Patrick Rivelli, “How to Invest in Biotech”

Family considerations drove several of Patrick Rivelli’s career choices but did not prevent him from having brilliant triumphs. Success as a consultant was followed by success as an executive. This led him to found his first company and to fund another startup. The most eloquent evidence of his achievements was exiting two biotech startups in eleven years. If you are a seasoned biotech investor, I’m sure that grabbed your attention. Patrick was also instrumental in founding MIT Angels of the Bay Area and now leads the life science track at MIT Angels in Boston.

I learned a lot from this fun chat with Patrick. I hope it will be entertaining and instructive for you as well.

Note: When Sal talked about biotech booming circa 1996 he actually meant to say the internet. Biotech was still a backwater then.


  • Patrick Rivelli’s Bio
  • Love Drives the Choice of Patrick Rivelli’s First Job
  • Family & Luck Steer One’s Career
  • Consulting at Bain Leads to Private Equity
  • Bain Paid for Sloan MBA
  • Work at Bain Was Different After Patrick Rivelli Graduated from Sloan
  • Patrick Rivelli Gets Involved in the Life Sciences – Pharma Companies Had Medical Device Businesses Then
  • Biology Was a Backwater in the 1990s – Then Human Genome Was Sequenced by 2003
  • Consulting Was Taking a Toll on Patrick’s Family Life So He Took a Corporate Position
  • Patrick Rivelli Goes to Work at a Medical Device Company in 1996 – First Internet Wave Just Starting Then
  • Netscape IPO & “The Nudist on the Late Shift”
  • Target Therapeutics Is Sold – Mass Firings Ensue
  • Patrick Rivelli Has a Tough Period in His Career – Growth & More Self-knowledge
  • Patrick Rivelli Gets Involved with a Startup for the First Time
  • Patrick Rivelli Founds Smart Therapeutics
  • “…Nobody Wanted Medical Devices. Everybody Wanted and”
  • “You Went from Nerd to Cool Dude”
  • Markets Always Overshoot
  • Boston vs. Bay Area
  • How Boston Has Changed Since the 1960s
  • Patrick Rivelli Gets Into Angel Investing
  • Chestnut Medical Technologies Is Acquired in 2007
  • Patrick Rivelli Gets MIT Angels Moving in the Bay Area

Transcript of Patrick Rivelli “Love & Biotech Exits”


Biotech investing is hard. I’ll let you in on a little secret; it’s hard even for those who have done it a lot. It has to do with the fact that biological mechanisms are evolved, not built. Their stunning complexity and near unknowability certainly frustrate the beginner but also confound the pro. This fact actually provides an opening for what I believe will be the democratization of biotech investing. 

We are about to experience an explosion in the number of useful things coming out of life science labs. The opportunities will multiply exponentially. It will be necessary to recruit many lay people with business experience to help the fledgling startups that will take these astonishing innovations to market. This is a call to arms for all those angels who see the promise of biotech but who are daunted by its complexity. The universe of biotech startups is set to explode and cause a shortage of experienced talent. Founders will need lots of help of the kind experienced business people can give. A bit of homework by angels could lay the foundation for more specialized knowledge to be built deal by deal. A good starting point is to listen to my interviews with life science experts. From them you might gleam some of the very few generalizations that can be made in the field. These podcasts will help you organize the search for particular knowledge that should be a big part of your due diligence on biotech deals. 

Today, I’m relaunching my interview with founder and angel investor, Patrick Rivelli. Before I write a check to a life science startup, I always talk to Patrick, not because he knows a lot, which he does, but because he can point me towards people who know even more about a particular field. On a similar vein, listen also to my interviews with Jeff Arnold and Jeff Behrens. Enjoy the podcast. 

Sal Daher:   Welcome to the Angel Invest Boston podcast. Conversations with Boston’s most interesting angels and founders. I am Sal Daher and my goal for this podcast is to learn more about building successful new companies.

