Parag Shah - Part 1: Building Biotech Without Breaking the Bank—Smarter Ways to Fund Startups

Intro - 00:00:01: Welcome to the Biotech Startups Podcast by Excedr. Join us as we speak with first-time founders, serial entrepreneurs, and experienced investors about the challenges and triumphs of running a biotech startup from pre-seed to IPO with your host, Jon Chee. Jon - 00:00:23: My guest today is Parag Shah, CEO and Founding Managing Director at K2 Health Ventures. K2 Health Ventures is an alternative investment firm that provides flexible long-term financing solutions to innovative private and public companies in the life sciences and healthcare industries. K2 has also partnered with and committed to giving a percentage of their profits back to the community to support underserved areas in healthcare. Before founding K2, Parag was senior managing director and group head of the life sciences practice at Hercules Capital, where he took the fund public and oversaw approximately $2 billion in investments. He also held key leadership positions at Comerica Imperial Bank and Bank Boston, where he gained deep insights into life science and healthcare financing. Parag's academic background includes a master's in environmental policy and planning and a bachelor's in molecular biology from MIT, where he conducted research at the Whitehead Institute. With over 25 years of investing experience and unique perspectives at the intersection of science and finance, this series is a must-listen for first-time founders, investors, scientists, and industry leaders alike. Over the next two episodes, we'll dive into Parag's inspiring journey, from his formative years in New York City and the early lessons that shaped his approach to leadership and risk-taking, to the challenges and triumphs of navigating the world of private credit and entrepreneurship. Parag shares invaluable insights into scaling Imperial Bank and Hercules Capital, building high-caliber teams, and creating a sustainable positive impact through K2 HealthVentures. Today, we'll discuss how Parag's upbringing in New York City and his parents instilled in him a unique perspective on leadership and risk-taking. We'll also explore his early career at bank Boston, where he learned the ins and outs of credit investing, laying the groundwork for his transition into healthcare and his entrepreneurial approach to life science, equity, and debt financing. Without further ado, let's dive into this episode of The Biotech Startups Podcast. 

Jon: Parag, so good to see you again. Thanks for coming on the podcast. 

Parag - 00:02:10: Thanks, Jon. Really good to see you again as well. 

Jon - 00:02:13: So we've been really looking forward to this conversation, especially because it's a rare opportunity for me, at least, to speak to someone who's in credit with a scientific background. Because every time, at least when I go talk to my scientific colleagues, they're like, huh, why aren't you still at the bench? And what is credit? So I think for all the listeners out there, I'm really excited for this, show and avenue that maybe is not the conventional path for a scientist. So if we turn back the hands of time, can you tell us a little bit about your upbringing, how it's influenced your leadership style, business philosophy, and how did you get into science? 

Parag - 00:02:49: Yeah, sure. Absolutely, 

Jon. I know you have also taken an entrepreneurial journey here and probably also had many random walks along the way. So I grew up in New York City, Upper West Side, myself and my younger sister, about two years apart. My parents came from India to Boston separately, not knowing each other for graduate school. They ended up meeting in Boston. My dad came on a one-month ship journey to get here. He ended up doing his PhD in civil engineering at MIT in the late 50s. My mom... Was one of the first batches of women to go to Harvard Law School in the early 60s. Maybe, we haven't confirmed this, maybe the first South Asian woman to go to Harvard Law. They then settled in New York City. She worked for the Legal Aid Society in the South Bronx for about 30 years, pretty much her entire career. So I was born and brought up in New York City, pretty much from zero to 18. A little stint back in India from the age of one to three where my sister was born and then we moved back. But I think in terms of that upbringing, I don't know if I knew or when I knew science was it. I think there were maybe a few points along the way. But, I was fortunate that my parents pretty much allowed for a more experimental, open approach to education being important, but do what you want to do, right? Try different things, take healthy risks. That was both in education and maybe originally, maybe from the Asian subcontinent, you might appreciate this. I had a lot of friends whose parents were a lot more conservative about all of this, a lot more either strict on certain factors. I was fortunate to have maybe more liberal parents who allowed me to experiment and it worked with my personality type. And also I didn't abuse the trust too far. 

Jon - 00:04:45: Yeah, yeah, yeah, yeah. 

