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Preserving Founder Financial and Intellectual Capital – Webinar

Now more than ever, relationships matter. Founders’ investors, partners, colleagues, mentors, board members and financial service providers will be key to their success in uncertain times. In this fireside chat with Michael Keating of First Republic Bank and Gaurav Shah of Rocket Pharma, we’ll explore how the strength of these key relationships will become your competitive advantage.

Learn how to respond to challenging market conditions by building resilience, explore the importance of continuity planning, and see how to overcome staffing issues.

Read the full transcript of the conversation is below.

Becky Beattie:

Good morning from San Diego, and welcome to LaunchBio's weekly virtual Larger Than Life Science event series. My name is Becky Beattie, I'm the west coast program director. We hope today finds you all well and in good spirits and good health. If you're not familiar, LaunchBio is a nonprofit created to support and foster the growth and success of early stage life science companies. We are created as the nonprofit partner of BioLabs, which is a coworking space for life science entrepreneurs, and we usually host these events at their facilities across the country. Although we're not able to have our usual in person, big fun events right now, we're happy and very grateful to have the ability to host virtually. So welcome, and we're glad to see your name on the attendee list.

Becky Beattie:

These events are made possible with the support of our sponsors, so thank you, not only for your sponsorship, but for sharing your expertise and advice with the LaunchBio community. If you're interested in becoming a sponsor, we'd love to hear from you. We'll be sending a post event email with more information on that. I also want to point out that all of our upcoming webinars are listed at launchbio.org, and if you've missed a few, we have video links to past events on our website as well.

Becky Beattie:

Now more than ever a founders and CEOs need sound advice on how to financially weather the COVID storm. During today's fireside chat, we're honored to have Michael Keating of First Republic Bank and Gaurav Shah of Rocket Pharma. We'll be exploring how to respond to challenging market conditions with practical tips for being and building resilience. We hope to have Gaurav for the full 45 minutes, but this week is ASG CT, and he has an important meeting in about a half hour, so we're going to jump right into the discussion and Michael will lead at the end, Michael will field some questions. So to facilitate the chat, I'm pleased to introduce Michael Keating, senior managing director at First Republic Private Wealth Management. Michael.

Michael Keating:

Thank you, thank you. Good morning to our attendees on the west coast and good afternoon to our attendees on the east coast. As Becky mentioned, my name is Michael Keating, and it's an honor to host this fireside chat with Dr. Gaurav Shah, who is the co-founder, CEO and president of Rocket Pharma. It's a fireside chat in mid may, which would be surprising to most, but except for on the east coast where Gaurav and I are both currently based, we had snow as recently as Saturday evening, so a fireside chat is not that far fetched of a theme.

Michael Keating:

Because at First Republic, we are fortunate enough to serve so many founders and entrepreneurs, we recognize as well as any bank the close link between the founder and the idea for their company. We find there's very little daylight between the founder and their idea and their company. So while the focus, as we mentioned in the beginning, is preserving founder, financial and intellectual capital during challenging times, I think that you'll find that throughout this conversation, there'll be some overlap between the discussion on the founders and what they can do to protect themselves, and also what they can do to protect their companies.

Michael Keating:

So we thought we just opened by saying there were three main themes here, and it's going to be ideally Michael Keating as the host and Gaurav as the star of the show. The three ideas that we're going to cover here are one, the importance of relationships, the second key theme, financial markets and how the financial markets can affect decision making, and the third theme will be the importance of contingency planning. So let's get underway. Gaurav, let's hit on the first theme and the importance of relationships. We hear the term relationships used a lot, especially recently. Can you talk in particular about your experience with the importance of relationships as it might relate to perhaps business partners, investors or a board, and all three brands?

Gaurav Shah:

Yeah. Thanks Michael, for hosting this, and thank you First Republic as well for speaking about these issues openly and with me specifically. It's fun to think through this together with likeminded people, and by the way, my background is what we came up sort of last minute. It's the background that I usually use within my company, and our company is called Rocket Pharma, and while we're a therapy company, behind me, you see the Andromeda galaxy, which is the closest galaxy to the Milky Way, so it sort of fit the theme here.

