Grant Aarons - FabricNano - Part 2

[00:00:00] Intro Welcome to the biotech startups podcast by Exceda. 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, John Chi. In our last episode, we spoke with Grant Ahrens about his childhood in New York City and how it influenced his leadership style and business philosophy. We also chatted about his time at Cooper union as an engineering student, his experience at the Federal Reserve, how changing interest rates impact different sectors and the struggles of capital intensive industries. If you missed it, be sure to go back and give part one a listen. We continue our conversation in part two, talking about Grant's decision to attend London Business School, his research endeavors in predictive modeling, [00:01:00] and his insights from the accelerator experience at Entrepreneur First, which highlighted the importance of resilience and adaptability in entrepreneurship.

[00:01:11] Grant: This is going to get worse. In the next 5 years, software companies that we used to think are defensible, like Google, are going to start becoming companies that aren't defensible, even if they have ad start. Because of things like chat GPT and these GPT models, they are going to have trouble in a world where services are eaten up by AI and software becomes easy to build.

[00:01:37] Grant: These companies are all going to struggle with defensibility and hardware is going to reign supreme in the VC market very, very soon. When we raised capital in 2019, our first 3 million from UK investors. One of those investors, Hussain Kanji and Rob Kaniaz out of Hoxton Ventures. They gave me this book called Inside Intel by a guy named Jackson.

[00:01:59] Grant: And in this book, you don't just get the like high level of Intel. It's like 450 pages. You get every fight that Andy Grove had with Bob Noyce and every conversation that was important to this company. The ideas of second sourcing, all of these concepts that are like, Ingrained in the way that people think about business, they weren't pretty much invented when this company came out as a hardware company because of the novelty it brought to the market.

[00:02:23] Grant: It was opening, which is the information age in the book. People don't seem to recognize that. Intel was 1 of many companies that was doing this time that they invested more heavily into the semiconductor fab. And the fact that they had one mechanical hardware problem that they saw before everyone else.

[00:02:42] Grant: And that problem was that the wafers were cracking on the light. So if you had wafers where half of your wafer, 70 percent of your wafers were unusable. Because they're just defects, your margin got eaten into, which means you couldn't grow as fast. You didn't hit cash flow break even zero. You didn't have extra capital to invest in research.

[00:02:58] Grant: What happened very [00:03:00] interesting with Intel is they got those defects down to like 20 percent or less. They started shipping more product, more volumes, more customers, network effects. If those existed back then, I think they probably still did. And that company today is powerful. It's a hardware company that's powerful today.

[00:03:16] Grant: 40 years on where Google made it about 20 years. And now their dominance is in question 40 years on and is not going anywhere for the next 50. Same thing with Nvidia investing early in hardware. These companies will be around for a century. And if we start to talk about those examples. With the credit that they deserve, as opposed to the quick money, the fast money, the things that happen to work really nice and easily for big success, unicorns that popped out of thin air in less than 12 months.

[00:03:45] Grant: If we stop getting over excited and fascinated with those 12 1 stories, and we think about the arc of history. Hardware companies always last longer. The value is greater. That's where the money should be going. And it's only going to get worse. That discrepancy over the next [00:04:00] 5 years. As AI starts to take down service businesses and software businesses.

[00:04:04] Grant: In terms of defensibility and value capture. So you're in the right business. I'm in the right business. We're in the good place. Monologue over. Let's just have fun now.

[00:04:14] Jon: Thank you for the 10 year TED talk here. I want to like kind of like hone in on the part of the Intel story that really I think is important is like you make this CapEx investment and then you're continuously improving yield.

[00:04:25] Jon: Those are the unit economics that software investors are seeking. You make the CapEx investment and then boom, you can improve on it. Where this thing is just in TSMC's case, it's spitting out semis and Intel's, you know, everything they do.

[00:04:39] Grant: I got to say in Fabric Manus case, it's spitting out biocatalysts and bioprocessors, right?

[00:04:43] Grant: And if you could do that more efficiently. And those processors last longer, and they're built more robustly. You start to take over these markets. That's the key. And I think that, like, that is a core premise of Fabric Mano, is that we focus on the robustness and [00:05:00] the amount of yield you can get out of every biocatalyst we build.

[00:05:04] Grant: We focus on stability from the biology. And it's analogous to focusing on, like, the cracking of wafers. But if you focus on stability of biocatalysts, which nobody does, by the way, it's an afterthought. Then you start to crack yields that nobody can crack. And you start to crack problems like commodity chemical manufacturing using biology, which we know is a big deal.