Parag - 00:04:48: My mom will say, I'm glad you didn't tell me some of those things now. So, yeah, I think I had some very good science teachers in junior high school. I went through public school in New York City. There's a kind of a magnet school, Manhattan East, on the east side, upper east side, 102nd Street. My science, chemistry, and biology teacher there was pretty inspiring. And then, again, in high school at Bronx Science, my biology teacher there who encouraged U.S to apply to the various science competitions and get creative and get into things, get our hands dirty. Also, I think inspired a little bit of that, where does life begin and what are our selves and what's actually happening inside all of U.S? So that ultimately led me down that path. 

Jon - 00:05:35: That's amazing. And I can imagine for your parents to have giving you the kind of the freedom to explore, especially in New York, which is like, this is a crazy kind of crazy thing for me. I went to New York for the first time as an adult. Like the first time was when I was like in like middle school. And then my wife and I, as an adult, went to New York maybe like three years ago. And that was like the first time I'd ever been in New York. 

Parag - 00:06:02: Where did you grow up, Jon? 

Jon - 00:06:03: I grew up in Berkeley. 

Parag - 00:06:05: Oh, right, right, right. 

Jon - 00:06:06: Yeah. So I grew up in Berkeley. And the joke is that I was born in Berkeley, went through the Unified School District, you know, through UC Berkeley. And then I was so adventurous to move to San Francisco. So I've only really been in like a seven mile radius. But going to New York, you're just exposed to so like seeing how like the arts, just like the culture there is just like so diverse and thriving. And also, you can get into a lot of things that I'm sure your parents like, don't tell me about that. But it's awesome to hear that you had the ability to explore without the conservative framework of you must do this or you must do that. And with your father doing graduate school in civil engineering, like when you guys knew how to get the dining room table for dinner, was there science talk in the household even remotely? Or was this something just purely that just came from within when you were in middle school and high school? 

Parag - 00:06:59: Yeah, good question. I mean, I think our dinner and what was good is there was a thing about we all had dinner together. So that was the time to come together in the hustle and bustle of growing up in the city. That being said, when you grow up in the city, you don't actually feel like it's hustle bustle. It's just what your neighborhood is, your neighborhood, Upper West Side, Central Park is your playground, right? But at the dinner table, I think we had more stories from my, partially from my mom's work and her clients at the Legal Aid Society, because they work for the core and all the interesting things that were happening and really gave U.S a perspective of how fortunate you are and all the things you take for granted along the way. I think where my dad's influence on the science and math side would come in was more him helping U.S in our schoolwork. It was always frustrating because he'd never give U.S the answers. It would always be like, okay. Well, what if this happened? I'm like, oh, I didn't come for more questions. Ultimately, that was probably good. 

Jon - 00:08:04: Yeah, yeah, yeah, yeah. No, totally. I do remember this. My father was also similar kind of origin was as an immigrant from Southeast Asia and Malaysia. Both my parents moved over to the United States for graduate school first in Texas, and then ultimately at Berkeley and ended up settling in Berkeley. And my dad's a structural engineer. And so I remember I'm not that great at math, even though I do a lot of math now, but it never came. I just have to work a lot harder. And my dad would do the exact same thing. He's basically phrasing things in riddles. And I was like, all right. I was just looking for the answers. I can go hang out with my friends. But thank you. So as you're in high school, it sounds like you had some really influential teachers that got you inspired to pursue the sciences. Can you talk a little bit about when university was on the horizon? What were you thinking? Where was your mindset at? And did you know that you were going to ultimately major in biology? 

Parag - 00:09:00: Yeah. I think I had that inkling by that time. And when I looked at various schools, I was thinking, oh, well, obviously, as a teenager, like which one is just going to be fun, but which one also has a really good biology department. And after visiting MIT and being fortunate enough to get in and seeing the resources they poured into that and the opportunities that could be available, I was like, oh, this would be a really cool place to go to school. And it wasn't the typical stereotype that everybody makes MIT out to be either in terms of the social side. I think that ended up being the choice and ended up being probably the best choice I could have made. I didn't fit in maybe 100%. And at the time at MIT was marked by maybe three pretty significant. Things for me, the most important of which is that I met my wife there. 

Jon - 00:09:55: Important. 

Parag - 00:09:56: Yeah, we met junior year, undergrad, we met dancing. We've been together for 30 years now. We're soulmates. We get a lot of energy and power from each other. And I think it helps U.S create multiple benefits when you have the fortune and have the gratitude that we have. So that clearly is the biggest piece. A second thing was that MIT was very hard. 

Jon - 00:10:23: I think that's an understatement. 