Gaurav Shah:

So relationships are everything, for sure, and when we started this company years ago, about four and a half years ago, to be exact, the first thing that came to mind is that the main tenant of our values and our philosophy should be trust, and trust is interesting because when you talk about trust too much, it erodes. You only have to talk about trust because it's eroding, but it has to be the underlying foundation for everything, and if you can trust your team, if you can trust yourself, you can trust your board, your investors, in this case, your banking partners, obviously, but your big stakeholders and academic partners, I'm just talking gene therapy and biotech specifically, then you have the confidence to know that you might not have everything right all the time, but together you'll get it right.

Gaurav Shah:

No founder or CEO knows everything, obviously, but if you have the right relationships a based on trust, then you can do it together, and I know that sounds like sort of standard fare and standard talk, but I cannot overemphasize how important those relationships are, and sometimes ... Sorry, I know I'm coming in and out here. Sometimes the relationships are formed on the basis of one meeting, looking at someone in the eye and just gaining their trust or giving your trust to them, and the last thing I want to say about relationships and trust is that trust is the sort of thing that you have to give first. I believe you have to just offer it freely and then hope to earn it for yourself, and I think with that mindset, it makes the whole entrepreneurial process so much easier in the years to come.

Michael Keating:

That's great. I'm actually taking notes as we go, because this is really worth ... I can't wait to take this back to my team and some of the people I work with. Great stuff. Staying on the importance of relationships, can you talk about perhaps moving away from investors and your board, professional advisors in your life? Do you find that that relationships with one particular set of professional advisors was more important than others, and perhaps something you learned when you first started the company, when you first started your journey, and to where you are now when it comes to just pure professional advisors?

Gaurav Shah:

I think true professional advisors are also those that you have long standing relationships with. A few that come to mind include a current board member who I've known for 20 years, and has been sort of basically been a friend, but also been a mentor and a coach and advisor for much of my life, and he's a hedge fund investor who now sits on our board as well and has a lot of biotech experience.

Gaurav Shah:

Another advisor that comes to mind is our HR consultant who used to run Eli Lilly's HR organization for many, many years. I've known him as well for 10 years. I consider both of professional advisors, and the thing with advice, and I always like to get philosophical, because I think you have to think deeply not only to take risks yourself, but to get other people to take risks, you have to go a few levels deeper. On the advisor viewpoint, people will take advice from you if they believe that you're giving advice for their best interests, that you care about them more than the advice. So if someone's giving me clear advice, no matter how great it is, I'm not going to listen to it until I believe that person cares about me, and that's why I think longstanding relationships with regard to professional advice is very, very important, and I'm giving you a couple of examples, but I think that that also rings true across multiple other companion, supportive and advisory relationships that we have in this business.

Michael Keating:

When we talk about trust, we talk about founders having an idea and making investments. A big part of the decision making that a founder has to make, among other things, is when to give up equity, when to share their idea with somebody else, or when to invest in somebody else using their idea. So can you talk us through some of your decision making around, especially the early days, who gets equity? Who gets some of your intellectual and financial capital? Who gets to buy some of that?

Gaurav Shah:

So for the most part, we have offered equity to just about everybody at every level of the organization, whether it's somebody working in a particular supply chain role in manufacturing, or it is somebody who is our chief medical officer, we've offered equity to everybody, and I think skin in the game is very important, and both to protect the downside and also to inspire for the upside, so we that's how we've thought about it. We're probably in line with a lot of other companies our size and in our space as well with [inaudible 00:11:20] thinking, and then even with our partners, whether the academic partners and others and consultants, we've tried to make them part of the story so they feel that their success is linked to ours, and I think it's worked. I think equity is obviously not the only driver, but it does help on the fringes, protecting to the downside and then really inspiring to the big upside. So not necessarily come into play day to day, but I think it is one factor amongst many others.

Michael Keating:

Great. So that covers our first theme, the importance of relationships, and I think the overarching idea that you shared with myself and with our audience today is just the importance of trust. I think it's amazing how you said whenever trust comes into the conversation, it usually means that trust is being eroded, if you're talking about it. Great stuff.