The best way I can think of doing that is by talking to people who have done it. Our sixth episode will be an interview with biotech executive, founder and angel investor, Patrick Rivelli.

Patrick, I’m thrilled you could make time to be with us here today.

Patrick Rivelli:  Oh, great to be with you Sal. Thanks.


Sal Daher:  It’s tremendous.

Patrick Rivelli has been a medical device entrepreneur and investor for over 25 years. He’s currently president and CEO of Sonogenix, Inc., a clinical stage medical device company, as well as co-director and life science track lead at MIT Angel’s, an angel investor group.

He was previously founded and CEO of Smart Therapeutics acquired by Boston Scientific and Bioabsorbable Therapeutics acquired by Multicell corporation.

Patrick holds a BA in Economics from Harvard University and a MS in Management from the MIT Sloan School. He holds nine issued patents.


Sal Daher: Patrick, as we start this interview, as a service to young people who are starting out in their career and so forth, I would be very grateful if you could explain how you went from studying economics at Harvard College to being at Bain Capital and what you were doing there. How did you discover that path for yourself?

Patrick Rivelli:  Yeah. As I was getting ready to graduate, this is the mid 1980’s and was interested in business broadly. I applied to a whole bunch of Wall Street banks. I applied to a whole bunch of consulting companies. When I was a sophomore in college, I met my now wife who was from Boston and wanted to stay in Boston.

Oh, okay.

Patrick Rivelli:  When I graduated, I think I had three or four job opportunities but I only had one in Boston, which was at Bain. The decision wasn’t strategic. I could have-

Sal Daher:  It was love. It was love.

Patrick Rivelli: Right. I could have gone to Wall Street. I could have gone to some other part of the country but I had one and only one chance to stay in Boston and that was with Bain. That was how I got there.

Sal Daher:   It’s a funny thing. It’s the same thing with me. When I finished graduate school at Stanford, I had basically one thing in mind. I was engaged to my now wife, she was living in Buenos Aires … I had a bigger problem than you … She was living in Buenos Aires, Argentina and I was in Palo Alto, California. I was thinking how do I get down there?

There’s this bank in New York called Citibank that prided itself in having branches in 120 countries. I said that’s the bank to go to. I interviewed. I had offers from engineering firms in California and all that. I went to work for Citibank and ended up in Argentina because of … I would have taken any job in Argentina. Cleaning the branch or whatever.

It was love, huh? That got you-

Patrick Rivelli:   It’s funny how that works out. How family winds up driving things in your life and then those things drive things in your career.

Sal Daher:   Absolutely.


Patrick Rivelli:   You think it’s the other way around, that you’re planning and so much of it is just personal and family stuff. It’s luck. It’s random stuff.

Sal Daher:   At the end of the day, that’s the most important things in life. Nobody on their death bed says I wish I had gone into management consulting instead of VC work or I wish I’d gone into something else, you know, investment banking.

Patrick Rivelli:   Right, right.

Sal Daher:   It’s not like that. You went to Bain and you were involved in consulting or … ?


Patrick Rivelli:   Well, it was about half and half of consulting. Bain Capital, as such, did not really exist. They were kind of dipping their toes in. When they would buy a company and they needed … this was the LBO, the leverage buyout.

Sal Daher:  Yes, the year of the LBO.

Patrick Rivelli: This was before the term private equity was invented.

Sal Daher: Right, right.

Patrick Rivelli: We were buying distress companies. You’d send in a team and you’d try to improve things and clean things up.

Sal Daher: Right.

Patrick Rivelli: When there was a Bain Capital company, I was part of a team that would go in and help do the turn around. When there wasn’t a company, then we would go back to the consulting side. It was a little half and half.

Sal Daher:  Oh, okay.

Patrick Rivelli: I was not doing any life sciences. These were old line industries. I worked for a company that made roofing shingles. I worked for a company that made electric power cable for utilities. These were old industrial type companies.

Sal Daher:  Companies, yeah.

Patrick Rivelli:  Nothing life sciences or techy at all.