Parag - 00:10:26: You know, but it was like, it was hard for me after having gone through, I think, a pretty competitive high school where I worked hard enough and I did pretty well, but this hit at a different level. And I initially was struggled, you know, freshman year. And I think the first, grade I got in a physics class was a 27. And I remember looking at that paper and be like, oh God. But I think the reality of what it ultimately taught me was that you get thrown into the deep end. You learn to use tools inside of you, but also tools that actually the professors have given you and your fellow students are there giving you as well. And people did work together because everybody needed to work together on this. And slowly you learn that even if you get whacked on the head a number of times, you ultimately learn how to swim. You ultimately learn how to get to the other side. And the more times you do that, the confidence it builds is tremendous. And the persistence, the confidence, the fact that you just try a few different ways, you may not get it right the first time, you might fail multiple times. And ultimately, that was, I think, a big lesson that I take today. The number of times I lean back on that, like, oh, I have no idea what to do. I'm like, wait, I've been in this situation before. No idea what to do. Let's figure it out. Let's break it down. Let's work with people. Let's get others involved. So that was the second thing. And I think the third thing was... I didn't ever think I would join a fraternity. I ended up joining it on pretty much day one is the way the MIT system worked and ended up being with a very diverse group of people who I wouldn't have normally been friends with if I had just tried to find them on my own. But because of our shared experience through that, became quite good friends with a number of people that still today, you have this bond, you help each other out. And whether that's in personal life or professional life, and they're coming from a variety of backgrounds and most of them way smarter than me that you can say, hey, tell me about this. I don't understand this at all. 

Jon - 00:12:38: I had the same experience going to Berkeley where it kind of felt like a baptism of fire. I also remember it was like, all right, I did a bunch of calculus in high school. And then you do Berkeley calculator, like, oh, there are levels to this. This is like, there are levels to this. And I totally agree. I like to joke that like going into Berkeley, I was like a ruffian. But then. Berkeley is like... Exactly what you said, they throw you into the deep end where it's a sink or swim type of moment. And in the moment, it's incredibly painful. But like today, it basically just like teaches you how to critically think and like deal with uncertainty. I can speak for Berkeley. There's like a lot less handholding, almost none. They're just like, yeah, you got this. Like you're an ultimate. If you don't got this, then that's on you too. And that's entrepreneurship. Entrepreneurship, you just like are posed with these complex problems that are rife with uncertainty. Now I'm grateful, even though it sucked, like in the moment, kind of Berkeley to put you through those paces. I have friends at other schools were like, yeah, like there's so much support and resources to help you through this. And the struggle actually was the point and basically preparing you to get through it. And so at MIT for you, did you have an undergraduate lab experience or did you actually have an opportunity to get wet lab research?

Parag - 00:14:03: Yeah. So they had a good program there for undergraduates called the UROP, which is simply Undergraduate Research Opportunities Program. And it allowed undergrads and not just grad students to work pretty hand in hand with professors doing high level research. So professors would have a little bit of funding. Some were paid, some were unpaid, whatever, but that you had that opportunity to come in. So one of my, going back to connections and to my fraternity brothers, was working at the Whitehead and Jerry Fink's lab through this UROP program. And he was a couple of years ahead of me and he was like, oh, this has been a great experience. 

Parag, you're in molecular biology course seven. Why don't you take a look here and see if you want to try and do this? Because they're looking for another person. So that was my entree into getting a couple of years of experience in the wet lab back when you still actually pipetted everything one by one rather than the great efficiency we have today with robots. But yeah, great experience, great learning. I mean, Whitehead was at kind of the top of the food chain back then and still is in that arena of like kind of the type of work they were doing. So it was just fun to be exposed to it. Again, working with people that were a lot of times doing things you don't fully understand. But again, that's part of the being in the environment. Keep pushing yourself to try different things. We were running some novel experiments and it was a lot of fun. But I what I also learned from that experience is that I'm not cut out for the daily bench research science that I like it. Maybe I have to really like this to push it to a level that everybody here is doing. And so it taught me that I love science, but I maybe need to find a different way to apply my interest in science and understanding of biology. At that point, I didn't really know what were the different ways I might do that, but that was the maybe the seedling of like, OK, keep your eyes open for other ways to apply this. 

