Sandy Paige - Seabright Ventures Fund - Part 4

Intro - 00:00:00: Welcome to The Biotech Startups Podcast by Excedr. Join us as we speak with first-time founders, experienced scientists, serial entrepreneurs, and biotech investors about the challenges and triumphs of running a biotech startup. Gain actionable insight into navigating the life sciences industry in each episode as we explore the business of science from pre-seed to IPO with your host, Jon Chee. 

Recap - 00:00:32: In our last episode, we spoke with Sandy Paige about his time working at The Jackson Laboratory, how to get started with business development, and what it was like starting his search fund. If you missed it, be sure to go back and give part 3 a listen. In part 4, we chat with Sandy about finding, purchasing, and operating Explora BioLabs, getting acquired by Charles River Laboratories, and how humility, hustle, and a good team are at the core of his success.

Jon - 00:01:01: You reached out to a previous customer and you quickly found alignment at Explora. Can you give the listeners just, you know, I realize, you know, this was, you're speaking back from when you were running it, but what was Explora's mission and focus and what was the kind of the state of the market and Explora's approach to the market?

Sandy - 00:01:21: So on one hand, Explora was something that was not all that unique. It was a small preclinical contract research, vivarium contract research lab. We would run studies for clients in mice or rats. But it did a couple other things that were a little more interesting. And that business in itself is a fine business, but it's a very hard business to run profitably and consistently. But they also staffed vivariums for people. So it's sort of, while it sounds like it's fancy, it's really technical staffing, skilled technical staffing, and that's a huge industry, right? And then the other thing, so three things, contract research, technical staffing, and this strange new thing, which was basically building vivariums, research laboratory space, chopping it up into small rooms and renting individual rooms to individual clients. So they didn't have to build their own vivariums, which is a very expensive thing for them to build that they need for only a short period of their lifespan. It made much more sense to rent it. But at this stage, this space now is probably $150 million a year in town today. Then I think it was 2025, and we had biggest market share of it. We had bought six, seven facilities, five in San Diego when we bought it, and two in San Francisco. And our largest competitor had a couple or a few. They were quite a bit smaller. But I recognized in that part of the business was interesting. It was interesting because there was a real estate aspect to it that was a different kind of business with a facilities management aspect to it that was different. There was a real shortage of this space at a time of the boom that was differentiated. In other words, if you did this and did this well, you were creating a moat. It was very hard for somebody else to come in and copy. It became clearer as we began to expand that there was also something different about it, which is that the financing of the growth of that piece of the business could happen from our landlords. So the way I would work, we would sign a lease with a landlord, pick one, Alexandria, BioMed, Longfellow, Breakthrough, any one of the big guys. And we would sign a lease and build out 10,000 square feet of $800 a square foot type TIs. Very often, anywhere from all to most of that TI growth capital and improvement dollars, is what I'm talking about, would come from the landlord because the landlord would want us in that space as an amenity for the rest of their tenants. So that the growth capital could be provided through the leasing mechanism. And that worked out, that ended up being fundamental. Otherwise, we would have needed $100 million of equity that we never had to raise. So when we sold the business, it was $100 million of capital, if you will, tied up in the leases. And leases, this isn't particularly novel because leases always have some tenant improvement dollars kind of baked in. And typically in life sciences, there's more kind of improvement dollars baked into the leasing, into the lease. In our case, it was just doubled or tripled because it was part of the incentive. So we truly had what made it interesting was we had this true two-sided marketplace. We would build a facility and we would have clients who would rent the space and then buy additional services from us, like in a data center. They would rent servers or racks, and then the data center would provide additional services. It's the same thing in a good vivarium, on-demand vivarium. But the other side of the marketplace was the landlord. They weren't paying us necessarily, but they were providing financing for our growth that was non-recourse, subordinated, off-balance sheet, and truly negotiable if it had to be. Would you rather borrow money from a landlord and bake it into a lease or from a senior lender? I always knew that if I had trouble in a particular location because we met on a landlord and the facility was empty, I could go to the landlord and say, I'm taking my equipment and my people out of there and I'm going over there where I have a full facility. And the landlord would be in a real pickle because they needed us in that building in order to attract new tenants. So I always felt there was going to be negotiation available there if we ever needed it. In a way that there isn't with your banker or Excedr. Sorry. So that was the business and that was the thing that we were doing that when we just didn't break, that we didn't change anything fundamentally about it. We just pour gasoline on it and did as much of it as we could. One from seven facilities to we basically sold 18 facilities with a pipeline to 25 by the time we sold out. And now I think all in there's probably 50 facilities like that in market in areas of the same size, but we're still working on biotech density. So that means San Diego, San Francisco, Boston, that's where most of it is a little bit in New York, a little bit in Research Triangle Park, and then in Seattle, and that's kind of tier one, two, two, and then two or three, you might say Chicago, Houston, a couple of LA, a couple other places that kind of want to be biotech hubs and are working to become more relevant.

