"Be On It”: High-Stakes Deals & Building World-Class Teams | Sujal Patel (Part 3/4)

Intro - 00:00:06: 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, Sujal shared identifying the storage problem with RealNetworks, the "scissors of opportunity" moment with Paul, and raising $8,400,000 as Seattle's only Series A in 2001. If you missed it, check out part two.

In part three, Sujal talks about EMC leaving a voicemail on the company's general line, months of OEM discussions that were really acquisition pretense, and Pat Gelsinger bringing Harry You, the head of M&A, to what was supposed to be an operationalization meeting. He shares how EMC walked away at $32.50 per share, why he told them the next time we meet, the price could be a $100, and receiving a fully executed merger agreement by fax at 1:05 PM on a Friday. He also shares the Saturday negotiation where he asked for $34. Harry You said you can name your number, but it cannot be $34. And why $33.85 representing $5,000,000 in consideration became the final price.

Jon Chee - 00:01:45: Oh, man. And talk about a little bit about that acquisition. Like, how did that come to fruition?

Sujal Patel - 00:01:51: How much detail do you want?

Jon Chee - 00:01:53: Yeah. You know, as much as you're willing to give.

Sujal Patel - 00:01:55: It's a really fun process. I can give you quite a bit because, you know, we're both public companies, and so our proxy is pretty detailed. And so I'm gonna give it to you from two angles. Right? Because remember, I was then acquired by EMC, so I was privy to all the documents they wrote at the time that these things occurred back in time.

And so sometime in April, like, our stock's at $12. And internally, the EMC deck is like, "This is a great target that we should go acquire". Stock's up from two to five to 12, so it's really run up, and it's kinda crazy price, but we should look at this. And EMC is a company that is a very old company. I don't remember. It's founded in the seventies, I think. And it's based in Hopkinton, Massachusetts, in the suburbs of Boston—very old-school New England. They all sound like they're out of The Godfather, and their style is just kind of bombastic and in your face.

So in April, we got a voicemail. Not an email, not a soft introduction from the bankers, a voicemail on the company's general voice mailbox. "Rich Napolitano, the president of the storage division blah blah blah at EMC would like to talk to you". I'm like, "Okay. That's an odd way to get introduced to a company". You leave voicemail on the general mailbox of the company. So we called up Rich, and Rich is like, "We should talk about synergies of the thing," and we know what that means. It's code. But then they started having conversations. They're like, "We could OEM your software and put it on our hardware". We did a ton of explorations of these sort of things.

And, you know, it became clear to us very early on that our technology and what their platforms, they don't merge well together unless we're, like, a thing that they're selling. It's not like you can take our software and put it on top of their hardware. And so those conversations went for a little bit, and we knew that those conversations could lead to a strategic opportunity for the company. And so April, May, June, July, we kept going. I don't remember the exact months, but at some point—well, so through this process, I know that this could lead to an acquisition. So I've upped my efforts of building relationships with the CEOs of NetApp, the CEOs of Dell and other organizations.

And we get to this point where EMC is like, "Okay. We're definitely interested in this opportunity to OEM your software and blah blah blah". They still have these pretenses, and they're like, "We're gonna come up with Pat Gelsinger". He runs, like, 16,000 employees at EMC. He went on to be CEO of Intel. He spent thirty years at Intel prior to EMC as well. So big honcho. And I'm like, "Okay. Pat Gelsinger's showing up. I should go and do my updates with some of the other CEOs".

Jon Chee - 00:04:35: Yeah. Yeah. Yeah. Yeah.

Sujal Patel - 00:04:36: One of the key ones was NetApp, and it's so funny. Like, the only time I could get was the same day as Pat's supposed to show up and have dinner with us. So we have dinner with Pat and Rich scheduled and then a whole, like, half-day meeting the next day. So the only thing I can get is a time slot right before. So, like, I'm talking to my board members, and they're like, "Well, go get yourself a private jet. Go down, have that meeting, come back up, and make dinner". And I'm like, "Okay. Never done that before". I did. And I made dinner by, like, twenty minutes or thirty minutes or something.

