Raj Judge:
Well, hello, everyone. Great to be here. Looks like it’s a great turnout this year, and we’re excited this morning to talk a little bit about built to last companies, and where the next big companies will be created in synthetic bio. And of course with me is Ursheet Parikh, partner at Mayfield, and we’re going to jump right in.
Ursheet, let’s talk first about the current environment. We’ve got valuations that have plummeted. We’ve got capital access problems. The IPO market is shut down. A lot of negativity, a lot of doom and gloom, if you will, in the synthetic bio market, as well as in the technology market as a whole, and we’re not sure where the economy is going. So I wanted to get your thoughts just generally on what you think about the market and where things are going to head over the next couple of years. Are we going to be in a doldrum for the next five years, or are we going to be coming out of this in another six months, or are we going to be stagnating? What’s going to happen?
Ursheet Parikh:
So first, good morning, everyone. I’m really excited to be here, and I’ve never been more excited about our space. I know, with all the various things that Raj alluded to, it can feel challenging, but I think we are set up for the absolute Cambrian explosion of innovation that is coming from startups. The one thing I would say is that we are set for synthetic biology to fundamentally go mainstream and transform all of our lives in the next five, seven years.
What are the things about the current environment that make me feel so excited? So if you remember the first SynBioBeta ’09, it’s right in the depths of what felt like a tough environment, and so it’s probably easier to draw similarities to that. But what has changed are the fundamental demand drivers for our industry. They are coming because consumers want better products, and making them with the old Industrial Revolution technologies isn’t sustainable – and it also doesn’t necessarily create the best products either. And so, you have consumers who want amazing products, and biology as a technology has emerged as the core platform that can drive that. So all the advances we have in digitizing biology, engineering biology are where the cost drivers are going.
The second thing that has happened is, to see an industry like this emerge into the mainstream, you need policies. And I think, in the last several years, we’ve seen an amazing alignment of policies. Some of it got driven by the need to bring back the supply chain. Some of it got driven by things like the Inflation Reduction Act that even brought the biggest greenhouse gas emitters in the oil and gas companies to start wanting to do things with synthetic biology.
But then there’s also the big trends that have emerged like AI. And what AI is doing is, if we were to go back and sort of manufacture with biology here in the US, it was not going to be the way bioreactors were done 10, 15, 20 years ago. It’s going to be done much more with an AI-powered system at every step of the workflow. This could be in high-throughput screening to find new strains. This could be in automation. This could be in generating new products.
So I’m just so excited about this domain. And to get over to the other side, I think all of you in the room will clearly be innovating, but you’ll also have to be very methodical, very thoughtful about how you really make every dollar count because of where the interest rates are. The cost to rebuild the world with biology has gone up dramatically, and capital is going to be scarce. And so, we have to just be able to demonstrate that we can provide returns that are going to beat pretty much any other asset class.
Raj Judge:
So I love the optimism, definitely contrarian to the current mood in the economy, so that’s wonderful to hear. But we’re in a tumultuous time. We’ve got China relations. We’ve got the Russian War that we’re dealing with. We’ve got all sorts of different issues. We’ve got India growing as another potential location and market. So lots of different contractions and expansions occurring, and I know that spells opportunity for some, and it spells challenges for others. But the whole geopolitical climate and the whole geopolitical situation globally provides us with a lot of different complexities that we’ve never really had to face before. Tell me what you think about that a little bit, Ursheet. I’d love to hear.
Ursheet Parikh:
Yeah, so I think, to me, I’m looking at everything that is happening at the geopolitical level, and it’s fundamentally creating new demand drivers for things to happen in the US. I touched upon briefly on how you want to be able to go ahead and manufacture close to home. This SynBioBeta is also feeling and sounding different because we have a lot more conversation about healthcare and applications of synthetic biology in healthcare.
But the top trend that I’m seeing right now when I’m talking to a lot of people in big pharma is, how can we leverage the Inflation Reduction Act to actually start manufacturing antibodies and other biologics in the US? And if somebody’s going to go ahead and do that, they’re not just going to go and do it with the older technologies. People want to see, how do I use a different manufacturing stack? How do I use different workflows? How do I set it up to be targeted or customized better on that end?
We have been involved in a company that’s actually converting methane into fertilizer on the spot at farms, and it’s the kind of company that is clearly seeing great demand from anyone that is doing organic farming because organic fertilizers are expensive. This is using methanotrophs, but this is also seeing just a huge level of demand from the major oil and gas companies. And then, you end up having the elevation of synthetic biology as a core biosecurity initiative. And if you look and talk to our classified agencies, or you look at the government strategy, AI, quantum computing and synthetic biology are seen as these strategic technologies and platforms for the future.
So by all of these issues, the energy independence and the worries that came because of the Ukraine thing, this has fundamentally created demand for self-sufficiency and a green economy. And who else is going to make it? It’s all of you guys in this room. It’s the synthetic biology ecosystem that’s going to go ahead and make it. So I’m excited for it.
