Parag Shah - Part 2: How to Build a Billion-Dollar Life Sciences Fund

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. In our last episode, we talked with Parag about his early career, including his time at Bank Boston and Imperial Bank. He also touched on the lessons that shaped his approach to navigating the complexities of private credit and entrepreneurship. If you missed it, be sure to go back and listen to part one. In part two, Parag takes us deeper into his journey as he transitions to Hercules Capital, where he established and led the life sciences practice, scaled the company into a multi-billion dollar public fund, and tackled the unique challenges of firm building. He also reflects on the importance of corporate culture, balancing work and family, and how these experiences laid the groundwork for founding K2 HealthVentures. 

Jon - 00:01:15: And I know you eventually, you know, the road led to Hercules Capital. Can you talk a little bit about? How that opportunity came about. And you talked a little bit about already, you alluded to the banks, you know, having a kind of a regulatory framework that perhaps limits the creativity. Can you talk about your pivoting to private credit and ending up leading your lifetime's practice at Hercules? 

Parag - 00:01:40: That's another one of these not fully planned moments, but you kind of take in all the information you have and you make a decision. I think after the Comerica acquisition, trying to make it work for a year, decided, okay, let me take my learnings here and see if I can go start my own fund. So. Went out there to fundraise. We raised a bit of walk-around capital from some early investors. It was also interesting in that personality type that maybe both my wife and I are. Our first child was born. He was just a couple years old. He had two years on my wife. Also, she had left her job because she decided, you know what, after her son was born, I want to do something, using my former background out of the business world. She went back for her PhD in clinical neuropsychology. We're both sitting there, two-year-old. I'm like, well, should I leave my job? I'm not going to have a salary. She's like, well, I don't have a salary either. Let's see how we make it work. With a little walk-around money, we had a little capital coming in, but we said, okay, we're young. We'll figure this out. We can always go back to something. Give a certain timeframe to make it work. Went out there, put together PPM, was naive enough as a 32, three-year-old thinking you could raise your own fund as a first-time fund manager. Hey, you got to try. 

Jon - 00:03:11: You got to try.
Parag - 00:03:12: We got out there. We were out there for seven, eight months. More like, yeah, nine months trying to raise capital. We met LPs all around the country, you know, LA teachers retirement system and XYZs, you know, endowment and so on and so forth. And 50, 100 meetings, some were starting to gain traction. But as we were doing it, we were getting feedback around again, like. Trying to understand a life sciences debt fund. A, I don't really understand biotech, most of the LPs. And two, debt to biotech? That's like, the overlapping, that Venn diagram overlap was super small for people who like actually would get that. So there are a lot of like, very interesting, but I don't get it at all. So, you know, you take that feedback in and you start to see like, OK, well, if I keep persisting at this, it might be possible. But we were also getting feedback that, hey, life sciences alone, maybe you need to be more diversified. Maybe you need to be broader than that. And that summer of 2004, I guess 20 years ago, my former colleague from Imperial Bank who had left, Roy Liu, gave me a call and said, hey, I just joined this new fund. Hercules, I'm employee number two. We're doing technology. We're out there fundraising, but we're getting feedback that we should be more diverse about them. Like, ha, funny, I'm getting the same feedback. Roy, but I don't know about that because I'm trying to raise a fund as well. He's like, oh, really? So we kept our dialogue going. And a few months later after, again, hitting multiple brick walls, I was like, okay, maybe it makes sense to join forces. So I started talking with Roy and the CEO there. And it was a little bit of a moment of like, oh, I wanted to do my own thing. But okay, now I'm going to be working for someone. But that being said, it was very early. It was just less than 10 people. I was going to head life sciences. So it was still going to be entrepreneurial and you're going to help build this thing pretty much that had just started. And I joined when they had raised their first 25 million in capital. Hercules was private, raised their first 25 million. We did two deals in tech and two deals in life sciences. And then in middle of '05, less than nine months after I joined, the window was open for finance companies to go public. And it was earlier than anybody at Hercules thought would happen. But people are like, you know. People are interested in this space. Let's try. We went on roadshows, et cetera, et cetera, took the fund public in June of 2005. And now instead of $50 million in capital, we had $150 million in capital to play with. So that was the beginnings of Hercules. I was then there for a total of about 11 years. We went from being a small, esoteric public BDC to being a billion-dollar-plus public fund that did technology and life sciences lending, added a clean tech. Lending unit through the years to that. And it was a lot of fun for the first five, almost seven years of it, I would say. There were some really, really great memories from it. And there were some really tough lessons learned around maybe greed and personality types that sometimes the investment industry has more of a tendency to attract, if you may. And I'm saying that being in the industry. So I feel like it's fair to criticize your own. But recognizing that our CEO at that time, really, on the one hand, super smart, a lot of credit for what he built, but also very, very difficult personality and created a very hard culture that led to a lot of people ultimately deciding to leave. So a very impressive fund was starting to... Internally, have a lot of conflict at different points in time. And I was... Edited up life sciences. We had grown... We had done, during those 10 years, $2 billion plus of investments to over 100 different life sciences companies, private, public. We expanded into Canada. We did deals in Israel. We did deals in Europe. Built a great team. Part of the reason I survived, despite the crazy culture, is that I was in Boston. Our CEO... Some of the other management team was in Palo Alto. So there's a geographic separation. But it was also... We were life sciences. And most of the other side and where our CEO knew more about was tech. So we were a little bit more left alone. So we had a little bit of culture within a culture of how we could operate. But at some point, you know, being highly concentrated, having a lot of kind of stock in there and realizing I don't, I want to work with people I really want to work with. Like I'm willing to work 120% when I truly believe in something that's, and it's hard not to when you truly believe. But I was finding myself like not putting in that effort because I am not believing in some of this, what we're doing and some of the people and how this is going. And I tried to make the changes. I was on board calls there. I was in a lot of the board meetings. I was not afraid to say my mind. I got fired several times. Asked to come back. So I never actually left the door, but before I left the door, I was asked to come back. You know, you learn and it's maybe, I was grateful again to be in positions where I could speak my mind for myself, but also for people who couldn't, who were also being affected by it. And I had the... I had the bully pulpit. I had the opportunity to say it. And it was almost like, if I don't say it, what am I doing? But it was painful, right? It's painful to get into a mode where you're arguing, screaming, like feeling like you're an asshole in the process because of how you're talking to your CEO or others, right? And I remember the board once recognized and they got us an executive coach. They got people, executive coaches. And one of the best lessons I learned, and as entrepreneurs, you'll always work with some point you will, whether entrepreneurs or not, anyone listening to this, right? You will work with difficult personalities or you might have very difficult personalities in your life. This is a broad generalization. And then one thing the coach, that coach, one lesson that really sticks with me is that, I was telling him, it bothers me what I'm becoming. Because of the way I talk, the language I'm using, it's fraying my nerves. I don't like it. And he's like, oh, I totally understand. Here's a tool you can use. When you get on a stage, when you're giving a speech, it's a tool that a lot of people use. You become the actor. Become a personification so that it's not you saying these things. It's the person you need to be such that the message is heard. If you in that moment need to become a raging lunatic so that the person who's hearing the message will actually be listening to you and maybe make a change, well, become the raging lunatic for 20 minutes and then go back to yourself. So it's not you. It's who you have to become. And that really helped in terms of that period because, you know, when you have to do it more often than you like, it helped kind of separating like your own self from trying to deliver a message. But anyway, long story short, I think it was a really overall, a really fun path for that timeframe at Hercules for what we were able to do for the industry and grow in size from doing what the banks were doing five to 10 to do more like 15, 20, $25 million and provide more capital to that industry. And build out a group of people that really actually got trained in this too. Your teams are getting trained along the way. Lawyers are. Pushing the envelope and creating, you know, docs and safeguards along the way. And there's lots of people. There's a great attorney at Cooley, John Hale, who was like one of the founders in the space of doing documentation. So we, I work with him. He taught me a lot. His, his mentee, Cynthia is still our attorney today at K2, right? So all these lessons get passed on and things don't grow in a vacuum, right? They grow because one person teaches somebody else, teaches somebody else, and you, you can innovate a little bit along the way and your intuition grows through all your experiences and you can impart that along the way. So. Eventually, I had run my course there. So at some point decided, told the board, you know, good time for me to head off the teams in a solid place. I'll transition out and did that in 2015. 