[00:05:27] Grant: 5 trillion dollar market, huge 10 percent GHG emissions from petrochemicals. Like we know that you need a biocatalyst. Increasing returns to yield generating physical material. And we have that, this all just links in a beautiful story. And just hope the capital keeps flowing. We could build these businesses.

[00:05:45] Jon: Yeah. And not to beat up on software too much, my wife's in software. So we love software too.

[00:05:51] Grant: We can be on software. Yeah. Software has been good to lots of people and it makes the world run. Yeah.

[00:05:56] Jon: Yeah. But the one thing that's like a fascinating as an observer of like [00:06:00] software companies is they're having that opposite effect, right?

[00:06:02] Jon: Of like, we're talking about like Fabric Nano improving yields. But yeah, there's like, you have to ante up to play the game. You got to ante up for the hardware. So, okay, it's a big buy in at the table. You know, at software, there is almost no buy in, but instead of the yields improving, they're just getting worse.

[00:06:20] Jon: I've always thought this funny, and I'm getting into the weeds of like the finance, but like, Where software companies put their engineering and R& D resource in OPEX versus I think it's a COGS. They say software companies have incredible gross margins and I'm like, No, they don't to support this software.

[00:06:38] Jon: Your

[00:06:39] Grant: people are your COGS.

[00:06:40] Jon: Yeah, it's like, that's not truly OPEX, that's COGS. I'm going to get beat up in the comments or whatever here.

[00:06:45] Grant: Let's stop bashing. Yeah, yeah, yeah, yeah. But like, I think a really cool point that you just brought up there is that the, Uh, Anti is gone up for software to play and you're seeing a return to capital expenditure on software when capital [00:07:00] expenditure goes to training big models.

[00:07:01] Grant: Right? So great. We have these foundational models. You're getting a lot of credits going to them to pay for servers to run to compute. Who is benefiting from that? Do you think open AI and Google deep mind and you think like. Mistral, all these companies, you think those are the companies that are benefiting?

[00:07:18] Grant: Look in the video stock price. That hardware company is cleaning up. People are talking about that on wall street. Everyone knows that NVIDIA is cleaning up, but like, when we think about the VC industry and we think about software, software is not returning anything. It's funneling into one big hardware company that's servicing the whole thing.

[00:07:36] Grant: And that's the story, that's the linkage that's not really explained very well.

[00:07:40] Jon: Yeah, it's like picks and shovels. All the tools that you need to do this work. It's like physical things, like they're physical things.

[00:07:48] Grant: I mean, it's funny that it's called picks and shovels because it makes it sound like a small piece of the pie or puzzle.

[00:07:53] Grant: We're humans, right? We don't need software. We need picks and shovels. We need tools, physical [00:08:00] tools. We need hardware. How long can we continue to belittle the hardware market as some piece of the puzzle, when we need to eat this decade, we're running out of food, we need to sleep, we need to build more houses, we need hardware companies, because at the end of the day, the picks and shovels is all you really need, and that's where the value is going to accumulate.

[00:08:21] Jon: Absolutely. I think, you know, we talked about venture capital is kind of having a different take, or at least their evolved take on this. And I think you're kind of looking into the crystal ball for what may happen in the future. I would tend to agree. Okay. Loved where we went with this, but you're in heavy research and you had, it sounds like some mentors who kind of got you Into the hardcore research and I know you mentioned that you decided to go to further your academic studies.

[00:08:49] Jon: Can you talk about that transition

[00:08:51] Grant: great mentors? I had on the dynamic stochastic general equilibrium team. They call it DSG. We're 2 great mentors there and [00:09:00] there was another 1 that I mentioned earlier who was on the now casting team and that was 1 of the products we built to try to understand GDP in real time.

[00:09:06] Grant: These people DSG team Mark Giannone. Marco Del Negro, remember them for this day on the now casting team, you've got Domenico Giannone, a lot of Giannone something in the group is a very Italian thing, these great researchers and econometrics and economists, but what made them great mentors and what made them incredible assets to the bank, the central bank of the US is that they were willing to train up young people.

[00:09:36] Grant: And I think that if I look at my life and I look at what I'm most thankful for and mentorship and from people around me, it's that people take the time to entertain my curiosity. My parents. My peers, my girlfriend, just like lots of people in life that will walk you through an equation. Colleagues of mine that I had at my PhD in [00:10:00] economics that I ended up dropping out of, they helped me learn for the first time, like, master's level econ, even though they had done it before.

[00:10:05] Grant: People walking you through the basics is an incredibly supportive thing for someone to do, and it builds a lifelong bond. Right now, I'm fortunate enough to have a team of people at Fabric Nano that have taught me over 5 years, biology. I never studied biology. I'm lucky that my curiosity Is entertained by the 25 people that work in our laboratory as PhD postdocs who teach me what ideas are absolutely too wacky and which ideas are right on the edge of like what the science is capable of doing.