Raj Judge:
That’s interesting. Very, very helpful insights. But let me take a little more controversial probe into that question that we’re talking about on geopolitical situations and the Inflation Reduction Act that you talked about. Some say that the biggest benefactors of the Inflation Reduction Act are the largest greenhouse gas emitters as well, and they’re getting the benefit of the green dollars. So how does one look at that from an emerging company standpoint or a new company standpoint? How do you take advantage of that? Because it seems like the big guys are really getting a lot of that advantage, and politically we want to obviously support the larger companies as well on the global stage, but we also need to make sure that innovation is still occurring and younger companies are allowed to grow with those dollars.
Ursheet Parikh:
This is a very real problem. And so, if I can give an example to illustrate the point that Raj is asking us about is, if you look at the Inflation Reduction Act, the top recipients actually so far of the funding from the government have actually been in Texas and Georgia. And a disproportionately high number of them are actually the major oil and gas because in the Inflation Reduction Act, there is a huge incentive to move to a hydrogen-based economy.
A lot of what we do in synthetic biology with the green stuff really marries well with the decarbonization that’s enabled by electrification, and so there’s companies here which are working on doing things with hydrogen, using microorganisms that can go out and work things with them like the example that I just gave. But at the same time, what you now have is the large oil and gas companies being able to claim that they are able to go ahead and make hydrogen out of natural gas, and the resulting CO2, they’re just going to go pump into the ground, and hopefully it’ll stay away, and oh, by the way, they know how to pump CO2 into the ground because they’ve been doing that with fracking.
So you can see how some of these best intentions can suddenly make the fossil fuel-based economy even harder to beat. And when you are working with the government as a larger company, you just have more resources, all right? You have people who can do government affairs, you can talk about working through policy, things like that. This is where I’ll give a call-out to John. I think John Cumbers, who’s been the convener here, has done quite well in educating and bringing a lot of our community together in having these conversations. But I also do think that, as a community, we also need to get more politically active. We need to engage in conversations with policymakers, lawmakers, and then take and share the best practices that we have so that we don’t find that it’s the old economy companies that in effect end up leveraging and benefiting from all these demand dollars, but with greenwashing.
So this is a problem, and I don’t think we have a magic formula for it other than, all of us have to get engaged, involved, and work through it with each of our local jurisdictions, politicians, and senators, while sharing best practices on how, when we do the projects. If you’re doing a new bio-manufacturing thing, how do you go ahead and leverage the best of these incentives?
Raj Judge:
Yep. That’s definitely the case, and I think that we’ll have to spend a lot more time on this trying to understand where the complexities can be taken advantage of, if you will, for emerging companies and new technologies. Because we don’t want this to turn into part two of the solar energy movement 10 years ago, where there were a lot of government dollars, but ultimately they didn’t really benefit the innovation cycle that people wanted it to benefit. So more to be seen on that.
The other thing that comes out of the geopolitical state that we’re in is that, over the past 20 years, we’ve really enjoyed a free economy where R&D could get done, particularly for companies that are innovating in different geographies, whether it was teams in China working with teams in the US, or teams in Europe working with teams in the US, or for that matter in Russia and India and all of that. And now, what we’re seeing is this very nationalistic approach, even by the US, which is something that we haven’t seen before, at least in the last 20 years in technology.
And so, we’re having problems with companies developing AI-based synthetic bio or AI-based technologies and exporting that between borders. So we’ve got a company, for example, that wants to set up an R&D team in China as well as in California, and they’re having problems doing that because of the government restrictions around the export of AI algorithms and the like. So what do you see that, and how do you see that impacting the way companies are going to grow and how they’re going to continue to take advantage of talent that’s global?
Ursheet Parikh:
Yeah, I think for large companies, be it large conglomerates, large pharma companies, large companies in the industrial space, I think they have the infrastructure and the ability to actually do development in multiple geographies. I think for emerging companies, it’s going to become increasingly harder and more expensive, if you are operating at the intersection of synthetic biology and machine learning or AI, to be in multiple countries or multiple continents without running afoul of many of these rules.
So the thing that I’m most excited about and what helps drive the synthetic biology economy down the cost curve to be at par with the broader mainstream legacy technology is the ability to have AI in all of its various forms. From the old form of reinforcement learning to the newer forms of generative models, it is basically going to help us really run a lot of experiments in parallel, look at the data, synthesize, optimize. It takes what we do in innovation with biology from the old school world of biotech, which was often set upon accidents or divine inspiration, to an engineering optimization-based model.
But as I said, this is happening. If you talk about the national priority technologies, like quantum computing and synthetic biology, they are far from being real. And I think those cross-border considerations will become factors. And by the way, we’ve been involved in companies that have actually been transformed and have been made possible because of AI. One of the companies that we engaged in early on was Mammoth Biosciences, and they have become one of the most prolific innovators in the CRISPR system space. And there’s actually a session from one of their founders later this afternoon that I’ll be moderating. What fundamentally made it possible was their ability to really master high-throughput screening with a high level of automation and then using machine learning to be able to go ahead and identify candidates, and then marry that with the web biology to go do that.