Jon - 00:12:35: There's a bunch of things that like kind of like stuck out to me. And I think the first thing one is just like how important culture is for an organization. I think a lot of the time culture can be like us kind of this like fluffy kind of qualitative like is it's not overly quantitative. So maybe we'll just think it's a secondary priority. But like from what I'm hearing from your like lived experience is that like, no, it is the utmost priority if you want to have a cohesiveness and longevity. Because I think, like you said, you can kind of feel yourself like when you're in that environment for too long, just like things can go parabolic, like in the up and to the right. Things can also go, like, I think culture is one of those things that compound in the opposite direction too, especially when you're growing pretty quick. So I think it's like something, you know, I've always thought about just like building a culture with intention, because every single hire, it rubs off onto the future hires too. And if you don't, one, kind of like be a guardian of that culture, there's a natural entropy to it, and it'll just become pure chaos. 

Parag - 00:13:40: That's very well put. Very well put. 

Jon - 00:13:42: And I guess just a quick question, too, on going public. It seemed like Hercules went public pretty quickly. I'm going to imagine things change a lot when you take it public, when you take the company public. Was that like a kind of a turning point? You know, I'm more familiar with like, I think there's a lot more investment companies that go public, like the Black Zones and the KKRs of the world nowadays. But like, we see a lot of investment funds that are still private. And I'm going to imagine they can operate very differently than a publicly traded one. Can you talk a little bit about that dichotomy of like being a private investment company and then being a publicly traded BDC? 

Parag - 00:14:19: Yeah, yeah. Great question. Obviously, there's pros and cons to both. One of the great pros of Hercules, and they sort of crack the fundraising code, if you may, on this, is that once you go public and if you perform, meaning you're doing well, you're showing that your strategy is working because it's lending, you have interest income coming in and you have nice dividends flowing to your investor base, you can raise capital much easier than in the private side, right? You have all the tools of a public company. You can do a new offering. You can raise capital overnight. You can raise bonds once you get big enough. You can finance yourself and really turbocharge your fundraising capacity to the extent that you have use cases to put the capital to work in. Right. So that Hercules got better and better and better at over time. And the current version of Hercules is a engine in that space. And the new CEO there who's not new anymore is great in that arena as well. So they're in a very good place overall. Still a lot of friends and colleagues there, many who on the life sciences side I initially hired in. So I'm happy to, great to see how well everybody's doing there. But the downside of being public is that you can't be as long-term minded in what you do because you have quarterly earnings pressures. There's a certain expectation. And if you're not meeting it, the market environment may not be as favorable, less favorable, maybe better or worse, et cetera. You might make certain decisions because you need to get earnings, which is... Sometimes in conflict with the best interest of your portfolio companies, different examples of that in terms of whether you would refinance the deal or actually let them just pay us off because then I can recognize all the income today. And I need that income in this quarter versus refinancing the deal and pushing it out. So there's different reasons why sometimes in public companies, you can't think as long term in terms of your investment landscape. But the benefit is, as a public, your fund is evergreen, right? Your capital is permanent. You're not sitting there in an LPGP private sector where you're raising capital every couple of years. So yeah, we definitely took some of those lessons in my current iteration. But the benefit of being private is that, as a private fund, if you can recreate a little bit of the evergreen, which you're fortunate to do that great, then you have the benefit of having some of that access to capital and recyclability of capital while still being able to be long-term minded, not having public company pressures, not having to build out a public company infrastructure and cost for that, and being more efficient overall in the marketplace. 