I sit down with Pat at dinner, and three hours—I don't know. Four hours, we were there forever. We talked through every bit of the opportunity between the companies and this and that and blah blah blah. And I could tell this conversation's not really about OEM, but this is the pretense. They still have this dinner. And we get to the end of dinner, and I'm like, "We just had a four-hour conversation, Pat. What are we gonna talk about tomorrow?". "Oh, we should talk about how we might operationalize this and this and that". I'm like, "Oh, it's great you wanna talk about operationalization. I just hired this new exec, Eric Brodersen, he runs marketing, and we're gonna have him join as well. We're gonna talk through how the products might mesh together" . And Pat goes to me. He's like, "Oh, I brought someone along too. I brought Harry You". I'm like, "Oh, crap". I'm like, "There we go. Harry You is the head of M&A". He's the guy. And I'm like, "Okay".

And so I briefed the board. I'm like, "Tomorrow's gonna be interesting," and we have, I don't know, a half-day meeting scheduled. And we walk in, and it's Pat and Harry and Rich, and they basically, like, literally, in a ten-minute conversation, hand me an offer, and then they're like, "That's all we needed. We're gonna go". I'm like, "Well, we scheduled the half-day". I was like, "That's ready for us. We're leaving". And then, of course, you know, I've been very well trained by our advisers at this point, and so—what do you think about the offer?. And they teach you—George Boutros, who's a banker at Qatalyst, who was our banker, our primary banker, and Frank Quattrone, who's the more senior one there at the time. They were the ones training me, and they're like, "Your response is going to be: 'I have no reaction'". "Well, you have to have a reaction. Personally, what do you think of the offer?". "I have no reaction. My responsibility is take your offer to the board". That's what I told them. They asked me, like, three times, and then the time I get to see that, so they're like, "Okay. We're done. We're leaving".

Jon Chee - 00:07:06: That's so funny.

Sujal Patel - 00:07:08: So they hand us an offer of, like, $25 a share. Remember, the slide deck that they wrote when we're at twelve was like, it went from five to twelve. This is crazy. Now they're at 25, and there's a bidding war going on between EMC and NetApp for this company, Data Domain, which EMC ultimately ended up buying. Right? So this company, Data Domain, wanted to sell. NetApp made an offer. EMC was mad, and in the public, with a proxy fight, won that deal. It took it from NetApp. Now the prices of all the stocks in the storage space have gone up. Then while we were selling, there was another company called 3PAR, which is selling to HP, and it was pushing up valuations.

And then, ultimately, you know, they put this $25 offer down. We said no. Then the offer went up. We said no. There was a leak. And we got to this point where, ultimately, we were at a price of, like, 36 because we're like, "That's a great price," right?. And they're at a price of, like, 30. And we're, like, working, and we're haggling, and we're haggling. And then they're like, "Well, we should meet in the middle," and this and that. And, ultimately, we're getting close.

And like I said, this is a bunch of East Coast guys. They're very aggressive. We're literally on the finish line here, and we're ready to sell this company to EMC. I have my whole board convened. They're in hotel rooms in Seattle ready to approve a deal, and, like, they're supposed to respond to our price proposal. And they know our board's waiting, and they get on the phone. They're like, "We can't do the deal. We're out". And they're like, "We can't justify this huge premium, and it doesn't make sense to us". And so, "We're just not gonna do it".

And a little emboldened at this point because I know Q4 is a blockbuster quarter. We just closed this $10,000,000 deal. So I go to them, like, "Listen. This is totally fine. It's a waste of my time. I want you to understand if you hang up this phone, I don't wanna talk to you. And the next time we meet, the price could be a $100 share" . And they said, "Okay," and they hung up. Now, of course, they had no intention of this. Like, a week later, I get a call from Pat, and he's like, "Listen. I couldn't get the M&A committee to a high enough price. I need to show more value". So then they're like, "I need you to go and meet with some people at VMware, like Paul Maritz, who's CEO. I need to show that this technology is complementary so I can build it back up".