Jon - 00:06:44: That's super fascinating. It's just very out of the box financing strategy that I think, like we were just talking about it before, what is a search fund? It's kind of, you know, in the life sciences, everyone is accustomed to venture capital. But this is like another form of growth capital that isn't in the form of equity, but it is kind of like this self, like this positive feedback loop. 

Sandy - 00:07:10: While there were a couple of people who recognized that there was capital available from our landlords early on, and I was one of them, and there were others on my cap table who saw it too, really it was initially like anything born out of necessity. Wanting to do facilities, talking to landlords and saying, that's just going to be too expensive and if you haven't got anybody there for us to sell to, I'm not going to sign a lease. And so they would say, well, what if we provided more capital? Would you sign a lease if we put $800 in? Would you sign a lease if we provided the whole facility? And the answer then became, well, sure. I had this conversation recently with somebody saying that now sounds absurd. Of course you'd sign that way. So you could be crazy not to sign a lease. I was terrified the first handful of leases we signed, even if the capital wasn't ours, we were signing up for a 10, 12, 15 year lease just for the rent. It's millions of dollars. And I didn't have a client initially for some of these locations and I didn't know that they were going to appear. In the end, we settled. And then there's sort of a pattern of kind of rules which we needed to be satisfied in order for us to sign a lease that where we got better at it and more comfortable mitigating our own risk. But, but these leases are expensive. These are these spaces in places like Torrey Pines or God forbid Kendall Square. You know, it's $120 a square foot. $120 bucks in Kendall Square, I think is cheap these days per square foot. And those are all now overbuilt. I think it's a whole nother question about what life sciences is doing right now, particularly the real estate side of it. But that's probably for another podcast.

Jon - 00:08:45: I mean, that's incredibly fascinating. And I think a lot of things that Excedr does to this day was born out of necessity. And just like having finite capital, like early days. And it really just forced you to find, just find ways to solve it unconventionally, solve the problem unconventionally. And it wasn't just even a, like that unconventional solution wasn't a flash in the pan either. It's like, it's things that are baked into the DNA of the org that we do it this way. And that continue to serve us. And also is a differentiating aspect. We're talking about like kind of what are these competitive advantages or moats. And it's kind of these weird unconventional things that you do that keeps you from becoming a commodity versus just like, oh, like, yeah, textbooks says do this. So we're doing this. Everyone's got the textbook. They're going to see it and they're going to do it. So your competitors going to do it. Correct me if I'm wrong, but this was like a huge unlock. And basically you just were like, it's time to grow. Let's do this thing. And from there, you kind of. Know, what was the growth strategy? Was it, it was kind of the combination of BD, sales and just, and go. Or was it something different? 