Jon - 00:17:21: I love that explanation because I think sometimes for founder operators of biotech companies, understandably so, there's not as much awareness on these kind of pressures, that the investors might have, like if you're a publicly traded fund, you have these quarterly, the quarterly pressures to perform, which would then lead an investor to behave a certain way. And so I guess to get, you know, kind of just like zoom out, it's like, it's very important for anyone out there to just understand whoever you're partnering with, what are the pressures that and priorities that they have to abide by in order to find the right partners? And like, there's no perfect solution. It's just like, what's right for you? Like, who is the right partner for you? And there are plenty of iterations and ways that this kind of manifests. And I'm very interested. So now, you know, you've kind of seen the, what it's like to, you know, to lead a publicly traded fund and, you know, eventually it sounds like there, you knew it was time to kind of to leave Hercules. When did you know it was time and did you know what was up next? 

Parag - 00:18:29: Yeah, I had no idea what was up next. But when I knew it was time, which was a full year before I actually left. And when I knew I had sort of lost my ability to work the way I thought was needed to grow, I would be doing a disservice by staying longer. And I also, I wasn't enjoying it the way I did just a couple of years before that, that I should leave and then we'll see. And so I purposely, because it was a pretty intense. Thing when you're building up an investment firm and you're growing and you go from 10 employees to 50 employees, and you go public and you're doing all that. And you're working across a fairly large portfolio and managing the positives, but also the problem. Children, we went through 2008, 2009 downturn in the bank, the crisis that happened, the financial crisis that happened then, managing through that. So a lot of both micro and macroeconomic learnings along the way, it takes a good amount of energy. So I was like, you know what? It's time to take a break. And it's also time to not have any preconceived notions of what's next. And maybe there will be very little for a while. Maybe there'll be nothing. And actually, there's part of me that's like, maybe it's just I will go do something completely different, nothing to do with anything in the space. But I don't even want to let know about that. I don't want to be tempted. And when I did leave, I didn't even tell people. I didn't send out that blast email that said, hey, everybody, I'm leaving. I just let people find out through the grapevine over time. So I purposely didn't want to get tempted by anything. It was an opportunity to spend that much more time in a more relaxed way with the kids. I mean, one thing both Aparna and I, my wife and I were very good about and something I like even, and this would be another thing I would push as a lesson in entrepreneurship, because entrepreneurship can be all consuming. But you have to really make a strong effort to, from early on, find a balance. Because if it's all consuming, you will burn out much earlier than... You should, because you're going to need the sustaining energy. And in the meantime, you will have forgotten about other things that are priorities and more important than what you are doing for. Your own self. I mean, entrepreneurship is great, but it's also, it's a lot about, oh, for me, like family always came first. Wife and kids always came first. I didn't miss a single game or show or anything of the kids, whether it was at 3 PM or 5 PM or 7 PM, you did that. And then you figured out the work otherwise. And it works when you have the by grace, a good relationship where we both could balance that for each other along the way. And I'm again, eternally grateful for the fact that that is the case and that we were able to juggle that crystal ball and never let it drop. I think that's if you can do that, not always. There'll be periods where it's hard, periods that are more intense and you feel like you're dropping it. That happens. We're all like we can't do that perfectly, but at least it's the intention. Your true intention is to try and make that work that way. So that was important even throughout Hercules. So I always felt like, OK, even though things might be a little crazier, I'm like, I'm happy over here. Right. But ultimately, I gave notice to our CEO and our board. First, I said, I want to go part time. I can't do this full time. And they're like, okay, we'll figure out a role. Then six months into that, I said, you know what? In six months, I want to leave. They're like, okay, we'll transition it out. It was a good way. It was the transition worked out well. And I left in April 2015 with really nothing planned at all. I ended up cooking a lot more, taking care of everything at home and just, you know, hanging out and getting to the kids' schools that much more often than I was before. And yeah, in the meantime, there was a three and a half year transition period between when I left Hercules and ultimately started K2. So it was a good period of like for a while doing nothing and then a while dabbling here and there. 

Jon - 00:23:02: Yeah. And and I think that's like it's kind of like right between your undergraduate and your master's program. You took the gap period, which was like important. And because I think you're exactly right. And I'm a I'm a victim of what you kind of described of the entrepreneurship can be all consuming. I was recently, you know, just like talking, you know, to kind of other founders out there, too. And it's the same feeling if you don't in the very beginning with intention, design, balance and boundaries. It's like air in a room. It will just expand to fill the room. And you kind of then you like you black out, then you black back in. And it's like the air has like filled the room for a very long time and other things have atrophied. And it's very important for any founder out there who's, who might be experiencing this right now. It's like friendships, family relationships. Those also take work like relationships are not just things you can like set on autopilot and just hope that it's going to, you know, live to be the same thing after you, you know, after you go burning the candle at both ends on with entrepreneurship. So it's kind of this thing I in the early days, I didn't know that. And so I would I was like, screw. We're burning this. We're burning it. And I could see kind of things kind of like fraying. And then I was like, OK, we can't have this happen. But like, it's hard because everything is telling you to do that. And I really appreciate your your candor around this, because I think in a lot of the airwaves in the media, there's like the beating of the chest of these founders who are like it's kind of like grind culture. Like, you know. 