We do all these meetings. They're super secretive, super quiet. And then one Friday, maybe a month later, I get a call in the morning from Joe's assistant. Joe's the CEO. And she's like, "I need your fax number". I'm like, "K. Maybe I'm gonna give you legal's fax number. Here's the number".

Jon Chee - 00:09:57: And then—

Sujal Patel - 00:09:58: Like, my assistant gets called a little bit later. She's like, "Joe would like to speak to Sujal at 1:05 PM". And I'm like, "Oh, that's code for five minutes after the market closes". And so I get the call from Joe, and Joe's like—she's got a very deep voice—"On your fax machine is an entire executed merger agreement and blah blah blah blah blah, and the price is $32.50". Of course, he took the midpoint and dinged me. "$32.50 fully executed on your fax".

And I know we're close at this point, so I don't put up the "I have no reaction" shtick. I go to him and I go, "I'm not selling you the company". And then—that's why I disclosed to him this $10,000,000 deal. I'm like, "We gotta do better. At that midpoint, it's not even enough at this point, blah blah blah". And Joe's like, "This is new information for me. Let me go back. Blah blah".

And then the next morning, it's Saturday. And, by the way, there have been a lot of leaks at this point. So they basically said deal gets done by market open or no deal. And so Saturday, Harry You, who's their banker turned executive, calls me up, and we have an honest-to-God negotiation on the phone. And I know the range is very tight. And so they're at $32.50. I asked for $34, and, uh, I had my general counsel in the room with me who's watching this whole thing. And they're like, "I can get up to 33, and that's the midpoint of what we were talking about. You're just negotiating me to death". And I'm like, "I'm negotiating you to death? I feel like you're stealing my, like, trans data bit". And I'm like, "I will do this deal at $34, and that's it".

And Harry pauses and goes to me and goes, "I cannot sell you this company at 34. You can name your number. It cannot be $34 a share". And so my brain starts churning, and it's like—do I say $33.95?. No. That's kind of obnoxious. Do I say $33.50?. No. That's too little. $33.75?. No. I need more than that. So I say $33.85. And Harry pauses and goes, "Let me go make a call". And he makes a call, and that's the price. That's why it's a weird price because, literally, that was the price. $33.75 to .85 is $6,000,000 consideration. It's not a small number.

Jon Chee - 00:12:15: Wow. Holy crap. That is intense. And, also, to be able to think that on the fly after—I'm sure, like—just, like—

Sujal Patel - 00:12:24: I'm really tired for sure.

Jon Chee - 00:12:26: Yeah. Yeah. Yeah. Yeah. You have twins. You're just like, "Oh my God".

Sujal Patel - 00:12:29: We could unpack this story for another hour. Like, you know, during this deal process, they dragged me to Hopkinton. "Here's lunch. Sit down. Next year's a harder year than this year. If you don't sell us the company, we're gonna buy someone else and—".

Jon Chee - 00:12:44: Yeah.

Sujal Patel - 00:12:44: Pick harder. And, like, I got the whole—I got the whole squeeze from them.

Jon Chee - 00:12:49: Holy moly. And what a culmination. And so when the deal gets done ultimately, and then you—it sounds like you said you'd signed up for twenty-four months.

Sujal Patel - 00:13:00: Yeah. Well, so we negotiated the price. The terms had all been negotiated in the first round when they walked away. And so the deal was—was done on Sunday. Monday morning, Pat and I were sitting in the conference room in Seattle, announced it to Wall Street, and then turned around and talked to the employees of the company right afterward. And so it was a done deal at that point.

Jon Chee - 00:13:20: Wow. And when an acquisition like that happens and—and you've decided that you—it was agreed that you would stay on for two years.