Jon - 00:16:08: Absolutely. I had a very similar experience too. And I'm going to imagine similar to your experience when you get into a lab with like postdocs and PhDs, you seeing what excellence is like having that frame of reference to just, Oh, much like going to MIT, like for the first time, you can see what the bar has been lifted, but it's always like important to have this watermark so you can aspire to it and push the limits. And also as important it is to figure out what you do like, it is important to figure out what you might not like and figuring that out. You're just like, okay, I can contribute in a different way. And that's how I felt too. I was like, oh, like my colleagues at the bench was like, you guys are cut out for this. You guys are like absolutely made for this. And I'm struggling. I'm like, if this is what grad school is going to be like, I'm in for a very long journey. So ended up making that pivot myself too. And you're now at this kind of like fork, you're like, okay, I don't want to stay at the bench. I got to find another avenue. Did you know that grad school was on the horizon for you and get your master's or where was your mind at that point? 

Parag - 00:17:15: I think there are some people who know exactly what they want to do and they have a path laid out and they've always wanted to be X and they get there. I was definitely not in that category. I'm definitely a go with the flow kind of personality with kind of some checks. And the checks are don't let inertia just take you down a certain path just because that's what presented itself or that was the easiest thing to do. And you did it. And now you find yourself five years later, you're still there. Right. So you have to balance go with the flow with like checking in and making sure that's really what you want to do. And then also trying to really over time touch base with oneself and say, OK, what is it that I want to do? And as I think we look back on our 18 to 21 year old selves and really so little about what's actually out there in the world. And I didn't understand credit or banking. I didn't even know that was a thing. Like, what is that? It's just. That didn't exist in my head is even a possibility. So I think well before that, I was very much into using my science, but also very much into what still seems to be an existential threat of our time. But back then was a burgeoning piece of it was environmental movement, climate change, that whole world. And so thinking, oh, well, I could use science in the environmental policy arena. And I was didn't know if I would go public sector or more private sector with that broad brush framework, I thought, OK, well, let me go look at things out there that might allow me to get into environmental science, environmental policy, environmental technology. 

Jon - 00:18:55: Cool. Very cool. And can you talk a little bit about that experience while you were pursuing that master's? And I believe it was a couple more years at MIT tagged along right after your undergraduate. 

Parag - 00:19:07: Yeah, actually, I took a year in between. I applied to two grad schools, MIT, and there was a joint program between UNC and Duke in North Carolina, a degree in environmental management and policy. So those were the two programs that I was excited about. I didn't want to go direct. So I thought, well, I'll apply and maybe I'll defer for a year and ended up getting into both the programs. My girlfriend, now wife, got into a graduate program at Harvard and Boston. So that was definitely a pull to come back to MIT. But I spent the year back in New York working in customer service for a software development, startup software development company, again, that one of my friends at MIT was working at. And he's like, hey, we have a position here. I was like, well, I need a year. I need to take a year. And it was a, options pricing program. I didn't know anything about that. But again, it was this exposure. And it was a sole proprietor who started it. So got a chance. It was a small company, fun culture. He would buy lunch for everybody every day to get the whole company together. So only 15 or 20 people saw how it grew from early days to ramping sales. And I was the person making the floppy disks, then go out and ship to the customers. And then answer the phone. So it was a good intermediate job, make a little money before going back to grad school. 

Jon - 00:20:39: Absolutely. I mean, wearing a bunch of hats is the founder of life. And we'll talk about it a little bit more as you eventually embarked on your entrepreneurial endeavors. And after going back to grad school and doing your environmental policy and planning master's degree, I'm going to imagine there's like a two-year program. After you wrapped up that program, and I know you eventually get into banking, how did that come about? How did those paths cross? 