[00:10:37] Grant: That mentorship doesn't have to always be hierarchically from someone more senior to someone more junior, but it can be. I mean, I'm the CEO founder of my company from the founder, the employees are teaching me, right? I'm getting mentorship from everyone in terms of science and biology. And I'm incredibly grateful for this team for doing that for me for the last five years.

[00:10:58] Grant: And I think that [00:11:00] there's no greater honor in this life than to be given the opportunity to learn.

[00:11:05] Jon: Absolutely. Likewise, I think at Exceder, that's the one thing that also just like makes it there's like getting up every day and getting into it. It's just like super fun that you're that I feel like I'm constantly learning from the team.

[00:11:17] Jon: And then there's all the stakeholders and that keeps it really fascinating. And it's also just like a humbling experience. There's like a lot of the time, the CEO role, it can appear to be this thing where like, we know it all. It's like, no, we're absolutely don't like absolutely don't, but I'm willing to learn.

[00:11:33] Jon: And I think that's a critical trait of some of the best founders is like being willing to be like, Hey, I actually don't know this, but I would love to learn more about it. And so when did you know grad school? Was going to be the thing. And also you were at the Fed in New York, but I know you ended up in the UK.

[00:11:50] Jon: How did that opportunity come about?

[00:11:52] Grant: Yeah, I'm going to touch on the learning thing just for a second. I'll go back to the journey to the UK. I just think it's such an important concept that [00:12:00] learning be the core. I've never seen a KPI or a performance review that has a learning at its core. Like the CEO and the founders should have a scale one to 10.

[00:12:10] Grant: How much did you learn this quarter, this half year, semi annually? Like, do you feel like you're learning if the CEO or the founders of the company have a score under eight, they're probably getting a little bit tired and you should look into that. And then you should also ask every employee, how much are you learning?

[00:12:27] Grant: Well, you've got. That value that I think every company should have, which is like a curiosity in each other's work is our third value. It's my favorite by far, like it's the one that I wish every employee carried at the top. Of their mind every day, so back to why I moved to the UK, I finished up this 2 year rotation at the New York fed, and they can allow you to pay for 3, 4 years.

[00:12:52] Grant: And some people do that. But most people move on after 2, because some really great recommendations working with world class economists and, you know, work pretty much anywhere. [00:13:00] So a lot of people went to work as eye bankers in downtown Manhattan, which is where the Fed is located. And I decided I didn't want to be an investment banker, even though it probably would have been an interesting opportunity to learn.

[00:13:11] Grant: But I decided to go the academic path, which is what 80 percent of people at the Fed do. And I applied to every school I could that was not on Manhattan Island. So if it was outside of New York City, I was in. I was not going to apply to Columbia. I was not going to apply to NYU. I was, I'm done with living in this tiny little bubble, which we call the island of Manhattan.

[00:13:33] Grant: Like this is enough. So Princeton, fine. I'll apply to Princeton. I didn't get in. I'll apply to Harvard. It's far enough away from like where I've been living for 24 years of my life. And I applied to the West coast schools and I applied to London and Barcelona. Those are the two furthest schools I applied to.

[00:13:47] Grant: And. I ended up getting into only a few schools that would really take a risk on someone who had never studied economics formally undergrad. So out of about 20 schools, not ashamed to say it anymore. I used to be ashamed of, like, [00:14:00] success rates, but I got into, like, 3 or 4, you know, I got into some of the system and then I got into London business school.

[00:14:07] Grant: And London business school, if you're in the graduate school, like circuit, and there is like lots of forms about grad school entry, which I'm sure you went through. The thing about business school is they got a nicer stipend, so you can rely on a business school being a nicer opportunity. And so automatically it has like a cachet that normal grad school now.

[00:14:25] Grant: And so I got into this program, London business school to be 1 of the 3 economic students out of a 10 PhD incoming class. And I jumped at the opportunity because. My mentor at the New York Fed was this guy, Domenico Giannone, who had moved on to Amazon now, but at the time had recommended me to Lucrezia Reikler.

[00:14:47] Grant: And so Lucrezia was and is. A very impactful economic researcher, she led the European central bank ECB for almost 10 years while I was her graduate student, [00:15:00] she was out of the country quite a bit because she was being considered for prime minister. She was in the final 3 candidates for the Italian prime minister when they had an interim government, I picked someone who was incredibly.

[00:15:13] Grant: Successful business person. And I admired everything she had done, you know, economics career. She had started her own business, selling data points to Reuters and all these other banks about forecasting GDP and inflation in real time, very valuable. And then she'd also run the research group at the ECB. I was like, this is the perfect advisor.