Sujal Patel - 00:13:27: Yeah. So not really. So EMC said, "You're critical to stay. We want you to stay as long as you want," blah blah blah. They wrote an offer letter that was like a great offer letter for the long term. My commitment in the M&A process was I committed to—to two things. They're both are important. One is I committed to making sure that I'm—I'm there to see it through a billion dollars of revenue on a run-rate basis. And then I said, "I will make sure that that business is set up for you to grow and scale for the long term".

That last statement led to some very interesting things that occurred post-acquisition. Right? I mean, the ultimate plan—like, when we were acquired, they originally were like, "We're gonna merge this division into the division of Rich Napolitano," who's the guy who called, like, that famous voicemail from the year before. And very quickly, I was like, "No. I'm not working for Rich". And it didn't take a lot of time to convince Pat Gelsinger. I went to Pat—and he said, "Well, why don't you wanna work for Rich?". And I basically said, "That is not my expectation," and this is before the deal side. And so Pat waved his magic wand, and suddenly I worked for Pat.

The goal, though, was, like, I was supposed to merge those two divisions and let Rich run it after I left. And we got down to that. We were in, like, probably, like, April, May right before I left in November, and, ultimately, I lost faith that that was the right approach to keep my promise to Joe. I went to Joe and said, "This is not the right path. The right path is that you take the crown jewels, which is your future growth engine. You leave it as standalone thing". And ultimately, we convinced Joe that my CFO would take over for me as the head of that group, and those divisions stayed separate. And today, it is the profit driver for them. It has tens of thousands of customers and over 25,000,000,000 of lifetime-to-date revenue. Those are the numbers that I can share publicly through that product. Yeah. So it's a massive part of their business today. It's part of Dell today.

Jon Chee - 00:15:24: Yeah. And I don't know. I'm just, like, thinking about this as, like, you started this in your twenties. Like, you know what I'm saying? Like, what a—when you connect it all, just like—

Sujal Patel - 00:15:33: It was a really fun journey. Yeah.

Jon Chee - 00:15:35: Like, holy crap. And, like, it all started out of, like, the kind of the—the depths of the—the dot-com bust.

Sujal Patel - 00:15:42: Yeah. That's right.

Jon Chee - 00:15:43: And really just like—and, you know, talk about, like, when even all the way back to RealNetworks, you're like—it's like a baptism of fire. Yeah. And you almost had nonstop baptisms of fire, like, all the way through.

Sujal Patel - 00:15:55: Throughout my career, the stories are super fun. This is why I like this podcast, Jon, because we're gonna talk here for hours and hours, and I'm just gonna record it for my kids. And their kids, they could just listen to this podcast and give you a whole life story.

Jon Chee - 00:16:07: Save you a ton of time. Yeah. It'll save you a ton of time. And, you know, now you've ended up setting up the company for success in its post-acquisition life. Can you talk a little bit about when you knew it was—it was time to leave?

Sujal Patel - 00:16:21: Yes. So I had a lot of decisions to make. You know, much like my early career at RealNetworks, I quickly made a name for myself at EMC. I'm a New Jersey native. I know how to operate in New England. I'm not afraid of political environments. This is—I went from, you know, my little 500-person company to a company with 60,000 people and 25,000,000,000 or plus of revenue total. It was a big transition, but, uh, transition where I had opportunities at EMC to do much bigger things.

And so, you know, when I was leaving, Pat Gelsinger was in the process of moving over to run VMware, taking over for Paul Maritz. After that, he went on to run—be CEO of Intel. And so he left a big hole that in some various ways they wanted me to fill. And I thought long and hard about that because, you know, it was a job that had over 10,000 employees. It was big opportunity, and it's one of those things you're like, "Well, that's like one of the top IT jobs in the—in the world". And I thought, "Do I really wanna go do that? And where will that take my career in the long run?".