Sal Daher: Yeah. I imagine you must have traveled a lot because a lot of these companies are probably in the Midwest that are being restructured.

Patrick Rivelli:  Oh, yes. Great locations. Paducah, Kentucky. Shreveport, Louisiana. All kinds of great fun destinations.

Sal Daher:  Right. Then you migrated more to the Bain Capital side of things. Is that what happened?

Patrick Rivelli:  Well, it was sort of half and half because it was really the early days. They didn’t really have an infrastructure at Bain Capital so it was episodic. A deal would come in, you’d work on it for say six months, nine months, then there wouldn’t be any new deal so you would go back to the consulting side.

Sal Daher:  Right. Bain Capital had raised investor money for those deals or was it they’re playing with their own money?

Patrick Rivelli:  At the time, I think it was just their own money. I think it was just the partners in Bain Consulting set up this little fund to play with. They would then steal us from the consulting side, put us to work in their portfolio companies and then when they didn’t need us anymore, they would kick us out back to the consulting side.

Sal Daher: Oh, okay. All the partners at Bain had a share in Bain Capital as well?

Patrick Rivelli: I think that’s the way it worked. I don’t know if it was everyone. It was certainly the senior people. Bill Bain was still around at that time. A lot of-

Sal Daher: I remember driving by his house in Weston.

Patrick Rivelli:  Oh yeah.

Sal Daher: He had a basketball court.

Patrick Rivelli:  Right, right. Exactly. He was a huge … You know, and it’s funny because there’s this long lineage of Bain people who love basketball. Now with Steve Pagliuca, who is like the managing director/owner of the Celtics, was a Bain Capital guy. There’s this long … I don’t know why.

Sal Daher:  I use to drive by thinking jeez, if I build a court like that at my house, I’d build a squash court, not a basketball court.

Patrick Rivelli:  I’d build an indoor pool or something.

Sal Daher:  An indoor pool, yeah. That’s interesting.

How did you go from being at Bain … I saw that looking at your bio that you were at Sloan but you were still involved with Bain like at the time you were at Sloan.

Bain Paid for Sloan MBA

Patrick Rivelli:  Yes, so this is another family thing. My wife and I got engaged right about the time that I went into Sloan and I needed to make money to pay for the wedding. We knew we were going to get married after I graduated so we said okay … We had this plan … Let’s get through graduate school, let’s get another job on the other side. We need to make some money.

Bain had this program where you could work part time during the school year and then I worked full time during IAP [Independent Activity Period, MIT’s short winter term, basically the month of January]. I worked full time in the summer so it was an opportunity to make money while I was in graduate school which we were socking away to pay for the wedding.

Sal Daher:  Awesome. I was talking to Ralph Wagner. His MBA at Columbia was paid for by IBM and he was working at IBM and then also get his MBA at Columbia.

Patrick Rivelli:  Yeah, Bain did that. They had a deal where they would advance you the tuition money and then you had to go back to Bain and they would basically make it as a loan that would be forgiven over month to month to month. You were sort of an indenture servitude-

Sal Daher:  With a limited time that you worked there.

Patrick Rivelli:  With a limited time.

Sal Daher:  Right. You worked there and you paid off the loan by being there on time.

Patrick Rivelli:  Right, right.

Sal Daher:   You went back and you did that or what did you do? You bought them out?

Work at Bain Was Different After Patrick Graduated from Sloan

Patrick Rivelli:  I went back to Bain. I spent about a year, which I think was the time that I needed to get the loan paid off, and I had a great experience at Bain before Sloan. Really interesting projects. The kind of things that I was enjoying, was interested in.

When I went back, it was a different experience. A lot of the people who I’d worked for had moved on to Bain Capital full time. I was in the consulting side. It wasn’t a great experience. I was thinking about what should I do. I’m not really having a great experience. Maybe I’ll go back and I’ll do a PhD program.