Parag - 00:21:03: Yeah, you can tell a clean story in hindsight. Yeah. But it has an element of connectedness and there's a lot of strains that connected here. So first was, went through graduate school, it was a dual master's, it was two and a half years. Again, loved the courses and classes that I was involved with. There was a lot of great professors. The programs were both very flexible, almost too flexible that you had to be careful not to come out with a master's in nothing. Yep. Because you take all kinds of courses. But on the one side, I was doing all this work in environmental management and policy. And on the other side, I had an opportunity to go into classes in the business school and in technology management and that side. So it was putting a public sector, private sector, two different degrees exposed to different people. My thesis advisors were one from this program, Larry Suskind, who's a guru in negotiation and the program in negotiation. And then on this side was John Ehrenfeld, who was just a kind, thoughtful technology thinker who was passionate about environmental technology and policy. And they had gotten a grant as part of the lean aircraft initiative that was inspired by Japan's lean manufacturing initiative way back to say, well, if they're doing all these great things on producing more efficient, cost-effective, better quality vehicles, somebody in the Air Force, a general in the U.S. Air Force said, we should be able to do this. The U.S. Air Force, he glommed on and said, well, if you're going to give a bunch of MIT for that, let's also get some money for pollution prevention within that. So the EPA funded stuff and me and this other grad student were funded to do work and going around Air Force bases, interviewing various folks to think about pollution prevention in the Air Force alongside. To do this. When graduated, my wife was working at that time with the Boston Consulting Group, and she had an opportunity to go down to Buenos Aires, Argentina to work and help BCG's startup office down in Buenos Aires. They had this ambassador program. It was just finishing grad school. We had just gotten, actually at that point, we had recently gotten married and thought, oh, this is a great experience. Let's go. She had a good job. So I figured, I don't know, we'll see what I do. Yeah. Went down there and started looking for things in the environmental technology and policy space. It was really very little to be had back in the mid-90s in Buenos Aires in that field. So I started looking in other domains and, oh, we're here for a year, maybe two. I'll just try something completely different. I can always come back to this field. And so having that MIT degree and being able to crunch numbers, the folks at bank Boston said, oh, come work for U.S. We have an analyst opening. You can run some numbers for U.S. And so I was just like, look, I don't know much about it. I've taken an accounting course. I've done a little finance. But they're like, great, just come. You'll be able to do this. So they were great. It's my entree to credit down in Argentina in Spanish. And we're doing infrastructure finance, M&A finance. Meantime, my wife left BCG because she was tired of that consulting lifestyle and decided to go dance flamenco for a bit. 

Jon - 00:25:13: So cool. 

Parag - 00:25:14: So I stayed in my job because I liked it. And ultimately, when we moved back, my boss down there said, look, you may or may not want to stay in this. But bank Boston happens to have one of the best credit training programs in the country. And it's in Boston. You guys are going back. I'm happy to make a recommendation if you want to try it. And I checked in with myself. It's kind of interesting. And the added benefit was that they had a environmental lending unit. They had a group, one of the only lending groups in the country that provided capital to the environmental industry, meaning waste management, recycling, wastewater treatment, et cetera. So I was like, wow, that's cool. Way to combine the two interests. So we joined, got really good training. Really did have some great teachers through one of the guys, Dennis Hanboy. I still remember him. Just learned a lot of little nuggets from him on the credit side. Had a great class, a cohort that I went in with. Some of U.S are still friends today from that experience. Got a chance then to work in the environmental specialized lending group and did that for a couple of years. Learned a ton from some of the people there. The head of the group, Paul Hardiman, Mike Notolo, who's just a great mentor as well. And got to really go around, work with real companies that were growing. And there was a lot of growth through acquisitions. So saw that side of the equation. What does it mean? What are synergies? What really happens when two companies get put together? What are the things that people project but then never actually happen? The sell sheet looks all nice and pretty, but here's all the things that are potentially going to go wrong. So get a better sense of how to do sensitivity analysis and really stress test things. And we became helpers to sometimes the CFOs of these companies who were also like trial by fire. They're growing and sometimes they're not always looking at some of the blind spots and you're financing and you catch things for them even at times. So it was an interesting way to see a role in the investment landscape where it's not just, oh, cold and hard. Meaning it's not just, oh, I'm just providing dollars and I'm that mean old banker sitting behind or whatever like that stereotype. No, you actually care about your customers and your clients and you're trying to help their businesses and you're trying to help them finance in a more creative way or a less dilutive way to the end game. Allow the owners to keep more of the share. You need the balance of equity and debt capital and everything. But it was a very good experience. But after about two, three years there, I was entering like 2000, 2001. I was at bank Boston now for four years. The Genome Project is getting announced. A hundred million dollars getting distributed out to try and sequence the first genome. Much more massive amounts of capital being put around the biotech industries, starting to make more and more noise. Biotech is finally moving from the craft science that it was to the efficiency and the industrialization coming in. The fact that, oh, what might have taken me years in the lab to complete is now being done in a week or a month and then later on in a day. Right. So the amount of information I was getting. So it's a very exciting time. And I think my head was like, oh, I remember that, like the excitement around that piece. And beside of me was like, what am I doing in a bank? What am I doing? So I actually, I had a little bit of an existential moment. I think I was thinking like, well, do I want to stay in finance or I want to join a biotech company? And initially I thought I would. Maybe try my hat on the operating side, join and on the operating side of a early stage biotech things that were starting up. But as I was going out there. One of my colleagues from the credit training program was at a boutique bank called Imperial Bank. She had left Bank Boston to join there. And she, Stacey Arrigo, called me and said, hey, I hear you might be looking. You should at least talk to us. We're very different from the banks, very entrepreneurial. And by the way, we do lending to venture-backed tech companies. And there's some buzz here about thinking about how would we do that. In life sciences, there's a few people looking at it. So I'm like, oh, that's interesting. Well, it doesn't hurt to talk. So that led me down that path of talking to some of the senior team at Imperial Bank. And ultimately, I remember sitting in a cafe. And for some reason, it was in Arlington, Virginia, because that was one of their offices was down there. And I was sitting with the head of the emerging growth division, Richard Casey, and the chief credit officer, Susan Gill, and had put together a little 10-slide PowerPoint presentation of like, well, if you were to do lending to biotech, cash-burning companies, venture-backed, how would we do it? And what would be the thing? And I remember talking to my wife about it before. And I'm like, well, this is timing back to our experiences at MIT. We're like, well, you know some of this, but you probably don't know a lot of it. But let's take your best guess and be bold and ask for things that you're going to need because you can't do it alone. So I asked for a decent-sized budget. I said, I would do it. And again, leaning on that lesson that you have to put it out there, even if you don't know it fully. And if you have enough confidence that you'll figure it out along the way, or at least enough of it that you can figure it out along the way. I'm grateful for the fact that Casey was very entrepreneurial as well and saw that, okay, I'm going to give this kid a chance to prove that he can build this thing out. So I was, again, fortunate at that point in time to be able to have that opportunity to build out. And it was weird because I was young. I was new in the bank. People were like, why is this event so much rope and a good title or whatever, right? There's a lot of title inflation in banks, but it ended up working with, again, some good people, some difficult people as well. You run into some roadblocks. You have to figure out how to work with all kinds of people along the way. And we ended up putting a decent foot out there in the market and competing with Silicon Valley Bank and some others. We're in the space and ultimately got acquired by Comerica Bank three years later, and we became a much bigger, less entrepreneurial organization. And so that was a natural checkpoint to see what tried to make it work within Comerica. But it's a Detroit-based institution that still is doing it today. Good for them. There's still a division doing this work and still people I know that are doing this work, which is great. So no knocks on them, but it was not quite the entrepreneurial space that I was looking for at that time. 