Parag - 00:24:46: I don't know. Yeah. Grow at all costs. Grind, work, whatever. 18 hour day, 15 hour days, whatever, whatever. And the new reality is you could probably do as if you're efficient and disciplined and you made other things priorities and like I have to be here at 6 PM, 7 PM, 5 PM, whatever it is. You're just going to be damn more efficient. Your stuff done. And then, OK, you might clock back in at 8:39 after having dinner with your family and doing it because you have to, because you chose a journey that is not a nine to five journey. You chose a journey where there's a lot of things on your head and risk in your head and whatever. But I think that modality is a lot more sustainable. And I know lots of entrepreneurs and you don't hear about, they work in that mode. Like they've found a little bit of that secret, if you may, right? Like, hey, we do waste a lot of time because we're like, oh yeah, I have the whole day. I have until 11 PM at night. And then, you know, sleep well, it's a whole mess. 

Jon - 00:25:52: Yeah. And I think too, it's kind of like the constraints increase creativity and obviously efficiency. You can kind of get inefficient if you don't have these constraints on your schedule, much like capital too, right? Like if you raise too much capital, you lose the discipline as much as you would think that you can maintain the discipline when you're just seeing, like hundreds of millions of dollars sitting in your bank. 

Parag - 00:26:16: Totally. You have too many biotechs that are burning $15 million a month in the ecosystem. 

Jon - 00:26:23: Yeah. And like, you know, it's kind of where the constraints. Actually are helpful. They're actually helpful. And it's not only on the capital side, but it's also on the time side, exactly what you're describing. When you set these boundaries, you ultimately figure out a way to make it work. And you end up being more productive. You end up doing it the more efficient way. And I think from my own personal experience too, for Exceder, I was just like you. I was a bench scientist. So I was like, I don't know, I'm just going to go figure out how to get money to buy this first piece of equipment. And lab equipment is super expensive. And it's kind of like we dipped our toes and it started really small. But those constraints of the access to capital was really constrained in the early days. It formed some of the best habits as a firm, the DNA of our firm. And I encourage any founder out there to pause for a moment and think about what you can do. With the resources that you might have, even if it might be limited, because I think you'd be surprised how much you can actually achieve with a limited amount of capital. And I think it was Kravis from KKR talking about how debt has a way of sharpening you or making you focus. And you said it way back when you're experienced at Bank Boston, your lenders make you stronger. Um, when you have a lender that's analyzing everything about your company, it sucks to hear that. Like when, when someone tells you like, Hey, this doesn't look so good because you're like, well, it's my baby, but how can it not look good? But then you eventually you fix it. I almost think it was like our, our capital partners and particularly our credit partners that there's a lot to that. Like it's, it's almost like free consulting to be honest. You're like, thank you. I appreciate that. 

Parag - 00:28:15: Yeah, fair. That's a good point. 

Jon - 00:28:17: Until like, you know, talk a little bit about like the constraints and just like that good hygiene. I think a lot of life science companies, when you build those foundational blocks are, how do you make this a sustainable practice rather than just like a supernova? So now you've had this moment to kind of decompress, reset and kind of realign and see kind of start to figure out what are the kind of values in which you're on your next venture? Can you talk a little bit about what was the driving force to found K2 and talk a little bit about how your experiences up to this point helped you design with intention K2 as a firm that you could see go the distance rather than, you know, kind of burning the candle at both ends? 