Patrick Takes a Job with Another Bain Alum’s Consulting Business

Patrick Rivelli:  I had a friend, a Bain friend, who I had worked for who had done a PhD in business economics. I was trying to decide well, I know there’s these two different things. There’s this PhD in business economics and there’s also this DBA, this Doctor of Business Administration. I called him up and said I’m thinking about going back and doing some sort of PhD program. Tell me about your PhD in business economics.

He said I’ll tell you about it but you know what? I’m actually hiring. He had left and started a small consulting company, boutique consulting company. I’m actually hiring. I’ll make a deal with you. I’ll tell you about my PhD program if you come and let me pitch you on coming to work for me.

We did that and instead of doing a PhD program, I wound up deciding okay, I’ll take the job.

Sal Daher:  Interesting. You were not satisfied with the work that you were doing at Bain post-Sloan because the people that you had worked with had left and so forth. You found this connection more congenial, more interesting.

Patrick Rivelli:  Right.

Sal Daher:  What kind of work were you doing then?

Patrick Rivelli:  It was a boutique consulting company that was focusing on new product development and manufacturing operations management. It was very focused. We were in this fairly limited area. It was a consulting company that was started by and based on the work of some academics. Kim Clark and Steven Wheelwright.

They had come out with “The Machine that Changed the World”, which is this famous book from the 1980’s about the car industry and lessons from Toyota and lessons from the car industry and how that can inform how to develop new products and how to manage manufacturing more efficiently in other industries. They were applying it in a consulting context.

Sal Daher:  Shortening the inventory cycle, shortening the product cycle …

Patrick Rivelli:  Right.

Sal Daher:  … by development and so forth, making more efficient. Following the Japanese model.

Patrick Rivelli:  Right, the Toyota production model.

Sal Daher:  That Deming had taken to Japan after World War II and developed there.

Patrick Gets Involved in the Life Sciences – Pharma Companies Had Medical Device Businesses Then

Patrick Rivelli:  Exactly. That was actually the first time that I got into the life sciences. I got there and one of the client’s, existing client, was Eli Lilly so I got put on that project. This is back in the era when pharmaceutical companies also had medical device divisions.

Sal Daher:  Okay, so they’ve kind of specialized more since then?

Patrick Rivelli:  They have. There was this feeling back in those days that you needed a more stable revenue stream to balance out the highs and lows of pharmaceuticals, that drug development was inherently risky, it was inherently unpredictable. Devices were a little bit more stable so Pfizer had a big medical device business. Bristol-Myers Squibb did and Eli Lilly did.

That was my first introduction. I had never really done life sciences. I didn’t go to school for it. I could have just as easily been put on other projects at the consulting company but they needed somebody willing to work on this project so that’s how I came into to.

Sal Daher:  This was around what time?

Patrick Rivelli: ’92.

Sal Daher:  ’92. Okay, so ’92, when was the genome sequence?

Patrick Rivelli:  Oh, the genome sequence wasn’t until the early aughts [2003].

Biology Was a Backwater in the 1990s – Then Human Genome Was Sequenced by 2003

Sal Daher: Ops, yes. Basically, biology in those days was still a little bit of a backwater.

Patrick Rivelli:  Oh, yes.

Sal Daher:  I remember when I was a MIT undergrad, at MIT you have two semesters of calculus, two semesters of physics, one semester of chemistry, no biology.

Patrick Rivelli:  Yes.

Sal Daher:  It wasn’t even considered. It was considered a little bit like botany, kind of like a fossilized science. Something where nothing changed and it wasn’t interesting. There was no new developments to come from biology. This was circa 75 and then 25 years later, everything’s changed and biology’s an unbelievably evanescent field. One third of the work at MIT is now in the life sciences and so on.

Patrick Rivelli:  Yeah, it was definitely not the cool thing.

Sal Daher:   Not yet. It was by accident that you got into a field that was not yet cool, a little bit stodgy and so forth. Then you started on working on that so please continue.