And—and I spent a lot of time with Pat. You know? Like, I—I remember there was a walk here in Seattle where we walked across, like, two bridges and, like, for, like, two hours, two and a half hours. He tried to convince my wife that we should do this. But, ultimately, like, for me, sitting on an airplane going back and forth between the coasts and trying to move this giant business wasn't interesting enough.

And—and, you know, I had some questions that I asked them as tests. I said, "You know, if you want to really turn this into the company in the future, this is what would be necessary". And part of that was a massive amount of change in—in people and locations, and I got the very distinct impression there was no appetite for that. And I was like, "Okay. That's not—that's not for me". And I had promised my wife now. These twins are, like, five years old. I've, like, I promised I'd take some time and—and be at home. And so I was like, "Okay. It's time to go".

And I always thought that I was gonna, you know, take six months, rest, recuperate, go figure out what the next thing to do is to the next startup, and that was a much harder journey than anticipated. Four years later is when Nautilus started, but that was what that—you know, I left, and I tried my hand at a lot of different things—sitting on company boards, making investments. I made 80 private investments over the last ten, fifteen years, most during that four-year time frame. None of it is as fun, interesting, rewarding, or impactful as going in building new business. So here we are again.

Jon Chee - 00:18:48: I love that you just, like, basically put out a litmus test, like, to the EMC folks. And—and the litmus just came back here. It's like, "Not for me". And, also, something that occurred to me too is earlier in your story of Isilon, much like how when you didn't get your phone picked up, when you were thinking about taking the job on the East Coast versus staying on, when you had your VP of sales hire, you're the one that responded to the letter. Again, another knife's-edge element. Lots of knife's-edges and just, like, you know, these kinda, like, turning on, like, uh, on a dime.

Sujal Patel - 00:19:23: As an entrepreneur, those are the opportunities you have to take advantage of. Someone like that sends a—a letter to you, you gotta go pick up the phone. Doesn't matter if the job will be right. You gotta start building that relationship. You know, one of the key lieutenants for George is a guy named Leonard Ivantosh who ran the channels program, completely revamped our indirect distribution. And we knew—because of George—that I knew who Leonard was. Leonard was still at NetApp, which is our arch-nemesis. So George and Leonard had a close relationship, and he realized at some point that Leonard was leaving NetApp. And it was a bit—I think it was a quick exit. And George is like, "Here's the phone number," and I called Leonard. Leonard's like, "I'm in the parking lot of NetApp with the box from my desk". I'm like, "Well, I have a job for you". And he's like, "Okay. Let's meet tomorrow," and we did. And that was it. Like, hired him. Like, literally, he's got a box in his hand in the parking lot, and he's on the phone with me with the next opportunity. Like, you run a startup, you have to be on it. You gotta be taking advantage of every opportunity to build relationships, to go and find the best people, like, and get aggressive and get them.

Jon Chee - 00:20:31: Wow. Wow. That's—that's powerful. That—and, also, just like, what timing? Just, like, seamless transition to just, like—and so when you reflect back on the Isilon experience—like, you talked about, like, RealNetworks. You, like—there's some lessons that you took away with—with you and then some stuff they left—you left there . With Isilon, when you look back on it, what are some, like, key lessons from the Isilon experience that you take with you and carry with you to this day?

Sujal Patel - 00:20:56: Yeah. So one of those key lessons I already mentioned, which is: develop people early, get people that are trustworthy in place so that you can grow them over time. Right? At Isilon, we did a spectacular job of that with some people, and we try to do even better as we kinda headed to the next venture. You know, to give you an example of that, there's a guy, Sam Burkhart, who joined in our first eight employees, and he was the junior-most product manager of any of the ones that I interviewed. But he was the only one who didn't know anything, and so he wasn't tainted with all this knowledge and all these preconceived notions of the past. He was smart. He was energetic, and he was the right fit. We hired him. His career arc is ludicrous.