Michael Keating:

So second theme is how financial markets ... So we'll pull it back to more numbers and dollars and cents, and how financial markets are affecting decision making. Now, the theme of this discussion is how to protect your capital during challenging times. So we happen to be in the midst of one of the most challenging times in history, or certainly in our lifetime, but I think you'd agree that for most founders and entrepreneurs, this would be one set of challenging times. There were probably earlier challenging times, and there will be some in the future. We just don't know what shape that they'll take.

Michael Keating:

When you talk about some of the decisions you made when you first started to take on outside capital, when you first started to take on some money, what did you do next with that money to make sure that the investors got what they were looking for, and just specifically, where did you hold it? What did you do with it? What was the thought process around what to do next with the capital?

Gaurav Shah:

So I think investors who understand what you're doing and have enough experience in that field to know who to give their money to and who to trust it with, you've already de-risked a big part of the equation right there by going to the right people. So I think in many startups, you think of good money and not so good money. There's never really bad money, but there's good money and there's not so good money, and I think being very careful with who you ask for money from has to be step one, because you want people who have done this before, who are going to go through challenging times with you and not run, and especially when we were a private company, that was more important, because those private investors can't run. Unless they're going to exchange with one another, it's very hard to get rid of a private investment. So I think choosing the right investors is very important. Again, goes back to relationships and trust.

Gaurav Shah:

Then in terms of what to do with the money that's granted, you have to take the capital even more seriously than you would take your own bank account. Much more seriously, because there's a sense of responsibility, and every cent you spend is not yours. So there's just a heightened sense of responsibility there. So it's always good to have a setup of checks and balances. I was fortunate to have a board during the private company and a group of investors who worked with me on thinking through all these aspects, which was RTW, and RTW basically sat around a table with me once a week, and we worked through, "Okay, we've raised ... Now these are all public records." We raised something like $16 million in our series eight, which was back in late 2015, and how are we going to spend this? How much are we going to spend in 2016? Let's track this quarter by quarter.

Gaurav Shah:

We decided early on to spend on manufacturing and development, early development, but manufacturing mostly, because manufacturing is always the thing that, in biotech, can derail you at the last minute, and you see that happening all the time. People are about to launch a product, and the FDA says there's a manufacturing issue, and you're set back by several months. So we were extra, extra scrutiny in manufacturing. We invested more there than anything, and I also personally come from a place where even if I was going to buy a car, I would want to buy it with cash. So I'm always thinking about the worst case scenario and what's going to happen to me where everything falls apart, how do we run this company?

Gaurav Shah:

I think investing in manufacturing as an example was probably a good idea that we built together, because now, in COVID, for example, it's not an issue. Those early investments have now paid off and we have enough manufacturing capabilities for all of our programs, and you want to think about exactly the question you asked, how are you going to weather those storms over the coming years? Not just your next quarter to impress investors. You have to think longterm, and that brings me back to choosing the money that is with you for the long term. So it's all sort of intertwined.

Michael Keating:

That's great, and thanks for touching on, again, the idea of your own personal bank account versus the investor's dollars and how you prioritize that. We knew that at the top of the discussion, that theme would come back. Did you find with your budgeting and with your forecasting, knowing that you had surrounded yourself with some pretty smart people ... Talk to us about maybe some tough decisions and perhaps where founders maybe decide that their priorities might not be the right ones on the onset. So they might be focused on a certain area of the company just because they have been told that, whereas you find that, in your example, manufacturing was more important. Is there one common mistake or misconception out there that founders perhaps can avoid as far as cash outlays when they're creating their budget in the early days?

Gaurav Shah:

I think that founders and investors often have a view that's a very well-informed, broadly informed, informed from a lot of different scenarios, and I would just ask people, whoever investors and founders, to balance that with operational experience, and the operational experience is going to be the one that tells you how to do this for five, 10 years, and not just the early idea. I do think that having a healthy dialogue, sometimes it can be a debate, because while you're building a company, you do have to keep your stakeholders engaged. Not always happy, but at least engaged and believing in you, and to do that, you have to show milestones. You have to have near term milestones, medium term milestones while you're building for the long term. So you have to think of things in various buckets. What is important for investors and is also good for the company anyway? We should put our money there, everyone agrees.