Consulting Was Taking a Toll on Patrick’s Family Life So He Took a Corporate Position

Patrick Rivelli:  Yeah, so I worked a couple projects at Lilly and developed a little bit of expertise and wound up being able to sell a couple of other projects in the life sciences. I spent about two years working on a project for Baxter in their diagnostic business. Worked for about two years then at Pfizer, really loved the work but was doing a tremendous amount of traveling. I was living in Boston.

At one time, my two main clients were Pfizer in Europe and Eli Lilly medical device businesses in California. I was doing this thing were one week, I’d fly from Boston to Europe. I’d come home Friday night. I’d be exhausted. I’d do my laundry. I’d turn around and on Monday, I’d fly to California, so I’d do the east week and the west week.

Sal Daher:  You’re permanently in jet lag.

Patrick Rivelli:  I was permanently in jet lag. In 93, my daughter was born. I was in this situation where I was a lousy parent. I wasn’t there very much and when I was, I was exhausted.

Sal Daher:  I was in the same boat. I missed the childhood of both my daughters. It’s sad.

Patrick Rivelli:  What I was able to do is I had sold a project to a medical device company that had its roots in Eli Lilly but was then an independent company called Target Therapeutics. I had sold them a consulting project in 1994. They were in the bay area and it was easy to go and see them and do that work when I was out there for Lilly.

In late 1995, they started talking with me about would I be willing to come work there full time. I thought oh, there’s no way my wife is going to leave Boston. She’s a native Bostonian. Her whole family is there. We had, at the time, the only grandchild.

Sal Daher:  That’s very hard to transplant.

Patrick Rivelli:  There’s no way.

Sal Daher:  Very hard.

Patrick Rivelli:  Surprisingly, she was sort of in to it. It was a way that I could travel much less and be home. We had to weigh this. Are we willing to be 3000 miles away from Boston in order to be-

Sal Daher:  Her family’s probably saying oh, we’ll sacrifice for the sake of the baby and she’ll see her father more often and so forth if he’s California.

Patrick Rivelli:  Right. They went for it. I was surprised but they went for it. In January 1996, I left consulting and went to work full time for this medical device company.

Patrick Goes to Work at a Medical Device Company in 1996 – First Internet Wave Just Starting Then

Sal Daher:  I just want to punctuate a little bit here for people, you know, give them a timeline. 1996. That’s about the time that the whole internet bubble started exploding.

Patrick Rivelli:  Yes.

Sal Daher:  Being biotech, you were an irrelevant backwater and biotech [internet, actually] was just about to boom and that boom went from 95, 96 to 2000 and it blew up in April 2000. It’s kind of like you were working in an area that was fill … It wasn’t a backwater yet but it was still not the hot thing. The hot thing was to be in the internet. 

Patrick Rivelli:  Right.

Sal Daher:  Right.

Patrick Rivelli:  We moved to Palo Alto and all of the Palo Alto royalty at the time were people at, if you remember this company, Netscape.

Sal Daher:  Yes, yes.

Netscape IPO & “The Nudist on the Late Shift”

Patrick Rivelli:  Netscape was Google before Google. It was basically the first search engine for the internet and it was also the glamour company. I think they had gone public. There were all these young internet people around Palo Alto who are suddenly millionaires …

Sal Daher:  If you want to hear about this, I think the book was “The Nudist on the Nightshift”[The Nudist on the Late Shift by Po Bronson].

Patrick Rivelli:  Okay.

Sal Daher:  That was …  in that boom period to describe that. Yes.

Patrick Rivelli:  Biotech was not, we were not the top of the food chain.

Sal Daher:  No, especially in Silicon Valley.

Patrick Rivelli:  Right, at that time.

Sal Daher:  Yeah, at that time.

Target Therapeutics Is Sold – Mass Firings Ensue

Patrick Rivelli:  I got out there in 96 and 12 months later, the company got acquired. Four months after that, they closed the transaction and a month after that, they fired the whole senior management team.

Sal Daher:  Oh my goodness.

