduate students pursuing publication will want to work on anyway. 

Xiling often warns junior students and postdocs eager to pursue entrepreneurship not to go out to investors prematurely, when a technology is not ready for commercialization. As with starting any company, the fundamental proof of concept needs to be complete before raising any funding. You need to collect feedback to shape and focus your technical idea and effort.

“The typical mistake is you develop a product for an imaginary customer, or you develop something where there’s no path into the clinic because of the regulatory or reimbursement reasons,” says Xiling.

Students can also be tempted to start a company around a solution they’ve discovered that is only an incremental improvement.

“People think, ‘Hey I can do this 30% better.’ But, you’re not going to replace the existing product for doing 30% better,” Xiling says. 

It is also important to realize that technology development is only a small part of getting a company to succeed. 

“70% is about all the other things—operating, marketing, sales, BD…” says Xiling. 

Academics can also underestimate the importance of management in building a successful company. 

“You don’t become a professor because you are good at managing, but that’s very important. Managing talent and managing companies is certainly a lot different from managing an academic group,” says Xiling. 

David and Xiling have found success by hiring the right people.

“Getting the right people dedicated to tasks where they can play to their strengths—I think that’s the most important thing,” says Xiling. 

Pitching a technical product to investors

Mar and Nils asked Xiling and David if they might be interested in pitching their product at Pear Demo Day — a week and a half before the day. 

“I remember we ordered the t-shirts,” Xiling laughs. “And we came up with the name, Xilis, not because I’m ego-centric, but David was just like, ‘Oh that looks good.’ The other option was like ‘Davis’ — David’s name with my name.”

At first, David and Xiling were resistant to practicing their pitch, despite Mar and Nils offering to help.

“We had a little arrogance, because you know, we’re faculty. That’s our job, presenting thoughts to an audience, and we love it,” Xiling said.

“Nils wanted us to practice all the time, but we were like, ‘We don’t have time to do this thing,’” David laughs.

In the end, the two admit that the practice was quite helpful. 

“Even if you’ve been presenting for such a long time, you’re talking to your peers. It’s very different to talk to a lay audience and really get them to understand why this thing is important—which was so self-evident to us,” says Xiling. 

The practice also showed in the results. Prior to Demo Day, Mar had already introduced Xiling to a few VC’s, but the conversations had not gone anywhere. After the presentation, investor interest flooded in within 9 days. Xiling and David flew back out to the Bay Area on a Thursday night and returned to Duke on Monday with term sheets in hand. 

“Pear provided an opportunity to hammer out 80% of the questions we got from investors,” says Xiling. “No matter how much you prepare or think about something, nothing can replace getting real-time feedback.”

Through practicing with Mar and Nils, and then through the real live experience of meeting with different investors. David and Xiling were able to continuously refine their pitch and understand the common themes of what investors cared about and how to communicate effectively with them.

The first important learning: explain your product as clearly as possible with crisp messaging.

“Since we’re in the field, why the technology is important is very self-evident to us. We wouldn’t normally spend so much time explaining that in academic presentations,” says Xiling. “But to the lay audience, you have to be mindful of any jargon coming out of your mouth, and you have to make it clear.”

The second important learning: have an explicit explanation of your go-to-market strategy.

Academic founders have often thought very deeply about their technology, but haven’t spent as much time thinking about their exact customers and how they will go about gathering them.

“For us, we were thinking, ‘This is helping patients,’ and that’s what we had always thought about. But for investors, they’re asking, what is your plan? What’s the first product? What’s a second product? Who do you have as customers? What’s the timeline? It has to be very spelled out, the exact steps and how much investment you need,” says Xiling. “We were not even thinking about a lot of those questions. But thinking back, those answers could definitely have been better thought out or better spelled out, more deliberate.” 

Xiling also recommends really thinking through what kind of company you are building. 

“I think in general, there are two types. One is the transformative, paradigm shifting type—high risk, higher reward. The second is more incremental, but you have a faster go-to market and could potentially be profitable as a private company,” says Xiling.

“For VC, especially Silicon Valley VC’s, they want the first type of the company—they’re going out to make 100x returns. So, kinda understanding what the investor is looking for and going after the right type of investors is important.”

Finally, it’s absolutely critical to have the right team. 

“At the end of the day, it’s about the execution. Do you have a good balance of leading technical people, but also experienced business people? You want to have a team that has the right business experience in the intended market, so that investors feel the investment is more de-risked. I think that’s probably the biggest challenge for most academic teams. It’s often the piece that would increase their attractiveness significantly.” 

What’s ahead for Xilis

Xilis is currently focusing on conducting clinical trials and in talks with big pharmaceutical companies, as well as getting on the path to becoming CRIA certified. 

And like any startup, team building is an ongoing process.

“We are kind of a unique company in terms of being very interdisciplinary. Engineering, biology, clinical, and of course then adding business people, software, hardware… so we’re really focused on building a team that has complementary skills. Right now, the next hiring priority is continuing to hire the right business expertise.”

This is a recap of our partner Ian Taylor’s April 27th fireside chat with Matthew Prince, founder and CEO of Cloudflare. Watch the full talk at pear.vc/speakers, and RSVP for the next.

Cloudflare was born in 2009 during the Great Recession, and recently went public last year. As we continue to make our way through the economic downturn caused by COVID-19, we’re looking to Matthew Prince, Co-founder and CEO, for insights and advice on starting a company during hard times.

What a recession teaches you
Don’t start a company with your friends
Figure out your unfair advantage in hiring

What A Recession Teaches You

As many have said before, some of the greatest companies have come out of recessions. Matthew’s business school classmates included the founders of Rent the Runway, ThredUP, and Tough Mudder. Matthew thinks there are two reasons for that.