Gaurav Shah:

Then there's going to be a bucket where this is what investors want, but it's not going to make the company any better, but do we decide to do that? We can talk about that. Then there's a bucket where investors think this is a bad use of money, but you know from your 10 years of operational experience that this is a good idea, and you're going to fight for it, and within that, there are battles to fight and there are battles to not fight, but however you deploy your capital into various buckets. I think transparency with your founders and investors is everything, and as founders and investors, you want to inspire a culture of transparency.

Gaurav Shah:

I'm sort of a founder, but the real founders of this company were RTW, and I was brought in as sort of the co-founder, so I'm on both sides, both the founder hat and the operational hat, and bad news travels fast. If I have a problem, I call my biggest investor and main founder before I call anybody else, and they've been able to give me a platform where they've trusted me long enough that I know that if I do that, it has no repercussions for me personally. So you want to have a balanced, transparent dialogue. So again, the founder and your executive team relationship is everything. I can't emphasize that enough.

Michael Keating:

So let's hit on our third and final theme, which is having a continuity plan, and I think a lot of what we've talked about already has flowed into this final theme. So we've talked about manufacturing and your investors, so more operational and dollars and cents and relationship aspects too, but let's talk about, did you have or do you have any recommendations for the people in the audience on continuity plans or contingency plans should the unforeseen happen to yourself or one of the founders, some key personnel? I mention this in light of what's going on in the world, and when you turn on the TV, we're reminded of our own mortality on a daily basis. So can you make any recommendations as far as the continuity plan?

Gaurav Shah:

So as a public company, the board has to think about this, and you have to put it into your meeting notes, and it's part of our transparency with all of our shareholders, not just the biggest ones that are also on the board, and our board does mandate very specific contingency planning for all the named executive officers and the chairman and key ... Just think about that. Now as an early stage company, the challenge here is that you can't really have that much redundancy. Your spend is often tight, so you can't really hire, say, a chief marketing officer and somebody to fill that place in case that person is not there, because they're going to cost a lot of money and equity as well. So you can't have that much redundancy.

Gaurav Shah:

So there's vertical redundancy, but there's also horizontal redundancy. For example, you want to hire [inaudible 00:22:31] or just give you a manufacturing, as an example. We have a group that builds out the manufacturing facility itself. We have some alternate solutions that are not necessarily reporting to them or vertically, but can come from horizontal functions. So there's that sort of redundancy, and then also in terms of the people I think that make the most sense in an early stage company, people who have a diverse skill set, but are really good at one thing, but can diversify elsewhere as needed and have a really great sense of curiosity to learn other things, that is almost as important as expertise itself. So it's experience and expertise, but it's also agility and curiosity, and if you build a team with those sorts of people, then you'll find out that you don't really need to do that much contingency planning. It's already built in.

Michael Keating:

Great. Gaurav, what an honor. I feel like that was the quickest 20 minutes that has taken place in a long time, especially given our current work from home environment. Really, really appreciate the amount of honesty and the amount of candor you've shown with this interview. Your internet was a little bit slow a few times, which I think just hammers home to everybody, myself and everybody on the call, the importance of being agile and having a contingency plan. So I was almost right on cue. I'm going to ... Because we want to protect your time, we know you have someplace else to be, your investors are calling, we'd love to have you back sometimes, so we want you to answer our call when we ask you back.

Michael Keating:

Mina Lum, who is a distinguished colleague of mine, and who has really put an awful lot of effort into this presentation right from day one. I know Mina was keeping a close eye on questions from the audience. Mina, I know we're trying to get a couple in, but we may only be able to get one in, given the time constraints.

Mina Lum:

Yes, thank you. Thank you very much, Michael, and Gaurav, it's so nice to see you again. Hope you're doing well. Yes. So thank you again for the participants, for the questions. We've had several great questions coming in, and if we can't answer it today, given the fact that we can only answer one, maybe two, we will respond to those questions after this webinar. So Gaurav, is it okay if I ask you a question at this time?