Patrick Rivelli:  We had moved-

Sal Daher:  This is Target-

Patrick Rivelli:  This is Target Therapeutics. It was bought by Boston Scientific. They basically came in and said we’re folding you into an existing division and we don’t need you guys as the senior management team anymore so …

Sal Daher:  We take your patents, we take your processes and then you guys can go out.

Patrick Rivelli:  Exactly. Thank you very much.

Sal Daher:  Presumably you had some kind of severance deal with them or something?

Patrick Has a Tough Period in His Career – Growth & More Self-knowledge

Patrick Rivelli:  Yeah. I had had some stock options but it was a shock but it was actually, in retrospect, wound up being great because I spent a year at a small startup helping them. Not getting paid cash, getting paid in stock from this little scrappy company and that was the first time I had ever really been in a startup environment.

Sal Daher:  I want to go back to this but I want to take a moment here to talk a little bit about your mindset. I’m thinking here Harvard College, Bain & Company, Sloan school. You were someone who was just use to getting all A’s and just being on top of everything and getting always the right answer and so on and all of the sudden, you’re out on your ear.

Patrick Rivelli:  Yes.

Sal Daher:  That must have been a novel experience for you.

Patrick Rivelli:  The year before I was out on my ear was a really tough, humbling experience. I had done consulting before but I suddenly had this. I was running manufacturing. I had about 250 people in the manufacturing group. I was really in over my head.

Sal Daher:  I can imagine.

Patrick Rivelli:  I made some horrible mistakes. We had two product recalls. It was a rough time. I was exhausted. I physically wasn’t in great shape. It was huge amounts of hours. It was one of the first times I was not succeeding.

Sal Daher:  How did you handle that? You have just like unrelieved success until this time in your life when all this stuff starts to happen. How did if affect you and how did you deal with it?

Patrick Rivelli: I tried to work really hard and I tried to learn and get into areas where I thought that I could be productive and successful. I think I learned that I wasn’t as good a manager in the sense of managing a big organization. I tried to do the best that I could but what I tried to do was gravitate towards areas where I thought that I could be better which was a little bit more around technology development, understanding physicians and clinical needs rather than day to day, how do I set up an organization, how do I manage through reports, people who are direct reports.

In a sense, I said I don’t think I’m ever going to be really good at that so why don’t I move away from that into things that I think I can be successful.

Sal Daher:  Growth and self-knowledge that resulted from that terrible experience.

Patrick Rivelli:  Then we all lost our jobs so it became moot. It’s like well, it doesn’t matter.

Sal Daher:  During this trying time that you were running a 250 person manufacturing operation, not succeeding at it, you still made time to work with a startup?

Patrick Rivelli:  No, no. I hadn’t done startups at all yet. This was all consuming.

Sal Daher:  Okay. I can imagine.

Patrick Rivelli:  We were a publicly traded company. We became, partway through that first year, one of the last pure play medical device companies in cardiovascular so there was a big spotlight on us. It was pretty stressful.

Sal Daher:  I can imagine.

Patrick Rivelli:  Then we were all fired so it wasn’t …

Sal Daher: Okay, so let’s resume the narrative. You were out on your ear, with some money from options and Target Therapeutics. You started working with some startups, trying to help them.

Patrick Gets Involved with a Startup for the First Time

Patrick Rivelli:  Yes. I was working with a startup and while I was there, I had an idea to extend their technology to a different part of the body. They were working in disease in the carotid artery in the neck and the aorta that runs up the middle of the body. 

I had an idea that there’d be some benefit in applying this technology to the brain. I had initially proposed why don’t we do this project inside this company. I had, sort of on my own outside of my day to day responsibilities, developed this business plan. I researched the market …

Sal Daher:  This was when you were at Target?

Patrick Rivelli:  No, this was after Target. It was a company called EndoTex.

Sal Daher:  Endo Tex. Okay.