Sandy - 00:09:53: No, no, it was all of that. And it was being acutely aware that every lease we signed was a long-term fixed cost. And so we were being very, what I thought was very conservative about, about how we proceed. And so eventually we wouldn't sign a lease unless we had an anchor tenant who was basically covering the bulk of the dollars that were wrapped up in a lease. And if you can do that, you feel much better about it. And then you'll take a risk on the rest of the space. And generally by the time we were opening these facilities, which took 12 to 14 months to build from the moment you sign a lease, we were generally opening them all. So that was sort of a sign that we probably didn't build big enough, but also it kept us profitable and it kept our gross margin high. And was sort of a reassuring sign to investors that we wanted over building. Nothing is worse than building a facility that's too big and having it rattle around. Being empty and sucking cash every month on these very expensive leases. $120 a square foot, 10,000 square feet is expensive. So it's $120 grand a month of rent. And it's a big nut to cover. And if that facility is empty for very long, it doesn't take much. It shows up in your occupancy and it shows up in your gross margin. And we had a sense that we were being watched as a potential acquisition target and that we never really could take EBITDA down to single digits in order to kind of grow. And we were going to maintain profitability because we felt like this bubble could pop. And we wanted to make sure we weren't out in front of our skis. I think generally speaking, that's what a board will do is they'll keep a CEO who thinks he's got a tiger by the tail and wants to pour gasoline on everything from lighting himself on fire. And my board is very good at that. And that's what they're there for.

Jon - 00:11:49: Absolutely. It's funny because I just thought of Jeff being on our board. Sometimes I'm in the growth mindset and he does a perfect job of, not all the time. He's not always like does this, but he'll throw ice on it. And he's like, yeah, okay. And that is exactly what you want in a board member is to have that healthy tension. And you mentioned, you kind of felt that there was a potential acquisition on the horizon. Now we know it's Charles River, but what led up to the acquisition and how did that really come about?

Sandy - 00:12:19: I mean, I knew those guys. I've known those guys because if anybody has been sticking with this podcast long enough at this point, they heard us talking an hour ago about the distribution partner that I had for The Jackson Laboratory, which was Charles River. And so the senior people at CRL were people I knew and I built a relationship with, and they were our biggest competitor as well. So they did this thing called on demand vivarium, that theirs was called CRADL, but they didn't do quite as much of it as we did. I think they did it quite as well, but they're very good at what they do and they're a $12 billion market cap. And so. I always had a sense that if they decided they really wanted to be in this space, that we might be in trouble. In trouble in the sense that. Landlords had been giving us these leases and putting their capital into these leases because we were the ones showing up and knocking on the door and saying, we'll sign it. When it came in a couple of locations where I really wanted a location and Charles River really wanted it too, we didn't get it because the landlord, there isn't a landlord in the world that won't give a lease to the larger company with a real credit rating, who by the way, I'd say I want you to shove $800 a square foot and TIs into my 10,000 square foot facility. CRO would say, how about you shove a hundred bucks in, we'll provide the rest of the capital, make it a 20,000 square foot facility and we'll sign a 15 year lease. Landlord's like, yes, yes, yes. And that happened twice as I sort of recall. And I had a sense that they were getting really serious about the space and they could win that by winning the best locations and that they could have won. And I really wasn't going to be able to compete against that. I could raise all the equity in the world, and it wouldn't be enough to compete against a $15 billion market cap. The second thing they could do is ruin pricing. If they decided to ruin pricing. And I couldn't have done anything about that either. That would have been a very difficult thing to compete against because they really were the thousand pound gorilla. And if they decided to do both those things, that was gonna force us to pivot into growing in the other two things we did, which were much less attractive businesses. And while it might've been just a fine business to run for many years or forever, and we would have competed and we would have held our own and we would have won our fair share, I think getting to the kind of valuation that was put on the table was gonna be hard. Particularly if, for example, the bubble had popped and venture capital dried up for a few years or life science overbuilt. And this was all I'm talking about two years ago and none of those things had happened yet, but happened kind of the month after our closing. Both of them did. So I think it would have been quite a while before we could get back to the same valuation. But it's a hard decision because I was having a ball. I had the best team anybody could have had. We all had fun and we all respected each other. We loved hanging out with each other. We loved working together. We loved hustling. We loved beating our competitors. We're sort of on the top of all of our games. And so that's really hard to walk away from. And certainly my investors, we were the highest performing asset they had in any of their portfolios. So they were like, what the hell are you talking about selling? Like, why would we sell this? You hold forever.