He—never left. So he, um, went from product manager to head of product management to VP of marketing to SVP of marketing. And then on the other side of the acquisition, he picked up about 4,000,000,000 of the business and ran marketing for it. And then ultimately, today's role runs all product marketing for them across everything—everything from the mouse to the display to the old Isilon storage system. He never left. He gave me the—uh, letter he got from Michael Dell for his twenty-fifth anniversary with the company tracking all the way back to Isilon. I kept it in my wallet for a long time. It was a good thing to use. When I tell this story to potential hires and say, "These are the types of people that we want—that's you," like, you'd literally pull out the letter from the wallet.

So that was one lesson. You asked about lessons. That was one of the lessons. I think another one of the lessons was that we at Isilon made an error with people that we hired. Right? The CEO, the CFO, some of the early folks in the exact team. You know, a good product is hard to kill, thank God, because that's what saved Isilon, but those mistakes are incredibly costly and incredibly painful. And so paying really close attention to who you hire, particularly at the executive level, is really, really critical. And sometimes that means you're gonna end up doing a 100 different interviews for a job, and that is okay. It is what it is. Like, those are the two key ones I'm gonna tell you. Those are the biggest things. Right?

Jon Chee - 00:22:58: Yeah. And especially when you're, like, a smaller organization, if you're just, like, 10 people, not—one hire has, like, a massive impact because it's, like, you represent one out of 10, and it's just such a critical learning. And, I mean, you lived it. Right? And then you were also brought in and you had to, like, fix it, so you felt it, like, firsthand.

Sujal Patel - 00:23:15: Yeah. There's one other thing I wanna highlight for you because this is, I think, something that did come up through my Isilon experience and is something I've carried forward, not just to Nautilus, but to all those 80 investments that I made. Right? So if I asked you: what is product-market fit?. What you're gonna say is, "Oh, you're building something that goes into a marketplace, competes with these other products effectively, has a big edge, it's desirable for the customer, it has some kind of economic advantage for the customer and either makes new revenue opportunities for them or saves them money or does something better".

And that is the very traditional definition, and it's the definition that I think is 33% of what you need to be thinking about as a startup. I think the next 66% is: okay. That's all great. Can I build a lot of that product?. Can I build it cost-effectively?. Can I go and get the product in the marketplace and evangelize it in a way that lets me reproduce a sales motion?. Can I go and sell it cost-effectively to the end customer?. Can I outcompete things that are out there?. Will anyone outmaneuver me in the long run?.

All of those questions are the things that made us narrow our go-to-market focus from seven—seven vertical markets to five. Ultimately, we became general-purpose. But in that time, we had to do that. Ultimately, we had to figure out what features will we add that differentiate us in a way that's readily articulatable to the customer to make that sales cycle flip quickly. Those were the things that reduced our sales cycles, reduced our time to reorder, increased the average deal size. All of those things are what made the company incredibly profitable in the long run.

Those things, particularly in biotech, are lost. Like, I look at company—I will not give you any names—but companies where you open their P&L, and it's like five years straight sales and marketing is a higher percentage of revenue. I'm like, "That's going the wrong way". And then if you unpack the product-market fit by my definition, you're, like, never gonna work. Right? And so I've applied that lens to investments that I make. And then at Nautilus, we are the exact opposite of that. This is a slam-dunk product that we're building. All we gotta do is get it done and out the door, and it sells like hotcakes.

Jon Chee - 00:25:27: And that kind of—it was, like, similar to—it just reminded me of the—the kind of, again, the cross-domain learnings. You know, being in San Francisco, there's a lot of just, like, your traditional tech, and there's so much—there's so much learning. There's so—just, like, polished. And then sometimes you're right. Like, not to name names, but, like, you're just, like, when you go into the life sciences, you're just, like, "What is going on here?". Like—and these learnings are at your fingertips. Like, "What is going on here?". So I love your ability to bring over these, like—and cross-pollinate because I think there's so much to be learned from adjacent industries. And during this, like, four-year period when you're making these investments and you're doing kind of your—you know, basically, you're taking a little bit of a breather. You're doing a little bit something different. When did you know it's time to get back into the ring? And I guess, like, were there any learnings you learned from just doing a bunch of investing?