Patrick Rivelli:  I had this idea and I was really focused on it. I said I think this is a great idea. It would be a new area for this company. I’m willing to spend extra time, talk to physicians, go to conferences. Try to develop this and see if there’s really something there.

I got more and more convinced that this was a real opportunity and more and more excited. I couldn’t get anybody at the company, at EndoTex, to be excited about it.

Sal Daher:  Okay.

Patrick Rivelli:  I probably sounded like a broken record. I was trying to convince the CEO to do it, couldn’t get him interested. I eventually got frustrated and this is maybe a stupid thing to do but I went over his head to some of the directors who were VC’s and said you guys, you’re missing out on this great opportunity. Why can’t you see that you should be doing this? I couldn’t get them interested.

After a year, I was fed up and I said okay, well if you’re not going to do it, I’m going to leave and I’m going to do it myself. Several times, I’ve done things, not out of spite but out of you’re telling me I can’t do this. Well, forget it. I’m going to go do it to show you.

Sal Daher:  Righteous indignation.

Patrick Founds Smart Therapeutics

Patrick Rivelli:  Yep. I had done all this work and was convinced that this was a great opportunity so I left Endo Tex and I started what became Smart Therapeutics. That was the first company that I had actually started and it launched into a lot that followed from there.

Sal Daher:  How did Smart Pharmaceuticals progress? That is remarkable that it got acquired in four years.

Patrick Rivelli:  I had known an engineer that I had worked with at Endo Tex and I convinced him to moonlight, initially, to do some engineering work. I had some physicians who I knew. We were doing some testing from them and we were looking to raise some money. This would have been 1997. I was talking to some venture capitalists and I met a VC who said, “Oh, I know these two physicians from New York City that are trying to do something similar. You guys should get together and talk.”

He wound up introducing us and we had this long, four hour lunch in Palo Alto. We totally hit it off. They were physicians …

Sal Daher:  This was about what time?

Patrick Rivelli:  This is about 1998.

Sal Daher:  98. Okay.

Patrick Rivelli:  We said let’s join forces.

Sal Daher:  This is when the whole internet was really getting going.

“…Nobody Wanted Medical Devices. Everybody Wanted and”

Patrick Rivelli:  Yes. It was really hard to raise money. Nobody wanted medical devices. Everybody wanted and That was the thing.

Sal Daher:  I remember a story of a motorcycle parts distributor in northern California that was publicly listed in Nasdaq or some OTC or whatever it was at the time. Their stock, the trading of their stock, skyrocketed to millions of shares a day just because analyst was in their office and saw a box of one of these early website building tools and that they were going to go on the internet. All the sudden, that stock started … It was an insane time.

Patrick Rivelli:  Yes.

Sal Daher:  It was just the common, run of the mill motorcycle parts distributor. If you were in biotech or you were a great investing genius like Warren Buffett, no one wanted to hear what you had to say.

Patrick Rivelli:  Right.

Sal Daher:  They only wanted to hear about the tech stuff.

Patrick Rivelli: Yup. We were able to raise a little bit of money and cobble it all together and we were really lucky on the timing because we started in earnest in, I guess, 1998. Did some engineering, did some initial testing, had these physicians from New York to help on that front and then .com bubble burst.

Everybody looked around. All these investors looked around and said hmm, you know what? People are still getting sick. Maybe this healthcare thing has some-

Sal Daher:  Some legs.

Patrick Rivelli:  Has some legs. Suddenly, well not suddenly but the world turned in our direction.

“You Went from Nerd to Cool Dude”

Sal Daher:  You went from nerd to cool dude.

Patrick Rivelli:  Right. If we had started … This is Smart Therapeutics … If we had started Smart two or three years before, we would have been right in the teeth of the .com boom. It wouldn’t have worked. We wouldn’t have been able to raise enough money to do the-

Sal Daher:  Starve with capital.