Jon - 00:15:40: The wind is at your back.

Sandy - 00:15:41: Yeah, exactly.

‍Jon - 00:15:42: Keep going. 

Sandy - 00:15:43: So it took some convincing of the story I just told to say we're a lot more vulnerable than you think and let's be sure we weigh this seriously. And in the end we did. And we had so little equity in the business that the investors were really looking down the nose of a really big gain in terms of the multiple of invested capital. So they made the right decision for them. It was the right decision for me. It's an individual. And I think fortunately it was good for the senior team as well. And long-term it's certainly better off for the rest of the organization because while they lost some of the entrepreneurship they've gained some stability by being within the thousand pound guerrillas organization.

Jon - 00:16:24: Absolutely. For any listeners out there that are exploring a potential acquisition. And I realized there is no tip to rule them all. It sounds like, you know, from what I'm hearing, the acquisition is having a very critical, holding a critical eye to where you're at in the market. It sounds super important. And it also sounds like a very personal decision too. Are there any other tips that you could provide for anyone who's, who may be embarking on this journey and entertaining a potential acquisition?

Sandy - 00:16:53: It's such a deeply personal question. I guess what I'd say is take your time with it. Don't rush into it. I think the answer may be under the same circumstances, had I been 43 instead of 53, or whatever I was, I might've come out a little differently. And I would've had 10 years to kind of throw myself out at, but having been a little bit older, having already honestly buried a one wife and was lucky enough to be, I was lucky the second time as I was the first time. I wasn't gonna waste. I was going to bank it and make sure that I had time to enjoy the rest of my life. And I just didn't have high confidence that if I threw myself at this thing for another 10 years and wasn't as lucky as I had been professionally with it, that could be 10 years we could be getting the same outcome. Perhaps even worse, if we had to raise more money along the way or raise debt instead of leases. It was sort of a moment in time where the equity takeaway from this particular investment was sky high and really did have a sense that it was more likely to go down in the next three to three years and then up. And so I think it's I mean, just those things that I just mentioned are deeply personal and I wouldn't begin to tell anybody else how they should view it. I just would would tell them to take their time with it and don't rush into anything.

Jon - 00:18:14: Absolutely.

Sandy - 00:18:15: We'll get to the right decision if you take your time with it.

Jon - 00:18:17: Yeah, I think I've always this ring true to me. It's just like business is personal as much as you want to set one would want to sanitize it. And it's like, it's a spreadsheet. Not so simple. Yeah. Not so simple. Not so simple. And as you're, if you were thinking back on this, you know, the journey up till now, what would you attribute your success to if you really had to distill it down? Is there anything that you would have done differently?

Sandy - 00:18:41: The things that come keep returning whenever I answer a question like this are. Our humility, admitting that knowing what you don't know or admitting that there's lots of things you don't know and that's okay. Team, because that's how you mitigate. The first thing I mentioned, having a great team around you. And just the value of just good old fashioned hustle and hard work and work ethic. Give me a bunch of humble, but smart, hardworking people. And we can do anything. You take the opposite side of each one of those three coins, get me out of there.

Jon - 00:19:18: Yeah.