Sujal Patel - 00:26:18: So my vision was: I take six months off, hundred and eighty days, then I go and figure out what the next business is and go get started and get going. And I was interested in something very different. I was only interested—I didn't wanna do another enterprise software company or tech. I wanted something that was impactful, that was meaningful to people. I was looking at biotech ideas. I was looking at clean energy ideas.

And I'm not a patient person, and I don't like to be idle. Investing and sitting around with my VC friends, I quickly realized that it's not for me. Like, sitting on boards is an exercise in frustration. There was one board I was in—particular. I would tell them the same thing for year after year after year, and they'd tell me, "We know better. It's not quite right. No. That's not us. We do this thing". And then five years later, they did exactly what I said, and it was—that was the future of the company. It frustrates me, like, to no degree. Like, they told them something, and they don't do it. So I meant for the CEO chair, not for the armchair quarterbacking.

And so, you know, I didn't wanna jump into something unless it was big, impactful. Just—I wanted a huge problem to tackle. Nautilus is a great fit for that. It's a big, big, big problem and a hard one. That took a long time. Right? And these other spaces I was looking at were spaces that were not native to me. So, like, you know, evaluating clean energy ideas and different ways to extract oil from the earth and looking at ideas in pharmaceutical companies. Like, these are very different ideas. It took me a long time, and it was a painful process for me.

I—took four years between Isilon and—and Nautilus. Like, four years is way too long. I tried golf. I—I can't do it. I played a bunch of video games—that was fun for a little while. I played with the kids. I did a lot of travel. It's so funny. Like, sometime—so Nautilus was founded at the end of 2016. Sometime in 2016, stuff started showing up at the house, and it was like—there was couple things, and then there was, like, a two-gallon jug of water, uh, water jug. And my wife's like, "Oh, is he gonna get back to exercising and drink the water?". And she's like, "What's the jug for?". I'm like, "I'm gonna take the cocktail barrel, and this is to make new craft cocktails that are gonna go to the barrel". And I was like—shh—get the hell out of the house. She's like, "Get out of here. Go to work. You're done. You're cut off".

Jon Chee - 00:28:37: Yeah. Yeah. Yeah.

Sujal Patel - 00:28:38: And it was worth doing this because by the end of 2016, Parag came to me in very funny fashion with this idea for Nautilus, and it checked all the boxes in terms of crazy big idea, someone I know and I think is smartest guy on the planet and huge market potential, and I'm sure we'll delve into it. But the time was right to go back.

Jon Chee - 00:28:57: Yeah. Yeah. Yeah. The cocktail barrel. Your wife is like, "Absolutely not". Yeah. Like this.

Sujal Patel - 00:29:04: No. She threw—I think she got rid of the barrel. It's—got rid of this.

Jon Chee - 00:29:07: It's gone. No. No. This is not happening right now. And so now your next opportunity is presented in front of you. Talk a little bit about, like, what the driving force for founding Nautilus was, and it was during your early Isilon days when you met Parag.

Sujal Patel - 00:29:25: That's right. Yeah. So Isilon's a company where I came up with the idea and was founder and CEO of that thing, and Paul was my sidekick. This was, you know, opposite. Parag is my co-founder. Parag and I met in '04 when he was at Cedars-Sinai Medical Center and was running clinical proteomics—a study of proteins—bought a lot of storage from us, built a big relationship with him. Some thirteen years ago, he went to Stanford to start a new lab sitting at the intersection of computing and biochemistry and data science.

And, you know, having built a relationship with me, first call he made was to my wife and I. He's like, like, "Hey. We'd like you to—I want you to philanthropically support a postdoc in my lab". We've been supporting that postdoc—or it's more than—it's many postdocs at this point over time, but we've been doing it for thirteen years straight. So that built a close relationship with Parag, and I kept in touch with him. I saw him all the time.