Jon - 00:32:08: Interesting. And I'm like, just seeing kind of a through line. There's so many directions I want to go. But like the first thing that stood out to me is the willingness to jump into the unknown and the willingness to just like be okay to sit in that uncertainty and just figure it out. 

Parag - 00:32:25: And be okay to fail because when you put it out, you have to know that it might not work out. And that actually many times in entrepreneurship, it doesn't work out and that's okay. I remember one of my friend's father saying like, try, don't spend forever failing, fail fast, right? Like try hard. And if you realize it's not going to work, move on because you'll learn so many lessons from it not working out that you'll apply to the next and the next. 

Jon - 00:32:52: Absolutely. And that's exactly it. It's just like, if it doesn't kill you, it makes you stronger. And you have to have that grit and this willingness to push through and not let that fail define you. And I think that's incredibly important for any founder out there, regardless if you're in financial services or if you're actually running a biotech company. It's like the willingness to fail and learn from it and get better for the next go. I even see it. You and your wife decided to go to Buenos Aires. That's going into the unknown. You have to learn the culture. Just like a quick question. Was, Bank Boston already had an office out there? 

Parag - 00:33:26: Yeah. So interesting that bank Boston was one of the oldest, largest banks in Buenos Aires. They had been there for, gosh, I want to say at that time, like 70, 80 years. If you sailed due south from Boston, you'll pretty much end up at Buenos Aires at some point. And they would finance the shipping routes. 

Jon - 00:33:49: Oh. 

Parag - 00:33:49: And the trade that happened back and forth. Providing financing letters or credit, whatever, right? Going back and forth between Boston and Buenos Aires. So they were there and they were very well respected because they were one of the few banks, if you're not familiar with... Many people wouldn't necessarily be. But Argentina was at one point one of the richest countries in the world. They had very strong natural resources. And it's a beautiful city. They poured a lot of money into the infrastructure. But then they didn't really focus on developing other things, other industries. And so they squandered a bunch of their assets and went through periods, really bad periods of hyperinflation, which a lot of banks left at that time. And it hurt people in the economy quite a lot in the 70s and 80s there. Starting in the 90s, they tried a new model where they pegged the peso to the dollar. It brought things back. So when we were there in the 90s, things were really good. It was a very nice time to be there. But you could see the effects that had happened and the psychology in people about, oh, once I get my salary, I should spend it. Because the value of it next week is going to be half. And the week after is going to be a quarter, et cetera. But the benefit is that Bank Boston never left at any of those times. So people always felt, my money is safe here. So like most places you go, like New York City, and being from New York, I know it's like everything is the city, which is New York. People want to go to New York to visit if they're coming to the U.S, right? That is the place to be. Things are named after it. In Buenos Aires, it's like Plaza de Boston. This Boston pizza. 