Sandy - 00:18:19: No interest in being a part of that. I'm sure those teams are successful. I know they are, but God, I wouldn't want to be a part of any of them. So I think that's, and particularly if you're in that environment, just surrounding yourself with interesting people, just pure interesting people with interesting backgrounds who have really good, or what I call origin stories, where their story of how they got to where they are is actually required some real hustle, and they weren't given anything. I like a good origin story and to surround myself with people like that. Because frankly, I don't have one. I'm just honestly a white kid from Maine who parents paid for his college. I didn't have to hustle. I chickened out on becoming a doctor, as I told you, because it was hard to do physics 101. I always had a sense I needed to surround myself. I was never the smartest guy in the room. That was borne out by all my grades. And just had to surround myself with people who are smarter and equally hardworking. So I think if you do that, you'll never be unhappy with what you do. And you'll probably outperform most people who are smarter, but lazier for sure. And I guess I would also say patience is important. There's a lot of times where a CEO's where reaction, or biases towards a reaction. Make a decision. Even if it's not the right decision, make a decision. But. I don't know, my experience has been that sometimes ambiguity is your friend. Sometimes doing nothing. And sitting with something and letting it develop a little longer than you're comfortable. Allows the right answer to sort of bubble to the top. And particularly if you're surrounded by good people, what you'll find, what I found was I would hold back on telling people what the answer was. This was in the most recent leadership experience. They would get there and they would probably go and do it before I had time to even tell them. And so sometimes doing nothing and letting it sit is the right answer rather than stepping in, making the decision, checking that box and moving on to the next one. Careful with that because there's a flip side to that. If you're everything on your to-do list is full of let's wait and see. But if you pick those carefully and you're thoughtful about it, I think it's an okay way to settle in. So I guess that's the thing. I would say humility, I would say great teams, I would say being patient and yeah, just hustle.

Jon - 00:21:38: Yeah. I couldn't agree more as you were kind of listing those kind of criteria. It's exactly when I'm thinking about what an organ I would want to join. I try to build Excedr the way as an organ I would want to join and it's exactly that. And now as I know the Seabright Fund is now the Seabright Ventures Fund and then this is back again. What is in store for the Seabright Ventures Fund in the next year or two? And what's in store for you in the next year or two?

Sandy - 00:22:08: Yeah, it's still to be determined. Absolutely doing, I think it's important to pay it forward. The search fund community was very good to me and it's full of unbelievably good people. So I've joined the investment side of the search fund community and I've now got 15 or 20 searchers, people like me out there running around trying to find businesses and have invested in many of them so far. And we'll continue doing that. That happens to be just a fantastic asset class, but it's also just a super interesting asset class full of really interesting people doing. Cool stuff that's all over the map. So it might be life sciences, somebody trying to buy a pallet company in the Midwest, I've got somebody trying to buy OB-GYN clinics, just sort of everything across the map that we get to look at and really smart people coming together to evaluate it and put equity to work behind smart people. That's the piece that I'm responsible for. My wife is responsible for the climate tech and climate and clean tech aspect of what we do. And she's beautifully unusually and beautifully qualified to do that. Lucky. It's a little bit of a family office. I don't know how you define those, but we are putting our own capital to work and, and joining others, the people who you respect. And that's kind of the way this whole network works is people a loose confederation assembles around an opportunity. And usually, there's one or two people who know a lot more about it than others, and you lean on them for some of your diligence. And that tends to happen. And I tend to be that person when it's more science related. And, you know, we sort of take it opportunity by opportunity. I have turned down a few CEO jobs already, and I think I will continue to do that. But I've accepted or five board roles, and I think I'll continue to do that. I don't feel I need to go out and do the full CEO role again in the same way at least. I'm not gonna roll it out and who knows. But there's a lot of other fun things to do in this world and discovering them and having fun with all of it. So taking it kind of year by year.

Jon - 00:24:08: Awesome. I would imagine it sounded like a very busy, very busy couple of years before. So I don't blame you for wanting to take your time with it.

Sandy - 00:24:17: It was a busy two or three decades.

Jon - 00:24:19: Yeah, yeah, yeah, yeah. Absolutely. Kind of on the theme of paint it, you know, paint it forward and paint it back. There's some closing questions here that I always like to round out. Would you like to give any shout outs to anyone who supported you throughout your career?