And in 2016, you know, he's been at Stanford. He's been studying proteins. He's a key opinion leader in the proteomics world. And he comes to me one day, and he writes me an email. He writes short, weird emails. I'm serious to the email. He's like, "I think I've come up with something important, and I need to start a company. Can you spend an hour with me so I don't screw it up?". I'm like, "Okay. Let's go do that. Let's see what happens" . Smartest guy I know. I'm gonna go sit down with him and see.

So I call him up, and he tells me what this thing is. And I'm like, "This is super interesting". I mean, the idea that you've been studying proteins with this crazy, ineffective mechanism that we have—which is the gold standard—and you've been thinking for a decade about how to do this completely differently. You've examined all these 53 different ways and nothing worked. And then one day on a road trip, something occurred to you, and here it is. I'm like, "This is super interesting. Come up to Seattle, and let's go spend twelve hours—" it would end up being, like, twelve hours at whiteboard—"and let's talk through it".

So we talk through the whole idea and how it works and what's gonna happen. And I'm looking at him. I'm like, "Well, this is a crazy idea. We're gonna know in six months if he's crazy or if this is doable". It's worth it. Let's go see what happens. I'm like—so I'm talking him through this, and he's like, "Here's what we're gonna do. We're gonna go raise $200,000, 250. Gonna hire two postdocs. We're gonna build this little thing, and we're gonna see how it goes" . And he's like, "I think I've got somebody who's gonna give me the $250,000".

And I go to him and I look at this plan. I'm like, "Parag, this is a massive endeavor. Like, what happens if we don't raise $250,000?". "What happens if we raise $2,000,000? And what do we do then?". Then we start mapping it on the board. And he's like, "This is good. Can we raise $2,000,000?". I'm like, "Do you want me to write a check now?". He's like, "I wasn't aware that was a possibility".

And so we got through this planning process in the end of it. He's like, "You should do this". I'm like, "You should do this". Like—"Okay. Let's go do this". And so we go and—we go and get it going. So this is the end of 2016, and he's gone at this point. He came up with a crazy idea. He went to the patent attorneys. He got a patent filed. It's separated from Stanford.

And him and I hammer out the deal because I'm joining and he already has a legal entity up and running, so I'm joining as co-founder CEO and replacing his mom as the CEO because he had her in there as just kind of a placeholder—because as a Stanford employee, couldn't be CEO. And so we got all that cleaned up. We got going at the end of 2016. We started hiring some people, and we started to go and raise that seed round.

It's super interesting that, you know, we went back to that person that Parag thought was good for a quarter million dollars, and they put in, like, a million dollars plus into the company. You know, we were like, "Let's go raise two". And so we start scheduling some meetings, and it just so happens we had Parag's contacts, like, on Friday and, like, my people on, like, a Monday. Like, by the time we got through Parag's people, we already had more than $2,000,000 of commitments. I'm like, "Well, crap. We better go start meeting with my people on Monday". Oh, wow. By then, we're at, like—we could raise 7 or eight. We end up raising, like, 5,500,000 and getting it closed, and that got us to kind of the next step. And then as we get through the story, we'll kinda walk through the rest of it. But that was getting it off the ground. And by the way, in six months before the—raised that seed round, we figured out Parag's not crazy. It's gonna be hard, but, you know, it's going to be buildable, and it's gonna be incredibly disruptive to everything that's out there.

Intro - 00:33:47: That's all for this episode of the Biotech Startups Podcast featuring Sujal Patel. Join us next time for part four where Sujal recounts serving as president of EMC's Isilon storage division, taking four years off before his wife told him to get out of the house and meeting Parag Mallick after receiving an email that said, "I think I've come up with something important". He'll also unpack why Nautilus required building four extremely hard technical pillars, learning to be a biotech CEO through YouTube and daily "dumb questions" sessions with Parag, and launching an early access program after raising half a billion dollars over nine years.

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