Jon - 00:35:32: Wow. I didn't realize that. 

Parag - 00:35:34: What's happening here? 

Jon - 00:35:35: Yeah. Yeah. Yeah. 

Parag - 00:35:36: There was some familiarity, but at the end of the day, it was very different, forced us to really get fluent in Spanish. 

Jon - 00:35:42: Cool. 

Parag - 00:35:43: Culturally very different. Argentina, this is again, mid nineties, like the fluidity in which we travel today really wasn't there back then. And particularly Buenos Aires is way in the Southern Hemisphere. It's down there. So people didn't leave. There's a very parochial nature, very big city. So you have the big city feel 13 million people, but it was a parochial environment. So being one of the few Indians from India growing up in the U.S but culturally from India showing up there, we had tons of questions, naive ignorance around India and, Oh my God, does this happen? Does that? So we had like our speech in Spanish, like down pat. 

Jon - 00:36:23: Yep. Yep. Yep. Yeah. And that's awesome to hear that. Like you guys went head first and just like, see the opportunity to be in Argentina and just like really blaze a path for yourselves there. And like, and I love the serendipitous kind of nature of this too, and how it got you into credit and the credit training program. And so two things that stood out to me when you got to Imperial, you had to create almost like your credit policy from scratch, but you probably were trained in like a different kind of framework in your credit training program at Bank Boston. So I guess maybe just to get into the weeds a little bit, like your credit training program, what were like the key takeaways or what were some like important lessons that you carry with you to this day from that Bank Boston program? And then maybe after that, what did you have to unpack to create this new framework for life science, venture-backed cash burning credit? I'm sure they're probably different philosophies. 

Parag - 00:37:20: Yeah. I mean, in some ways, very different because the Bank Boston, you're dealing, more traditional credit, cash flowing companies that have the ability to pay back debt from EBITDA or cash generation. These are profitable companies, all of that, right? So you're looking at more traditional asset metrics. You're looking at more traditional views of enterprise value of a company, but where the translatability came and it's not like Imperial Bank's emerging growth division was doing this completely from scratch. Because they were doing this in the technology software telecom venture-backed company. So they had a framework for, okay, what are we doing? It's just that life sciences biotech was all that more different, right? Like it's not a product you can touch and feel. It's a longer trajectory. It's much more capital to get something from start to finish. What are the value inflection points that you can count on? It's not sales and revenue, it's clinical trial results. So how do you translate that into enterprise value? And then what can you lend against that to help these companies along? And really where some of the translation and learnings came was just to use maybe core principles, core principles being like, okay, how and when might companies use this capital in a responsible way and how and when might they be able to pay it back or refinance it with cheaper capital than... Venture debt. Maybe their valuation has increased enough. So now their equity dollars are cheaper than they were before when they were struggling to say, how do I get my first amount of capital to get to the phase one trials and then the phase two trials and multiple products in the clinic, et cetera. So we tried to apply those principles to be able to come up with a way to lend money to biotech. And it started with working with a lot of the top venture capital firms that were doing things in the space and then branching out from their to stuff in the U.S., but in other countries where there was money flowing into these spaces and just starting with smaller bite sizes. Jon, you entered this space at some point. I mean, what you do in the equipment leasing world also adds to that, right? Again, providing less dilutive capital to these companies instead of using their expensive equity to buy equipment. Hey, take less dilutive, overall less expensive debt to finance things that doesn't need to be financed with equity. That's great on the leasing side. Our additional point on the debt side is, yeah, you can use this capital for anything. Clinical trials, acquisitions, operating costs, whatever, right? So that was playing a role of not financing specific assets, but saying, hey, we're financing the growth in your enterprise value and the fact that you have multiple things you're working on. And maybe with a little bit of less dilutive capital, you can get a little further than you would just with your equity. But it goes hand in hand. 