“If the economy had been roaring, and if everything had been going really well, I’m not sure that Michelle and I would have ever taken the risk to start a business. At some level, adversity makes you start to think about other paths that you can take,” says Matthew.

Michelle, Matthew’s co-founder, had completed her MBA summer internship at Google. Traditionally, if interns did well over the summer, they could expect an offer to return after their MBA. That year, the recession meant that Google was not making offers to anyone.

The second reason great companies come out of recessions is that recessions force a frugal attitude.

“At some level, your job as the founder of a company is to not run out of money. There are lots of ways to not run out of money. You can generate tons of revenue. You can raise a whole bunch of money. But one of the best is just not to spend a lot, and to be really frugal with the resources you have,” says Matthew.

Building a company during a time of crisis made Matthew and Michelle incredibly cognizant of every dollar they were spending. It also forced them to focus on pushing forward instead of getting caught up in unnecessary details or wasting time running up and down Sandhill Road.

“We basically pitched one venture capitalist who we thought was the right initial investor. We had a relationship with another VC firm that didn’t typically do early stage deals as well,” said Matthew. “But we didn’t optimize.”

Matthew continues: “We said, ‘Yeah, okay, you’ll give us a couple million bucks,’ which seemed like a huge amount of money at the time. We basically did the deal on handshake. In retrospect, we could own a lot more of the company. The biggest slug of equity we gave up was in that first round, but it just so doesn’t matter if these things are successful.”

Don’t Start A Company With Your Friends

Matthew Prince’s first company was an anti-spam product, and he co-founded the company with his friends from junior high school — they’d all had lockers next to each other.

“That is about the worst possible way you can choose who your co-founders are,” Matthew says emphatically.

While his co-founders were great people that he respected, the big problem was that there was no diversity in their skill sets.

“If there aren’t natural divisions that make it clear whose job is what, then when you get to hard decisions, you end up spending all your time just fighting over what the right answer is and you don’t actually get anything done. If you then resort to hierarchy where I say, “Well, I’m the CEO, therefore this goes, that doesn’t make the other people feel really good, because they could have just drawn different straws and been reordered in different ways. So we fought like dogs,” Matthew recalls.

Though Matthew and one of his co-founders are close friends again nowadays, there was a point where they didn’t speak for several years after the experience.

It is a far better strategy to look for complementary co-founders.

“If you’re starting a company, there’s this huge surface area that you’ve got to build a team to cover. With your founding team, you want it to be like a Venn diagram where there’s just enough overlap that you guys can communicate. But mostly you’re just trying to cover as much surface area as possible.”

In those early days of Cloudflare, Michelle focused on process and operations; Matthew focused on vision, marketing and sales; and Lee focused on tech.

“I remember early on, one of the things that really mattered to Michelle — she was like, ‘I want to be on the board.’ I went to Lee and I was like, ‘Do you want to be on the board?’ He was like, ‘Why on earth would I want to be on the board? I just want to write code.’”

It made for a strong, foundational group, and Matthew believes it’s a crucial set up from the beginning.

“One of the questions that we get all the time is, ‘Gosh, how did you guys split up responsibility?’ I try not to say this when someone asks it, but immediately my thought is, you have the wrong co-founder. Because if it’s not 100% clear from day one, it’s only going to get harder every day that passes.”

Figure Out Your Unfair Advantage In Hiring

Recruiting is always the hardest thing you have to do as an entrepreneur, and it’s likely the biggest challenge you’ll face when starting a company during a recession. Workers are less palatable to taking on risk during hard times.

Still, it’s the one thing you as the CEO cannot “fire yourself” from.

“Companies are just collections of the people who join them, so there’s almost nothing that you can do that’s more important than just making sure you’re getting really, really, really high quality people,” says Matthew.

The two characteristics that Cloudflare tries to hire for are curiosity and empathy. Matthew defines empathy as the ability to be a good listener and the ability to change one’s mind when they hear facts that are different from what they might have assumed.

In the tough early days when nobody’s heard of you, the mindset you need to take when recruiting is to think about what you can do that gives you an unfair advantage.

For one of Cloudflare’s early hires, that meant figuring out visas.

Matthew found one of his first programmers simply scrolling through LinkedIn. They were looking for a candidate who was a low-level C and assembly programmer, and they found a profile of a person who had an incredible resume for exactly that. However, the candidate was currently working as a front-end HTML web designer.

Matthew saw an opportunity. He reached out to the candidate, pointing out that he seemed underemployed. It turned out that the candidate was a French citizen who wanted to be in the United States, and his current firm was the only one that could sponsor his visa.

Matthew offered to transfer the visa to Cloudflare, where the programmer would be able to write C and assembly. The candidate immediately accepted.

After that hire, the team went and found a great immigration attorney, and continued the strategy of looking for people who were underemployed on some kind of visa. They would then transfer those candidates’ visas over.

“You can say ‘We’re going to all make a ton of money,’ but that’s what every startup says. You have to figure out ways to get people to have a span of control of things that they really love to do, or have a mission and a purpose which really resonates,” says Matthew.

“It took us a while to figure out that Cloudflare’s mission was to help build a better Internet, but once we did, people were like ‘Yes! That’s why I work here, I like coming in and solving the hardest problems on Internet-level scale.’”

Matthew and his co-founding team made sure to be relentlessly fair to those first employees. Though half of Cloudflare’s original 8 employees eventually went on mostly to start other companies, they all came to join the team on the floor of the New York Stock Exchange when Cloudflare went public.

“It’s pretty amazing, we wouldn’t have gotten to where we were without them, so it was great to be able to celebrate there with them,” says Matthew.