Now, that world of AI was much more about, how do I use AI to screen, look for stuff, but somebody still had to then figure out, what is going to be my next set of things? What do we do, right? Now, you take that with generative AI and large language models, and you can start even taking the other side of the equation and amplifying the speed on that, and that whole loop then becomes very significantly exhilarating.
So one of my favorite books is from the nineties, from the founder of Intel, Andy Grove, and it was called Only the Paranoid Survive. And the essence of what he says is that, every decade or every five, seven years, something happens which is such a 10x force that shapes the world. And you may think it’s not relevant to you, but it comes very quickly, and it will touch every job, every business, every industry. And I would say that, for our industry and just generally for the economy, I think generative AI is actually going to be one of those forces.
It doesn’t matter what your business is, whether you have nothing to do with AI, whether you’re just doing manufacturing of reagents or whether you’re providing services. I would definitely encourage taking a step back and tuning in to see what is happening in that world and then dreaming on how it could potentially impact your business because 12, 24 months from now, I personally would be shocked if your jobs have not been touched in some way, shape, or form. And I actually think they will have been touched for the better because inherently it’s the kind of technology which is really far from replacing people, but it is actually going to be great for augmenting people to do their jobs better.
So if there was one takeaway to take from this session, it’s probably that, as alien as it has felt and far away and esoteric and behind the scenes, there is a high probability that it can actually be used to transform and accelerate your business and make it much more capital efficient.
Raj Judge:
So there you go. Paranoid survival is what I picked up off of that. I think Winston Churchill even talked about that at one point. Let’s talk a little bit about the dovetail between how digitization software and AI are impacting synthetic bio and funding because we haven’t talked about funding, and funding is a difficult environment. It’s a difficult thing to do, and traditionally software companies get to revenue faster. They have less capital intensity. But at the same time, software is starting to get a little bit more commoditized. The barriers to entry have gone down, and now we’re seeing this opportunity with AI, particularly in synthetic bio to create something more driven by software, but at the same time with lots of barriers to entry. So let’s talk a little bit about the funding environment there. What can companies do, particularly synthetic bio companies, to become more attractive, to become mainstream, if you will, for venture funding?
Ursheet Parikh:
So if you look at the Cleantech 1.0 era which Raj alluded to, and the big returns over there accumulated in the public markets to investors. This included companies like Tesla and Phase, and overall, the private investors did not necessarily end up doing as well. Now, a lot of the public investors who got so excited about those gains have been burned really badly in the SPAC boom, where you had a lot of companies, whether they were cleantech or built by bio, go public but then underperform on stock returns. So coming out of this, what investors want to fund is companies that they can evaluate and measure and operate and measure their operations on. And this often for public companies starts with when you are in revenues and when you start showing operating leverage and earnings profits and things like that.
So this is where I would definitely encourage any private company today to fundamentally think about how they’re spending their dollars, and how they execute to demonstrate their differentiation to get better pricing. If you build amazing products that truly meet customers’ needs, you will get better pricing. You will have better margins that can then help you leap ahead.
And this is a shout-out to my colleague, Arvind Gupta, who normally is on stage with me but had a conflict today – he talks about how essentially, when you’re building a synthetic biology company, you really think down of how you’re going down the cost curve. And in the earlier years, where you are pretty high up on the cost curve, you have to find niche markets and applications where you are going to get paid a premium. And people can remember Tesla today as this mainstream company that’s selling a car which is at a lower price than the average American car. Average American cars sell at like $42,000. Tesla has a $40,000 car, but it IPOed on the Roadster. It was able to go at the first billion, and it was a premium product. It was a niche product.
So I would say thinking about amazing products, thinking about the unit economics of the products, getting to revenue quickly, and giving investors very tangible operating metrics by which they can measure the progress of your business. And this applies at seed, A, B, C, D, IPO, and even for public companies. Otherwise, it becomes just easier for investors to stick with the big large companies in an era where it feels a little dangerous to be investing.
Raj Judge:
So we’re out of time. I’m going to give you one last question. I want a quick, rapid-fire answer from it just because I think a lot of us want to hear. What areas do you see in synthetic bio as the prime areas to be looking at in terms of potential growth and investment and the like? And so, I’d love to hear what you think. Is it food? Is it materials, hydrogen, carbon sequestration, CRISPR, we’ve talked about that engineered bio?
Ursheet Parikh:
All of those and hydrogen, but most specifically, I will highlight things which are set up to be capital-efficient biomanufacturing. And I think fundamentally AI-powered everything in synthetic biology, it will absolutely transform how everything happens. A person can run experiments or can marshal AI to do a thousand things for them simultaneously, right? I think that’s what every scientist and every engineer, every manager needs to think about.
Raj Judge:
Wow. Fantastic. Well, thank you, everyone. Thank you, Ursheet. And I hope you folks had a great time today and learned a little bit of what Ursheet thinks about the market. It’s definitely contrarian to what I saw and what I thought, and only the paranoid will survive. So thank you very much.
Ursheet Parikh:
Thanks, Raj.