Jon - 00:40:24: Absolutely. And I think whenever I think about the emerging biotech ecosystem, I think what gets a lot of the airwaves is equity financing. And it makes a lot of sense to use equity financing for these kind of initiatives. And I guess for those who might just be unfamiliar with the use of credit, can you talk a little bit about when is the right time to use equity financing and when is the right time to utilize credit for a life science company? I always think about it as like it's to create a optimal, resilient balance sheet. But what does it actually mean for a life science company, in your opinion? 

Parag - 00:41:01: Yeah. So, I mean, at the end of the day, you still primarily need equity capital. It's the risk capital that plays a role in really taking the risk reward that is biotech. But in our industry today, many companies need $500 million in capital to get from idea to, hey, I have a really interesting set of late-stage clinical programs that have the potential to better cardiovascular disease or cure this type of cancer or a gene editing program that is going to revolutionize how we treat this disease. It takes a lot of capital. So along that journey of needing that $500 million, we play a role. And maybe that role is somewhere between $30 and $100 million of that $500 million could come from debt capital. So we are a capital partner at the table that has a few different use cases. And this might not be exactly your question, but I'm expounding on the use of equity and debt in this process. One is, hey, I'm a biotech company. I have a platform. I'm pursuing these two programs. But I know there's program three, four, and five behind it. I don't have the capital today to fund these. But if program one or two is successful in 18 months, we'll have a good value inflection point. And I can raise more capital at a higher valuation. So we could come in there. And maybe this is a company that has raised a round or two already or even has gone public and is small cap public, et cetera. We can come in there and say, hey, well, if you had an extra $25, $30, $40 million today, is there something you can do with that capital that would help you either push program three quicker and create more value? And this would be less dilutive capital. We don't have to discuss valuation. That's one big benefit on the debt side, right? We're looking at that when we do our diligence. We care about it, but we don't care about it the way equity would in terms of, gosh, I don't want to put money into a company that's too overvalued, right? In our case, we can say we can provide you with the capital and it can help you push program three a little faster or better power the clinical trials and your existing programs. Maybe that de-risks them because you're able to open more trial centers faster. Maybe it gives you just six months extra one way. So if enrollment is delayed, you're not worried at the end before your results come out, am I going to run out of money or am I not going to have a difficult valuation discussion at that point? It also helps in just balance sheet heft with strategic negotiations with large pharma or biotech, which do strategic deals in our industry. And to see that, okay, this is a company that's well capitalized as multiple partners. So a lot of different use cases where debt plays a role, but it complements the equity either alongside a round or in between rounds. That's something, Jon, that in the bank world, we couldn't do that full vision because a bank, again, is a regulated entity and you can only provide so much capital that is considered risky capital before the regulators get to, like, what are you doing with the deposit or capital? Banks have evolved and people have gotten more and more comfortable with it, but there's still a limit there. When you move outside of that and you're in a less regulated environment, in a fund environment, you have significantly more flexibility to use all of your knowledge, belief, understanding, frameworks, credit policies, et cetera, to put it to bear to say, hey, no, this makes a lot of sense. This company, you can do 10 or 20, but hey, this company, you could do 50 million. Look at their platform. They're not going to go out of business because of this problem or that problem. Even if those things happen, there will still be enough people to fund them because they have multiple silos of intellectual property and they will be pursued. Right. So that was the philosophy behind how you could expand providing more capital there. 

Jon - 00:45:09: Very interesting. 

Outro - 00:45:13: Thanks for joining U.S on this episode of the The Biotech Startups Podcast with Parag Shah. Be sure to tune in for part two, where we discuss his move from Imperial Bank to Hercules Capital, which involved establishing and leading a life sciences practice, navigating the complexities of private credit, and growing the company into a multi-billion dollar public fund. Parag also shares his thoughts on corporate culture, culture, work-life balance, and the experiences that led him to found K2 HealthVentures. If you enjoyed this episode, subscribe, leave a review, and share it with your friends. See you next time. The The Biotech Startups Podcast is produced by Excedr. Don't want to miss an episode? Search for the The Biotech Startups Podcast wherever you get your podcasts and click subscribe. Excedr provides research labs with equipment leases on founder-friendly terms to support paths to exceptional outcomes. To learn more, visit our website, https://www.excedr.com. On behalf of the team here at Excedr, thanks for listening. The Biotech Startups Podcast provides general insights into the life science sector through the experiences of its guests. The use of information on this podcast or materials linked from the podcast is at the user's own risk. The views expressed by the participants are their own and are not the views of Excedr or sponsors. No reference to any product, service or company in the podcast is an endorsement by Excedr or its guests.