[00:15:32] Grant: I joined the program and I thought London would be a good idea because. English speaking. Unfortunately, like most Americans, I speak only one language. Well, a little bit of Spanish, but I'm trying to learn French and it's a shame that we all don't speak like 5 languages in the last. But anyway, I moved to England because it made sense on that front and.

[00:15:54] Grant: Is a great opportunity, great school and a good big metropolitan city like New York City that I could explore and I'd fallen in love with 1 and I [00:16:00] think it's 1 of the nicest cities. I did not know it was a biotech hub at the time. Like, this is. Honestly, in my opinion, the highest concentration of biotech talent outside of Austin.

[00:16:09] Grant: And, I didn't know that at the time, I didn't know I'd get into biotech. But glad I chose London because life is weird and meanders as we talked about earlier. Yeah. And that's how I ended up at London business school.

[00:16:19] Jon: That's awesome. And I think with science and business, there is a through line of like mentorship.

[00:16:25] Jon: And these are, you can look, you can connect the dots, like looking back now, first off, if I go even farther back, it started from when you filled out the form on the fed to get that summer job, which then. Puts you in the room and kind of exposed and you don't have this, the traditional pedigree, but whoever an economist might be, but it seems to me from what I'm hearing, there's like this osmosis and willingness to learn, which then kind of connects you to eventually get you to London.

[00:16:52] Jon: And it all is, I think for anyone who's listening out there, it's encouraging to know that like, put yourself out there, even if it [00:17:00] feels kind of out there, putting yourself out there, it could be a massive inflection point. And right. You said you like, I didn't know about biotech, but it probably stemmed from just the fed, which gets you over there.

[00:17:11] Jon: You know, sometimes people may feel that it's overly scripted or people just know out the gate or, and just like, this is the track, but I love hearing. How this all unfolds, because for anyone who's embarking on this journey and may feel where am I going? It's like, no, like, you're going to be just fine.

[00:17:29] Grant: There's a lot of pressure to eventually succeed when you take a lot of pivots in your life and you end up in a place that's uncomfortable again, right? Like, you end up in a profession and you're like, this needs to work, but I don't think that I would change a single thing. And I agree. A lot of people ask me, how did you do that?

[00:17:47] Grant: How didn't you just get in from mechanical engineering to economic theory, and then pop countries started a life over, over there, drop out of that PhD thing, and then get into [00:18:00] an accelerator to build a biotech company. It just doesn't seem like everyone could do this, but it is. And I don't feel like I'm more special than anyone else.

[00:18:09] Grant: I do think that people need to be given a shot. I do think that. Although I failed to finish my PhD, I passed all the classes and I ended my PhD in my third year, but you could call it a terminal master's. Those people who gave me a shot, maybe they think they did something wrong because I didn't end up, you know, becoming a professor at a prestigious university, but honestly, I couldn't think of more for giving me the opportunity.

[00:18:37] Grant: And I think that if we can just give people more opportunities to try new things. Sometimes it works out. Sometimes it doesn't, but it's worth trying in a world that needs incredible solutions. You need to look at new places for people to join. Diversity of thought is incredibly important and background.

[00:18:53] Jon: Absolutely. And I left the lab early to start exceeder. So I'm in a similar place. Can you talk a little bit more about like the research that you [00:19:00] were doing and your thought process as you decided to not conclude the PhD and maybe talk a little bit about your research and what that experience was like.

[00:19:08] Grant: Yeah. So when I joined London business school, I was a matrix algebra, matlab nerd. That's what it was. No formal training whatsoever. And I got that training. And the first thing I wanted to do with papers was go straight to the metrics of econometrics. I wanted the statistics, not the economics. And that's what I thought I signed up for.

[00:19:35] Grant: I did the theory work. I took microeconomics. I taught microeconomics as a TA to MBAs. I did macro. I did all the things that theoretically I needed to learn to be an economist, but I didn't want to. Work on theory, I wanted to work on numbers and forecast and prediction. I [00:20:00] thought that was the coolest thing and so that's what I was drawn to in my career.

[00:20:03] Grant: That's what I was set up to do. And that's what I wanted to do. And that's what my advisor had done. And so what I started researching was. How can we use the types of. Filters and matrix math estimators. Prediction of things that people don't usually predict with these algorithms. So I was already thinking about starting a business.

[00:20:23] Grant: I was like, look, I took asset pricing. It was a really cool finance class. I aced asset price. I loved it. I was like principle components from the stock market. You take all the stocks, you draw out the three major principle components, which describe or are the projection of more than 70 percent of the movement and these momentum Factors can predict financial asset prices.