Parag - 00:29:03: Yeah. So during that break time of that three plus years, you know, A, it was good because I needed the subconscious to be and see what came out of it in terms of what would be the interesting next path. In the meantime, my wife started a company with some of her ideas. She had at this point become a clinical neuropsychologist. She was working with kids with special needs, with a whole spectrum of different folks from young ages to older teenagers and seeing a similar issue that cropped up in terms of the inability for information to flow well between all the different providers, right? In a way that a care team around anyone could do better, but people didn't have the information. She would write these massive reports after all her analysis. And a lot of times things wouldn't be able to be implemented because the social work and the parent, the teacher, the... Speech-language pathologists didn't have that access to that same information. So, created a tech company with their MIT, former MIT friends and colleagues to try and solve this problem. So she wrote me in for a bit to be the good free laborer and do some operations, payroll, and help raise a little bit of capital. So that was fun working together. We got a chance to really be on the operating side, and we put our own capital in, and we raised some capital. This thing started, but you know, I've, I see the entrepreneurial journey from her view because it's, it's one thing being on the investment side where you're, it's the other thing operating something that started in your head, in her head, right? A piece of paper. Okay. Let's create this. Let's, let's whiteboard it out. Let's hire the team. Let's get that first employee. Let's get space. Let's develop the software. Let's test it. Let's start getting customers. The whole bit, it's like a, it's a crazy journey as well. Right. So, you know, I know I'm sure all the, I think about you, we often say it's like holding onto the tail of a tiger. Yeah. It's super exciting ride, but you're like, don't let go. Otherwise you're consumed by the process, right? Yeah. Yeah. Try and enjoy it. So that's been a balance as well. That was going, and I was sort of just part-time helping there at part-time helping something else in the biotech space. And I think through that, I realized, like operating stuff is pretty interesting, but I'm not like, I'm not that great at it. And I'm not like. Super cut out for it. And then I was like, well, how can I apply all my learnings in a way? And I'm like, at the end of the day, the best place you can apply it is within your arena that you've been in. But is there a way to do it differently? And around that time, a couple of people called, and this is now a good two and a half years in, to say, hey, have you hung up your shingle? Are you thinking of getting back into this? And at first I said, I'm not ready yet. And then I said, so we started talking. First group of people I talked to weren't really the right set of people to work with. And I was like, I'm not doing that again. Been there, done that, not doing that. And then a former colleague who I had hired at Hercules and who is now my co-founder. At K2, Anup Arora called me and he was still at Hercules. And he's like, look, I know a group that's looking right at doing something here. I'm thinking about it. Where's your mindset? I'm like, I'm thinking about it. And he's like, look, I'm under, I'm still under a CDA here. So I can't just like talk, but if you're interested, I'm happy to you to talk to this group. So that's how we started chatting about if we did this, how would we do this? What are all the lessons that we've learned in our collective decades of doing this out there? And how would we do it differently? And we had several long sessions sitting in restaurants and bars and this is 2018. So we decided like, if we can do this in a way where we can do private credit, but do it with a deeper diligence approach. An approach where you really get. Deeper into the underlying such that you lead with debt, you're providing primarily debt capital, but you're able to go across the balance sheet to provide also as opportunities arise with a lot of these companies, they do, hey, we've done all the work. We can also do convertible debt. We can also do equity. So go across the balance sheet. That was one thing we're like, let's see if we can design that and see if there's capital for that. And then the corollary says, well, we need a team, hire the right team of people. So, A has to be, to your point, people that you think are going to help you develop a culture that you really want to work in and people you really want to work with. Because now we are, and I was definitely in a position where I was like, fortunate, like I'm only going to work with people I really want to work with. So that's also, again, grateful for just being able to say that, right? So that was criteria two. And then wanted to make sure that because part of my previous thinking in my head was like, well, if I don't go back in here, I need to, I want to do stuff in the nonprofit and public sector areas, which are much, you know, don't have as good access to capital. Where can I use my expertise to help, right? To do more work in the space. So, well. Got to throw it out there. Let's see if we can convince some investors to say, look, let's take a percentage of our profits and allow it to flow into underserved healthcare. So create overtime once we do have the profits to create a K2 foundation. And this is another maybe important thing to try and do. Think what your real intentions are and then don't be scared to put them out there. And then, you know, as a good friend of mine told me in grad school, still one of my very close friends, Aleem Walji is like, you know, really touch base with what your intentions are. And this comes from a book. It's not like he didn't make this up as like, you know, the universe will ultimately conspire to help you, but you have to be clear about what it is. You can't be putting out the wrong messages because then that's what's going to happen, right? Maybe you have a chance for the right thing to happen if you put the right message out. So Anup introduced me to Megan Fitzgerald, who at that time she just had become the head of healthcare investing for a multi-family office that did work across different industries, but they had just set up a healthcare. Arena multifamily office called letter one that they wanted to get into the innovation economy, right? And so Megan, based in New York, she was a non-traditional hire to head this because she's, what were her other roles? She's... Was an associate professor in Columbia University in public health. She was trained as an emergency room nurse. She was high up in the Pfizer team at one point and the Cardinal Health's team at one point. So very broad, eclectic background and author of books, et cetera, right? But she was leading it up. So she's a very refreshing person to talk to in the investment world who had a landscape to look at for where is she going to invest as head of healthcare for this multifamily office. So ultimately I took a couple of meetings with her and she was like, are you ready to get back into this? I'm like, I'm not sure, but I'm happy to help you think about this. And as through the meetings, I think the rapport there, the belief that this is might be a group that could be very long-term minded behind this. And Anup and I both started thinking about this as how we might do this. And ultimately it led to founding K2, long story short, they committed 400 million in capital, which does not happen. That was at some point you have to check and be like, okay, that is a rare occurrence that somebody is offering us 400 million to start our thing. And the evergreen, going back to prior part of our conversation, evergreen structure, because they were long-term minded. They wanted to make impact in the innovation economy. They were open. They were fine with the fact that a percentage of profits out of their pockets are going somewhere else, out of all of our pockets are going somewhere else, right? So that was a rare coming together of various things that we decided, let's go for this and started K2 in late 2018. And now it's been six years in. 

Jon - 00:37:59: That's amazing. And it sounds like the fundraising experience was a stark contrast to the previous one when you were younger and you're just like, all right, I'm going to raise my first time fund. 

Parag - 00:38:12: Oh my God. Yeah. Good point. How different it can be with experience. And then you have to have a little bit of luck, which is, I think we've often heard that's when opportunity meets preparation, right? We're prepared to take advantage of it, but we were ready to say, this is what we want to do. And there was a willing buyer, if you may, to say, yeah, that sounds great. And here's 400. And then a couple of years later, they doubled down and now it's $800 million in a permanent balance sheet investment fund, which is private. So we don't have the public pressures, but we have a permanent balance sheet. So we're able to really provide capital in a long-term basis and do the diligence and be good partners to our companies alongside these use cases, be long-term partners, and also create a foundation and put money out that way as well. So we're living that dual dream of profit and purpose over these last few years, and it hasn't been without its real challenges and difficulties and needing a lot of persistence and getting through COVID years, still growing a team in the early years of that, keeping a culture, trying to get together often enough across multiple offices, despite being a small team and in our more distributed work nature that is today post-COVID compared to pre-COVID. So a lot of, management growth challenges, but all good if you keep it in perspective and keep the balance along the way, it's all sustainable, right? You can still be in the moment, enjoy things and not feel like, oh, I've just, I've given up everything just for this. No, I'm doing this alongside the rest of my life, but it's been very fulfilling to see what we've been able to put together and create. And I mean, biotech is really fun that way to work in because you're really working with companies that are potentially making life changing therapies. And we also work in the health care space, you know, where there's a lot of new innovative health care models that are trying to work on more prevention and care models that are working in that space. And we have some people who really understand that arena who have taught me a lot, right? Like you hire the people who like, I'm like, I don't know as much of my experience as more biotech, but Our first employee we hired is both key to our culture and somebody who I've worked with for 17 years. We hired him as a Northeastern co-op at Hercules. And over 17 years, we've worked together only with like maybe a four year gap in between all those times. And he was employee number one and he leads a lot of our health care stuff because he's he had real on the ground experience with one of the top health care companies in that in that space on the ground experience. So he's taught us a lot in that world. So, again, getting really good people around, getting people who understand different areas and fortunate, grateful. 