Gaurav Shah:

Yes.

Mina Lum:

Great. So one of the questions, and especially given the current environment, the question that came in is, what has the state of biotech investing been over the last few months, and what do you think will be the environment over the next three to six months?

Gaurav Shah:

So I think biotech investing has shifted a little bit. For one thing, even just talking to main street, many of my colleagues and friends who otherwise had a negative view of pharma and biotech and thought I was the bad ... Now are wondering if we're making a vaccine, and I think that represents a shift in sentiment in the mainstream toward biotech. Within biotech, however, I think that certain capital has been reshifted to companies that are treating, obviously, infectious diseases, vaccines, but also biologic complex diseases. I do think that gene therapy falls into that category, but there's probably been some shift away from sort of other biotech modalities. How that plays out, I think we'll see in the coming months. However, I think longterm, it's all going to equalize. Hopefully, we get a vaccine, and then I certainly don't want to predict, there's a lot of predictors out there, people who predict about COVID, but once that's behind, I think we're going to see a return to normalcy in how biotech money is allocated.

Mina Lum:

Great. Thank you, and just as a quick followup, another question that we had was, any tips to balance delusion with increase in runway, less cash, less delusion, but higher risk of shorter runway? That was another question I felt that ... It's just a nice little followup to that question.

Gaurav Shah:

Yeah. So we've continued hiring. We're fortunate to have just done a financing before COVID, so we're fortunate to be well capitalized. I know that's not always the case. I think that for the longterm health of an organization, people are the most important. So we've continued ... Not only have we not fired anyone at COVID, we've continued to build the team, and if you can do that, you can always make up the other things, but you can't make up for really good people, and you can't make up for a culture.

Gaurav Shah:

So if I were forced to delay our cash outlay because of COVID, I would say that that we would, for example, and this has not happened, but what comes to mind is that we would maybe take a six month pause on the manufacturing and take a hit on cost of goods, for example, down the road, but I would not stop building the team that's going to help build manufacturing. So that's the way I would think about it. I know it's not always easy because human capital spend can be a big part of your burn, but if you need to delay things, I guess my only advice is think longterm, think what's going to matter longterm and what is important now to keep in house and in your organization, and not think about the next three to six months, because fingers crossed, this will pass, and then you want to look back and know that you made the right cuts.

Mina Lum:

Right, right.

Gaurav Shah:

You didn't panic.

Mina Lum:

Gaurav, thank you so much for your insight. The culture and the people are so critical, and those are things that are the foundation of many corporations and companies, so I'm sure many of the individuals on the phone agree to that. So again, we all thank you very much. This wraps up our discussion for today. I'd like to thank you all for attending this online event, and thank you to both Gaurav and Michael for their insights into protecting founders assets. Our thanks go to LaunchBio as well for inviting us to participate in this content program. We are well aware of the challenges and great opportunities for innovative biotech and healthcare companies as you address the most fundamental needs of society. At First Republic, we are proud to serve you as part of the innovation community across United States. Please feel free to reach out to us for any of your financial needs, and now back to Becky, thank you so much, Becky.

Becky Beattie:

Thank you, Mina, and Gaurav thank you so much for your time. I think that the idea of relationship and trust is perfect. As I thank First Republic bank for participating in this webinar, we started working with them probably late last year, and I was immediately struck with the authenticity and genuine nature of our interaction, so I would come home and tell my husband, I'm like, "These First Republic Bank people, they're really cool. I kind of want to hang out with them." So I can, with confidence, tell our community that if you have banking needs or questions, I would direct you towards First Republic. On the east coast, the rep is Mina Lum. On the West coast. We work with Daniel Schroeder, who's a great guy. He's not on the call today, but in our followup email, we're going to have contact information for you to easily get ahold of them.

Becky Beattie:

So once again, thank you. Everyone stay well, and please look to our website, launchbio.org, if you want to learn more about our organization or join some of our upcoming webinars.

Opinions expressed by the guest speaker(s) are solely their own and do not necessarily reflect those of First Republic.

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