[00:20:48] Grant: This is wild. Like a lot of people not know this. It's called like a farmer French model. They have three factors. They got five factors. They got all the factors. And so I love the financial asset pricing class. And it was in my wheelhouse for statistics and metrics. [00:21:00] And so I said, how do I blend this with econometric models of like real time forecasting?

[00:21:06] Grant: And so I looked at bringing in network theory from microeconomics where you have multiple agents and these agents have, you know, They're nodes in a network and they have different connectivity and you could describe the network at any given point in time. So I'm sure Facebook's doing this every day, right?

[00:21:21] Grant: Every hour. They're like, what is the connection between China and the US? What is the connection between the US and Taiwan? What is the connection between all these places? And they have a. Aggregate statistic for connectedness of the world every hour. And so I said, could you do this for the macroeconomic economy?

[00:21:37] Grant: And I found a paper by a professor at a who was doing this. With the structural factors of the U. S. economy. So every quarter, the U. S. economy talks about the interconnectedness of the construction industry with the timber industry, with the labor market, with the debt capital markets. And so you have [00:22:00] this crazy matrix that describes paralyzed.

[00:22:04] Grant: What industries are flowing financial services, like what is the dollar value of interaction between the sectors of the economy and you can look at a 10 by 10 matrix, but you can look at a 10, 000 by 10, 000 matrix every quarter. And I don't want to look at all that data. I want to summarize that data. So I created a time series out of that data.

[00:22:25] Grant: Which this other professor I'd done at UCLA in California, and I wanted to include that with the farmer French five factor model, which was this paper that had been written before, but I wanted to apply new econometric filters and estimators and models. And I wrote this paper, I thought it was fun and it was great.

[00:22:42] Grant: I got a chance to, like, turn through some data. And by the time I submitted my master's thesis, I knew by 2nd year, I got a lot of pushback. It was like, where's the theory? Well, it's quite a lot financial asset pricing paper. It's all about pricing and statistics, right? You're an econ student, I'm a financial student, but it was a mandatory class that I took, [00:23:00] and I'm building a paper based on that, and.

[00:23:02] Grant: There's other stuff like the U. S. economy, like that's got to be econ. So it's basically asset pricing with econ data. That's cool, right? Like, no, that's not okay. You got to write the theory and you got to use what we're called Bellman equations. I hate this stuff. This is like the worst part of what I wanted to learn.

[00:23:21] Grant: And so I really rebelled against, they let me get the paper through the B and then I had a conversation. I was like, what do I get to do in the next 3 years? And they said, you got to write at least 2 more papers to make a dissertation and they got to be theory. And I was like, Oh, no, this is not what I want to do.

[00:23:40] Grant: And. To their credit, they knew they took a risk on me, and when I said goodbye to the chair of the econ department, he said, that's it. You make this decision for yourself. Now, lots of people wait to make these decisions. He's like, very happy in his professorship, and he's doing great with a lot of papers, but a lot of people struggle.

[00:23:58] Grant: He goes. Leaving to do [00:24:00] something that feels more resonant with your personality is the best decision you'll ever make because you're not going to get stuck in a trap by the age of 50. I was like, thank you for the honest feedback. This is advice that I will never forget. And it was Super encouraging to go do something crazy like biotech.

[00:24:18] Jon: That's really refreshing to hear because I think true kindness is having these kind of very frank and probably uncomfortable conversations. And that's like true kindness and it's hard to do because of the uncomfortable nature of it. And I really want to underline that for anyone listening. And look, not to say that you should, the second that something becomes hard, it's not a good fit.

[00:24:40] Jon: Be introspective about it and think long and hard because, you know, there's an aspect of like gritting things out. That's also quite important too. But being honest with your feelings, if we go back to like applied finance or just like investing, like there's so many different ways to invest and You need to find an investment style that works [00:25:00] for your personality type.

[00:25:01] Jon: For example, if we're just using polar ends of the spectrum, you know, if you're a VC investor, you have to be ready for crazy volatility. But if you personally, as a human being, Don't resonate with that. Maybe you shouldn't become a venture investor and go to the flip side where you go into credit, which is what we're in.

[00:25:21] Jon: We're more adventurous credit. So it's like, you know, because we're working with like life sciences and biotech companies that works with my personality. And then the same with the company that you build, it needs to work with your personality because when the going gets tough, One, you need to be able to get up and as a leader or at an early stage company, you have to be willing to run through walls.

[00:25:43] Jon: And if it doesn't resonate with you, might not want to run through that wall. And that could be the last thing.

[00:25:51] Grant: You definitely need to have grit, but I really want to take a half second. You're telling another cool anecdotal story. I love about resonating [00:26:00] with your investment style, but I'm just going to public announcement here.