Jon - 00:41:14: Very cool. And thinking about K2 and if we zoom out, I think something that stands out to me is like you described, you have the evergreen structure and you're a private investing company that gives you the ability to work with founders in a different way. Can you unpack that a little bit for those who might not be aware? What is an evergreen structure and why does it matter for a founder or a company? 

Parag - 00:41:43: You know, the benefit we have, the good fortune we have is that we don't have a clock that says, hey, we're in year five of our fund and our fund is a $500 million fund and we've invested $450 million of it so far. And it's a question entrepreneur. And you're our last investment in this fund. And don't worry, we've reserved enough capital for you. But then they have other portfolio companies and they have to also think about allocations to them. And then you're five years in and they're like, well, sorry, that fund is done. And it's hard for us to cross over and provide you capital from our next fund because there's different investors in fund two versus fund one. And it wouldn't be fair. So we're kind of done. Versus in an evergreen structure, we have the benefit of we just have one fund and we can recycle our capital and we can grow the fund and we can put more capital out. And look, you can work this in an LPGP structure too, right? There's plenty of people that do. So it's not like I don't want to make too big a point to this. There's plenty of LPGP or pseudo evergreen structures that will work for you just fine. And for the most part, that doesn't become a big deal. But it's a question people should ask, like, where am I in your fund cycle? We don't have that issue. We don't also have to spend as much time of our management time out there, you know, fundraising, if you may, we can spend more time on investing and operations and that side. 

Jon - 00:43:14: Absolutely. And I think about Excedr too. And this was in the beginning, I didn't realize this was like very strange for a leasing company. But for us, just in a similar way, we're evergreen because we don't manage outside capital. We're just deploying off our balance sheet. And I think that was always the thing for us. It's like, life sciences take a long time to come to fruition. And you need those patient capital partners that are ready to kind of be there and like in the boat with you rowing. And for Excedr too, that's kind of has always been our ethos. Like we're in it for the long haul. And the structure of how your company is like, you know, from is foundational. Like, how is it capitalized? All of these horizons are incredibly important and questions that founders should be asking themselves about. Whenever. You're about to sign up for, you know, when you're raising capital, whether it's equity, whether it's debt or everything in between. And now that you've kind of solidified your capital base for K2 and you've kind of have key core hires, can you talk about what are the companies that you guys see to work with? And you talked about the product that you offer across the capital stack. Can you talk a little bit about that? The companies you work with and the products that you, you know, you support founders with? 

Parag - 00:44:33: Yeah. So, I mean, we're working with private and public life sciences and healthcare companies that we're not the seed capital because that needs to be the equity risk capital. We're typically coming in post the first institutional round all the way through mid cap public company. So from your series B company through being a billion dollar public company, we play all in between there in life sciences. We also work with biotech, medical devices, tech enabled healthcare services. And some companies that are on the edges of that, like some consumer health stuff, et cetera, but broadly in life sciences and healthcare. And again, the core piece is just being able to provide less dilutive capital to companies along that capital journey. And then also participating on the equities. We can do up to $10 million bite sizes in equity. So it's sizable enough that when we're participating in rounds, we can be a good partner there, particularly in companies that we're already involved with on the debt side. 

Jon - 00:45:34: Very cool. And I. I think that's like one for founders, incredibly invaluable to be able to have a partner that can kind of one-stop shop. Because raising funds is time consuming and much like for founders out there who are raising capital, fundraising is a time consuming endeavor. But if you can have a capital partner that can provide a slew of options for you, it's just that much more efficient. So you don't have to continuously be on the hamster wheel of fundraising, you know, piecing together various capital sources and products. When a firm like K2 can piece it all together and be there and grow with you. 

Parag - 00:46:10: Yeah, and we definitely can go across the boundary, which is what we wanted to create. And we work with the whole ecosystem. We're partners with a lot of the venture capital community. We're getting referrals for new investments from board members and entrepreneurs and those we've worked with before and those who know us and et cetera, et cetera. 

Jon - 00:46:32: So critically important. And I think whenever I think about healthcare and life sciences, it truly takes a village and no one can do it alone. 

Parag - 00:46:41: Like. You know, on that note, the other very good fortune we have at K2 is that Anup and I are co-founders and that burden is not on one person. It's split around. And we both have different strengths and weaknesses and complement each other to the extent that we're very oftentimes when we're building this, like it's very natural for him to take one arena and me to go in a different arena, often even without having to talk so much with that way. Again, fortunate to have built that working relationship and that trust over time because it's. There's obviously always pros and cons of founders, but if you can find the right co-founders, there's so many more pros than there are cons in that. I mean, yes, you have to share and you have to share sometimes decision responsibilities, and that can be sometimes annoying or painful. Like you're not going to agree on things. You have to figure out how to come to it. But usually it leads to a better decision. Usually if you have a good working relationship and you're not, you're respectful of how each other thinks and how each other works. You get to a much better point. So a lot of gratitude again for my co-founder in this process of like building this, the culture, everything that I'm able to do it together, because it can be lonely, you know, at the top, you can't share everything that's happening and the trials and tribulations and the worries, but with your co-founder, you can, they're in that same boat, right? To like, okay, I don't know where this is going. 