Sandy - 00:24:34: I think those people, if I've done my job right, those people know who they are. And some of the people I'm likely to want to mention are no longer here. And they certainly know who they are. So I don't want to start that because if I start that list, it's going to take too long to answer. And I don't want to get into prioritizing people, some over others, because the context matters.

Jon - 00:24:57: Absolutely. And lastly, if you could give yourself, your 21 year old self, any advice, what would it be?

Sandy - 00:25:04: Yeah, I'm going to give my 21 year old self the advice I was given at 21 that I followed. That was exactly the right advice. And it was when I was graduating from Littlebury. I had done an internship in Austria and spent some time with the president of the Salzburg seminar who had previously been president of Middlebury. And as I was finishing up, I had lunch with him and he said to me and to one other Middlebury grad who was there in response to that question, what advice would you give us? He said, just go out and find the most interesting people. Doing the most interesting things. Best kind of integrity you can find. And just work with them for some period of time. Like just do that. Like under what conditions would you ever regret that? Care whether you make money or not, just go work with interesting people doing interesting things that have high credibility and integrity and you'll never go wrong. And I think that's still true. And I pass it along and tried to live mostly by that. And maybe now in some ways I can do it more freely than I've ever been able to do it. But it's not bad advice for anybody at 21. 

Jon - 00:26:10: And I would take that advice if I was 21 years old. I'm taking advice right now and I'm not 21. It's all yours. Yeah. Sandy, thank you so much for your time. You've been incredibly generous and I've loved hearing the story. What a serendipitous, just, amazing coalescence of ups and downs, honestly. And that's what I'm really grateful for your time here. And thanks again for coming on the podcast.

Sandy - 00:26:35: Yeah, glad to be here. It's always fun to talk about yourself. Yeah. But no, it's fun to take pause and be forced to go back through it. So thanks for giving me that chance.

Jon - 00:26:45: Yeah. Thanks.

Sandy - 00:26:45: Hope it's useful. Hope it's useful for some.

Jon - 00:26:47: Yeah, I am sure it will be. You mentioned other podcasts. I would love to have you again, when we can double click on kind of another business topic. Sure. Thanks again.  

Special Outro - 00:26:57: That's all for this episode of The Biotech Startups Podcast. We hope you enjoyed our four-part series with Sandy Paige. Be sure to tune into our next series, where we chat with Fengru Lin, founder and CEO of TurtleTree, a biotech company revolutionizing food for good. In 2023, TurtleTree will release LF+, the world's first sustainably produced lactoferrin, made using cutting-edge precision fermentation technology. In the long term, TurtleTree will deliver on its ambitious plan to bring cell-based milk to the world. Fengru is an expert in sales and business development who leveraged her breadth of skills, pivoted into biotech and founded TurtleTree. Her experience assembling a dream team and finding a unique gap in the market to fill offers founders many valuable lessons to learn from. Her experience assembling a dream team and finding a unique gap in the market to fill offers founders many valuable lessons to learn from.

Outro - 00:27:59: The Biotech Startups Podcast is brought to you by Excedr. Don't want to miss an episode? Make sure to search for Biotech Startups Podcast in Apple podcasts, Spotify and Google podcasts, or wherever you get your podcasts and click subscribe. To learn more about our leasing program, visit our website www.excedr.com We provide research labs with equipment leases on founder-friendly terms to support a path to exceptional outcomes. On behalf of the team here at Excedr, thanks for listening. 

‍Disclaimer - 00:28:36: The purpose of the Biotech Startups Podcast is to provide general insight into the ever-changing world of life sciences through the experience of a variety of guests. The use of information on this podcast or materials linked from this podcast are at the user's own risk. The views expressed by guests and any employee of Excedr on the podcast are their own and do not necessarily reflect the views of Excedr or content sponsors. Any appearance on the program does not imply an endorsement or recommendation of any product, service or entity referenced in the podcast. By Excedr or by its guests.