[00:26:04] Grant: Can I please have a hardware investor that resonates with me? Just appear on my doorstep. If you're out there, please somebody come and talk to me and just mention this podcast. I'll take the email and we'll get on the phone. Right? Because it makes such a big difference. And I think that any founder that wants to get into venture capital style startup building should read this book that has a great story that goes with what you just said.

[00:26:28] Grant: So. The book's called the power of law by Sebastian. It was a conversation between Sebastian and Matt Clifford and entrepreneur 1st to Matt Clifford and Alice. They created entrepreneur 1st, which is where it was incubated and. Math having this conversation with Sebastian and talking about the book, and they're talking about a particular section, which, of course, it read the whole thing.

[00:26:50] Grant: It was excellent. But this section. Resonates. I'm not sure if you remember the section, but it was about mostly Yoshi's son and the Yahoo [00:27:00] investment. And the way this goes down, I listened to the podcast. I heard them talk about the story. I read the story and I was like, this is even better. The second time.

[00:27:10] Grant: And so I'll say it now. And hopefully other people will go and check it out. The story of the day was like Yahoo was the winning company. They were going to cannibalize the internet. They were the homepage of search. And they needed basically just more money to just keep cannibalizing markets. It was like first mover advantage.

[00:27:28] Grant: And this guy, I'm not sure if his name is Jerry, right? Jerry, he's the founder, Jerry Yang, right? Jerry something. And Jerry is like working with Sequoia's created the series. I took him like 20 million and they're like, we're good. We got enough money. We can just keep running this business software engineers.

[00:27:44] Grant: We're good. And. Then Netscape comes along and it's like the browser executable on your computer. Everyone's like, who is going to beat the homepage of Netscape? It's for sale. It's on auction. And story goes like Masayoshi san shows up and this [00:28:00] guy is just like, Jerry is. Who the hell are you? I've never even heard of you.

[00:28:04] Grant: He comes in with an analyst and he's just like, I want to invest in your company. And Joe's like, we already took investment. We're done here. And I was like, no, no, no, no. I don't think you understand. I want to give you a hundred million dollars for a third of your company. And Jerry Yang was like, no, I can't do that.

[00:28:17] Grant: Like that's not going to work for me at all. And Sequoia was like, get out of the room, please. Like we're having a real meeting today. And so then there's this hundred million dollar check. They're just sitting there. And Masayoshi, he asked this question of the founder of Yahoo. Could you use this money?

[00:28:33] Grant: He goes, yeah, of course I could use the money. Like I'm looking to do a lot of things. He goes, couldn't you take the auction down very easily with this money and be the homepage of Netscape? He's like, yeah, but I don't want your money. And so now see what she said and asked him, okay, well, aren't you worried your competitors will do it?

[00:28:47] Grant: Like who are your competitors? And the young founder names the competitors. And Masayoshi san turns to the analyst and just says, Can you write those names down? And it scares Jerry [00:29:00] so specifically, he's so scared that they have to take the money because they realize the first mover will get mover. But why I tell the story with what you just said is that it is so powerful.

[00:29:10] Grant: When an individual can own their place in a new market and what Masayoshi son did was own the new style of investing that was going to like take the world by storm. These big growth funds, 100 million checks like it didn't exist, but it's very hard for people to do that. Even today, if they're not the type of personality that can walk into a room and then offer a founder a deal, be a friend.

[00:29:31] Grant: And then within a moment, threaten the founder with a quick quip to an analyst. That makes the deal happen. Like that's not a normal person. That is a very specific person with a very specific investment thesis that works out. Where is that person for hardware investing? I would love to know what is their personality.

[00:29:50] Grant: Who are they?

[00:29:51] Jon: That's a great question. And I think I'm sure they're out there, but like, I feel like this hardware hasn't been in vogue. We're kind of like coming out of [00:30:00] hibernation. At least the capital markets are for specific. We're not impressive enough yet. Yeah, yeah, yeah, exactly. Again, it's just like, that's just a very different mindset.

[00:30:09] Jon: It's a very different mindset. And I think exactly in the coming quarters, years to bring it back to interest rates, it's like, instead of everything going into one asset class, there's going to be kind of a spread. There's going to be more granularity versus like, we're all in on this one asset class and nothing on anything else.

[00:30:26] Jon: And we're, we're seeing a bunch on the credit side. Obviously like private credit is now super cool, I guess. So you brought up the accelerated entrepreneur first, you said, right?

[00:30:35] Grant: Yeah, it was the entrepreneur first, which is the accelerator. And

[00:30:38] Jon: so after you have this conversation with your advisor, how did you hear about entrepreneur first?