Jon - 00:48:15: Absolutely. And I think too, I know people talk about it where people describe the co-founder relationship. It's like a marriage. It's like every healthy relationship, right? You kind of have to have the ability to cover each other's weaknesses and, you know, kind of lean into your own strengths and having someone that you can lean on when things get tough, because whether you're starting a company, whether you're, you know, you're an investor and raising funds and you're on the other side, shit gets hard. Right. 

Parag - 00:48:45: It is hard. And it's often harder than you actually even think it's going to be. 

Jon - 00:48:49: Yeah. Exactly. 

Parag - 00:48:51: By nature, entrepreneurs, you have to be optimists. So you always underestimate. 

Jon - 00:48:57: Exactly. And you have to. 

Parag - 00:49:00: You have to. I mean, but that's that's like almost by definition, that's going to happen. Yeah. Otherwise you wouldn't do this. 

Jon - 00:49:07: Exactly. And I think picking your co-founder and picking your team is just I can't overstate how important it is, because I think a lot of people think that company death or organizational death comes from the outside, but usually it's from within and finding the right teammates and right co-founders where you mesh well is how you get through those hard patches, because it's not that usually it's not the competitor that's going to kind of beat you is when there's these co-founder disputes where or the company is just tearing itself from within where you kind of defeat yourself. So I think if you're out there looking to start a fund imperative that you find the right co-founders. Where you can cover each other's backs and weaknesses and lean into each other's strengths to complement each other. And, you know, looking one year, two years out for you and K2, what's in store for you guys? What's what's on the horizon? 

Parag - 00:50:04: You know, we're sticking to our knitting and really continuing to grow down the path of, on the one side, you're doing what you do, but there's always areas on the edges where like, well, should we do more here or do more there? Should we look at a couple more international opportunities? Should we look at some bigger deals? Because in our landscape, as biotech has grown and products have gotten further and further, the need for capital, you know, went from like, oh, 25 to 50 was large. Now, you know, there's 100 to $200 million deals that are getting done in the venture debt space, right? And these are still companies that are, they just got their approval. They're commercializing or they're close to that pivotal phase three trial. And. Believe they'll get approval and need a lot of capital. So, you know, there's expansion opportunities for size of deals for some, for certain geographies that's on the investment side. Clearly there's team growth that will still happen. But we don't need to become like a, we're a 19, 20% organization now. Like we probably never don't need to be more than 25, 30 people. And we can do a lot, lot more. We have a lot of scale and leverage left there. And then there's the growth of the foundation side. You know, we've, it takes a little while to put that in place. It takes a little while to know how to make grants well. And we're, I'm not even saying we're close to that, like, because that's not our core business, right? But we have created a ability to have this pot of money to say, how can we put it to work in underserved healthcare? So we've done some things on our own and tried to put some grants in places where we think are deserving organizations that are doing really good work, but we've also partnered with organizations that do this more. The focusing philanthropy is one of them. Life sciences cares. Is another. They're made up of life science executives who started with the mission of doing anti-poverty work in your local community. So Life Science Cares Boston funds a lot of anti-poverty work with local nonprofits. And this year, they started a health equity initiative, which we were the main seeder behind to fund that new set of grants and programs in health equity. So those are the type of things that we're looking forward to, things where we can do more of the same in bigger quantities and hopefully have more impact both on the investment side and the foundation side. 

Jon - 00:52:43: That's amazing to hear. And I'm thinking, you know, just hearing your journey is, I love that you were able to really blaze your own path and really create a firm that is driven by the values that you wanted to be at the forefront and be the guiding North Star, especially having these experiences that can be a bit tumultuous. Taking that and then having it inform and help you design K2 to be the firm that everyone wants it to be and the team wants it to be. And yeah, I think I can imagine you're talking about the foundation side too. It's like a whole different muscle. And again, it's kind of like almost like launch a new product line or even almost like, is it kind of like entrepreneurship? You're doing it again. But I'm so excited to watch you guys, you know, continue to do your guys' work from the sidelines. It's really exciting to hear what you guys are doing. And obviously, investing in life sciences and healthcare is just, like you've described, it's a fun place to be in. It's not always puppies and rainbows, but, you know, I get out of bed fired up every time and I'm so thankful for being in this space. And Parag, you've been so generous with your time. And thank you for having the conversation with me. And in traditional closing fashion, we have two closing questions. First is, would you like to give any shout outs for anyone who supported you along the way? 

Parag - 00:54:07: You know, there's so many people that help along the way out there in different walks of life. There will be a lot of individuals to list, but I will say as foundationally, as I said before, if I think about where my energy and power comes from, it comes from my family and my spouse, foremost and forefront, our kids who provide us a lot of energy. And then the foundation of that and love and care that my parents initially provided to me and my sister and the relationship I have with my sister. All of that, I think, is a blessing that kind of keeps giving and allows me to do all of this in a way that. Is, you know, one plus one equals three or four or five along the way, rather than being detracting and i feel it's almost that much harder if you're a single parent or you have a hard relationship in your family, you know, whether that's with your parents or so I have, again, the blessings of not having some of that, you know, everybody goes through their stuff where in the past you've had hardships to deal with and, you know, you learn from them. My wife's father passed away very young in our relationship and you learn, you, you kind of deal with that loss and it affects you throughout your life. But you gain that much more perspective to really value, you know, everything that you do have in that process. So yeah, lots of friends along the way and, you know, colleagues to, plus I mentioned some of them along the way, but yeah, thank you for the question. 

Jon - 00:55:55: Yeah, absolutely. And I think, too, is like, your partners are also on the entrepreneurial journey. So it's always right. And so it's critically important. To have supportive friends and family because. Again, it takes a village, not only within your company, but even at home, because it's like, you know, when things get tough, I think about my wife too, like in the earliest days of Excedr, you know, there were days when we, you know, in the very beginning, there was no revenue coming in and it's like, how do you make rent? Well, you can't pay rent with zero dollars. So, you know, my wife was so generous to be able to, you know, spot me, basically spot me for those early days. And I'm eternally grateful. And it's things like that where I'm just you can't do it alone. 

Parag - 00:56:43: Yeah, no, absolutely. And credit to you. And now what, 15 years in? 

Jon - 00:56:47: Yeah.

Parag - 00:56:48: That's amazing. Congratulations. 

Jon - 00:56:50: And yeah, and I think, you know, I always like reflect on this and hearing your story as well. It's just like there's these, there are these people who without their support, you just wouldn't you know, you wouldn't be where you are today. And I always think it's important to express the gratitude around it. And in the last closing question, if you can give any advice to your 21 year old self, what would it be? 

Parag - 00:57:12: It's a great question. Mention maybe one or two of these things and might add a thing or two to that, but try and hone in on your priorities and find the balance, find the balance. Would be one of the key things that I would tell my 21 year old self. And I think I've been decent about practicing it, but you can always be better. Be in the moment, right? There's so much going out there all around. There are so many distractions. There's good things. There's heartaches. There's bad things. There's messages. Now there's social media. There's you get pinged. Like just be in the moment. I'm having a conversation with you right now. The goal is to enjoy that conversation because it makes it that much richer rather than thinking, oh, gosh, you know what? When I get off this call, I got to check these four emails, respond to this person. We have to make this decision. Oh, this company is having an issue. We got to know that's going to happen anyway. Right. So don't use up brain space. Be efficient about using that. But that really practicing being in the moment is something it's like a New Year's resolution every year for the last 10 years because you can always get better at it. You're all very distractible that way. Yep. And then I think the next big thing is like I didn't talk that much about this, but I've always been drawn to philosophy and comparative philosophy. And I grew up in a Hindu and Jain family. And, you know. But still pretty open. And, you know, Hinduism also says like very clear about not some of the way it's being practiced today in certain areas, but like very clear about like, hey, take from this what really can help you. And you may not believe it all, but take what you do. And so borrowing from different principles is the principle in Hinduism, more fully fleshed out in Buddhism called Dukkha. And like really just translated means like, oh, just get get used to pain. Like people will sometimes. Translated is get used to pain in your life. And that pain is all around. But it's really what it's saying. The real word says just get used to the fact that things aren't always easy. There's uneasiness. Life is a little bit of like a wobbly wheel that was not a perfectly balanced wheel that keeps running all the time. It's there's bumps along the road. And if you know that's going to be the case. Then you won't spend your time worrying about, oh, my God, I can't believe that happened. Yeah. Shit's going to happen. When you're happy, things will get worse. When things are bad, things will get better. Like it's the cycle. And the more you can get used to this idea that any one state is not permanent and get used to that idea, the less worry and energy you expend on. Those things that will happen whether you worry about them or not. Right. And so I think those things where I spent way too much time, like, as we all probably do a different way, worrying about things that just took away energy, right? Or away sleep or didn't allow you to concentrate or it didn't allow you to enjoy something. So the more and more you can imbibe that, I think the happier your life will be. At the end of the day, this is all about like the end of the end of the day. It's about happiness, not about all these other things. But, you know, we're all on that. 

Jon - 01:00:32: And that's spot on because I think, too, and my co-founder actually just recently like texted me. This is like, just enjoy the journey. Like enjoy the journey. And then that's not just in business, but like, obviously it's like for life too, like life is just comprised of moments in time. And if you're overly fixated on this future, this future state that may or may not come to be, you're going to miss this moment in time right now, which you described. 

Parag - 01:01:00: Absolutely. 

Jon - 01:01:01: But Parag, thank you so much. You've been incredibly generous and, you know, we're recording this it's pre JPM. Maybe if you are at JPM, I'd love to meet up with you in person, maybe grab a coffee. 

Parag - 01:01:15: I will be there. 

Jon - 01:01:16: I can do this for hours with you, but thanks again. And, you know, hopefully, you know, I'll see you in the month or two. 

Parag - 01:01:23: Yeah, no, really appreciate the time and all your effort. I know it takes a lot of energy to do this, but you're doing a good service out there for the community. So appreciate it. 

Jon - 01:01:32: Thanks, Parag. 

Outro - 01:01:35: That's all for this episode of the Biotech Startups podcast. We hope you enjoyed part two of our conversation with Parag Shah. If you did, consider subscribing, leaving us a review and sharing it with your friends. Be sure to join us for our next series featuring Oguzhan Atay, co-founder and CEO of BillionToOne. BillionToOne is a precision diagnostics company that quantifies biology to create powerful molecular diagnostics. They work to improve disease detection by counting molecules with their proprietary molecular counting platform. They place patients at the forefront of everything they do and are currently applying their proprietary technology to non-invasive prenatal screening and liquid biopsy. Oguzhan holds a PhD from Stanford in systems biology, where he implemented molecular diagnostics to improve disease detection machine learning algorithms and mathematical models to solve specific problems in cellular biology and developed a data-driven mathematical framework to simplify the analysis of complex biological networks. He also has a degree in molecular biology from Princeton, as well as a minor in computer science, physics and applied mathematics. Oguzhan not only combines deep technical expertise with visionary leadership, but he also has an incredibly inspirational immigrant journey, which makes this series a must-listen for first-time founders, scientists and industry leaders alike. The Biotech Startups Podcast is produced by Excedr. Don't want to miss an episode? Search for 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, 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.