[00:30:43] Jon: How did you get involved? Like, did you know that that was where you're going to be?

[00:30:48] Grant: I did not another set of mentors come along here. My girlfriend at the time introduced me to a friend of hers. We had a coffee. The coffee was done in a [00:31:00] disused warehouse near the biscuit factory. That's also disused and became entrepreneur first accelerator location.

[00:31:07] Grant: But we ended up chatting in this coffee shop called shortwave, and we had a conversation about what it was like to go through an accelerator and it was, A nice hour chat just explaining how random it was. But having somebody tell you that it's going to be random before you start is helpful. Because you've got to be prepared for what you're getting into.

[00:31:29] Grant: That's what I learned from the economics PhD. Don't assume that you're going to get to do what you want to do and write the papers you want to write. Ask a lot of questions. Make sure that that's happened to people in the past. Double check. Trust but verify. And so this is me saying, I'm into this accelerator now because I applied.

[00:31:46] Grant: They loved my background and loads of different technologies like fintech. They thought I could be a CEO or a CTO. I wanted to be a CTO. And then we chatted, me and this guy, and, you know, he runs a business in London called Simple [00:32:00] Pharma. Basically, right down the street from our offices, so still keep in touch and get lunch and stuff.

[00:32:05] Grant: Yeah, but he verified that EF would be random and there's a lot of value. Yeah, but it is a pretty random process that's been

[00:32:13] Jon: honed to create companies. Interesting. Let's dive in a little bit there. So, you knew going in that it was going to be random. Can you talk a little bit about. The process of getting in and what the experience was like once you were in

[00:32:28] Grant: so I showed up on day 1 and there were 99 of the people, 100 person cohort in London, the biggest cohort they have.

[00:32:35] Grant: It's still the biggest court. They have, you know, they operate in, I think, 5 cities now. We're there 2018 and. It's speaking. It's just as many chances you can have. Cutthroat. If you don't like where the way the conversation's going, you don't think the person's got the grit, you should stop the conversation because you're wasting time.

[00:32:54] Grant: It's been 15 minutes? Cut it. Move to the next one. It was so intense for the first two, three days. [00:33:00] And then people started getting into what they call like pairs, or they would form a team. And then if the team dissolved, it was encouraged that they would dissolve. So form, dissolve, form, dissolve. There was lots of pairs, lots of Slack messages.

[00:33:12] Grant: This person is incredible, but we're just not making it together. This person's back in the pool. And so when we think about how random it is, it is a speed dating accelerator. There's a lot of selection into the people that come in. But at the end of the day, if you have like a matching process, every matching process is flawed.

[00:33:32] Grant: Look at the divorce rates, right? Look at like couples in romance, like things are flawed when it comes to matching algorithms and you can't pair two people to start a journey that is so emotional as starting a company. You just have to feel that. And so what entrepreneur first does, in my opinion, really well is collecting a really great class of individuals and synchronizing the time.

[00:33:54] Grant: That they all decide to come together and form something. Because there is a return to [00:34:00] scale on getting people in a room to try a new thing to chat. If I want to just start a company, when I ended my PhD without an accelerator, I have to look at the 7 people that are really talented around me and say, which 1 of you is ready to quit your job where you're flying and everyone's giving you promotions?

[00:34:14] Grant: Nobody wants to give up, right? If they're in a company. So you've got to find the people who have found a weird career transition, but end up in the same room on the same day. I think accelerators do a great job with that. You know, entrepreneur versus the original in London, the original talent investor.

[00:34:30] Grant: And so I think they still get the best, the crème de la crème, the best crop of applicants.

[00:34:35] Jon: Very cool. It sounds hectic, but it sounds like a very good exercise. Again, it's kind of a little bit uncomfortable. No one likes being like, yeah, you're like, Ooh, they don't like me. Okay. Oh, they also don't like me.

[00:34:50] Jon: All right. Moving along, I guess. And it's interesting too, that you bring up, and I totally agree that the startup journey is an emotional one and it should not be [00:35:00] ignored. Because I think when you ignore the emotional and personal component to it, it's where you'll figure that out way later. And again, it's death from within, versus like, you know, we talked about competitors and stuff, but it's like, If you have a co founder dispute that doesn't resolve well, it can make or break a company if it's not resolved well.

[00:35:20] Jon: And I love this idea of like, before the stakes are very high and you've taken institutional capital, you can just DM, you could be in Slack, say not working for me. And the stakes are low, right? But it's like exactly what you said, like when you raised capital and you have team and the team as a family and you're supporting them, you don't just DM them in Slack saying it's not working out for me.

[00:35:43] Jon: It becomes a much hairier process. Predicament that exercise, even though I haven't gone through it and it sounds very awkward, but it sounds critically important and I haven't gone through Y Combinator, but I know folks who have is this kind of speed dating [00:36:00] approach now the norm,

[00:36:01] Grant: the approach changed every year, they try like modifying things in a certain way, so I can't comment on exactly how they run the program today.

[00:36:09] Grant: But it's probably similar, they get talent to come in and find pairs of people who want to work together. And the longer they do it, the more successful they'll be. There's a lot of know how in running an accelerator that's a talent accelerator. But the way that other accelerators work is that you already have a partner.

[00:36:25] Grant: And so you come to a Y Combinator with a company and they decide to put you into their program. So it's really like the difference between, I guess, an incubator, an accelerator, what do you call an accelerator? Where's the line that you're putting in most cases, companies on a stage. But when you look at entrepreneur first, what's very different about it is you're putting individuals on a stage.

[00:36:46] Grant: And the thesis of entrepreneur first is that talent is distributed everywhere and people don't know the right people. And so let's form those connections and help those companies become a reality. That's the thesis. And I think it's a thesis that's working out in terms of market value, the [00:37:00] companies in the portfolio.

[00:37:01] Jon: Very cool. I didn't have a speed dating experience, but with my co founder, Jeff, I've known him since we were children. Probably since like fifth or sixth grade, we played against each other in sports. So I knew him as kind of like an opponent and then eventually now we're, you know, we're clearly working together.

[00:37:24] Jon: But there was a lot of years before then that where I was like, Yeah, like we truly get along. And maybe this is me just like speaking from the personal experience. But like a lot of the thought is that working with friend is a no go. And it might not be for some, but for us, it's been this thing where I'm like, I'm a close friend.

[00:37:42] Jon: You're a close friend. We're best friends. And we know that we work well together. We enjoy each other's company, even when things get tough. And that has made whenever we had run into a roadblock for exceed or is that like, okay. We're going to get through this, [00:38:00] but we're not going to be at each other's throats when we encounter these very emotional obstacles.

[00:38:05] Jon: So I guess what I'm getting at is, I had a little bit of an opposite experience where I was like, it was kind of like a one, I can see both sides, but the kind of common denominator here is like, it's personal and it's emotional.

[00:38:18] Grant: Let's pull in some of the things from earlier, like in our management style and the philosophy of fabric matters, one of the curiosity, right?

[00:38:24] Grant: I've talked to you about that before. My co founder, it was no longer with the business for the 1st, 2 years. Was my primary ally in learning biology and I'm forever thankful for that. But I think that co founders can be different things for each other. They can be educators. They could be emotional support.

[00:38:43] Grant: They could be work family. The way that we have all things of fabric and always more akin to the brown bag lunch seminars that you might go to. It's like, let's all get around the table and learn from each other. And in that learning, we appreciate being around each other, but it is not. [00:39:00] Overly cult, like, I'd say, you know, every startup has this mentality of the family or the group of people and you, it's a small group and you don't want to.

[00:39:07] Grant: Have to lose anybody to any reason for any reason, right? You want the company to succeed. You all want to grow together for the next 10 years. I do believe that. In our company, at least, if you're not helping to educate others, and you're not taking on the mentor and the mentee experience and educating to fuel curiosity, that value, then that this is not the place for you.

[00:39:31] Grant: You need to be willing to work to help people bring people along. And for that reason, we've got really great legacy of people who have worked here. Most people have worked here for over two and a half years, right? Like, that's a long time. That doesn't happen in California. That's another reason I think that the UK is a great place to build a business is that you've got people that sure they haven't worked in a startup before, but they have the grit and they have the persistence if you only gave them an opportunity to learn.

[00:39:57] Grant: They're very excited. And our employees are extremely excited to build a [00:40:00] big business. And so that's our thesis here.

[00:40:05] Intro/Outro: That's all for this episode of the biotech startups podcast. We hope you enjoyed our discussion with Grant Aarons. Tune in for part three of our conversation to learn more about his journey. If you enjoyed this episode, please subscribe, leave us a review, and share it with your friends. Thanks for listening, and we look forward to having you join us again in On the biotech startups podcast for part three of Grant's story. The biotech startups podcast is produced by Exceda. Don't want to miss an episode search for the biotech startups podcast, podcasts and click subscribe Exceda provides research labs with equipment leases on founder friendly terms to support paths to exceptional outcomes. To learn more, visit our website, www. [00:41:00] excedr. com. On behalf of the team here at Exceda, thanks for listening. The Biotech Startups podcast provides general insights into the life science 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 Exceda or sponsors. No reference to any product, service or company in the podcast is an endorsement by Exceda or its guests.