Patrick Rivelli:  Yep. It’s funny because I’ve seen that cycle go up and down a couple times and I’m-

Markets Always Overshoot

Sal Daher:  It’s the nature of markets. The best time for you to pick up internet stock was probably one or two years after the crash so all the junk had sorted out. or whatever disappeared but there were still a few companies like Amazon that survived and you could buy them for cheap.

Similarly, you could also invest in biotech for cheap because it had been starved of capital for so long. That’s a lesson for us to just understand in terms of … Markets always overshoot. They always overshoot in terms of pricing going too high and when things crash, the crash is just overdone.

Boston vs. Bay Area

Patrick Rivelli:  The other thing that I’ve noticed is the bay area … Boston is a little bit more diversified in terms of the startup world, the sources of capital. The bay area, some people trace it all the way back to this gold rush ethos that’s out there that when the tech stuff is hot, it’s super hot and it crowds out everything else. Then it crashes and then there’s enough sunshine for everything else but then the tech comes back. It’s kind of a weird, less healthy ecosystem in my opinion.

Sal Daher:  Yeah and an interesting perspective. That’s very instructive for me to hear that because one of the things that I have heard in the comparison between Silicon Valley and the Boston startup ecosystem is that back in the 70’s and the 80’s, use to be Route 128. You know, high tech. Computers and so on. In those days, you were not in the cool business because you were metal banging shops and the cool kids were doing computer hardware and then computer software in places like Route 128 or the Silicon Valley.

Patrick Rivelli:  Right. It was Wang, it was Lotus 123.

Sal Daher:  Exactly, but in those days, Silicon Valley and Route 128, or Boston, they were peers in terms of fundraising and so forth. Now, Silicon Valley … They have a lot more venture money out there then there is in Boston. I understand, actually from a MIT Angel’s presentation, I think it was the representative of 406 Ventures at the last meeting of MIT Angel’s. He was saying that two-thirds of series A money in Boston is from outside of Boston.

Boston is actually an importer of capital and an exporter of idea, so to speak. Exporter of Series A startups. Series A being the first funding by at venture fund in a startup. One of the reasons I’ve heard posited for this big change is the fact that the laws in Massachusetts for non-competes are very strictly enforced by the courts and by the way the code is written.

In California, it’s very loosely enforced.

Patrick Rivelli:  Right.

Sal Daher:  There’s a lot of technology… bleed through of technology from one company to another that occurs when people move from one startup to another and take their technology with them. In California, they can do that. In Boston, if they did that, they wouldn’t be able to work for three or four years so people tend to stay put and they tend to be more … They tend to develop different kinds of companies more enterprise focus. Perhaps this explains also the fact that California has a lot of consumer focused companies developed there as well.

What do you think is the explanation for that kind of gold rush mentality in California versus … Do you think it’s just monoculture because it’s monoculture?

Patrick Rivelli:  It’s hard to say. I think one of the things that you tend to see in Boston is you tend to see people’s families are still around. It’s not entirely this way but most people in California are from somewhere else.

Sal Daher:  Right. From somewhere else recently. We’re all from somewhere else but less recently.

Patrick Rivelli:  I think there’s this thing about if your family is close by and they look down on what you’re doing career wise, it has an influence. Whereas if you’re in California, you’re far away from your family. Whether your family is on the east coast or your family is in Bangalore, India or China, they’re not there on a day in and day out basis to say what-

Sal Daher:  What happens in Silicon Valley stays in Silicon Valley. Nothing gets back to Bangalore.

Patrick Rivelli:  Right. Why are you taking this risky thing? How are you going to support my grandchild?

Sal Daher:  Exactly.

Patrick Rivelli: I look at my case. We moved to California in January of 1996 and by July of 1998, I was on to my third job. My in laws were probably horrified.

Sal Daher: `Oh my gosh. We thought our daughter had married somebody-

Patrick Rivelli: Right! Can’t hold down a job.

Sal Daher: Oh no.

Patrick Rivelli: I think there’s a little bit of when you’re in California, you’re far away from your family and your freer to do those sort of things. I think that’s changing in Boston.

How Boston Has Changed Since the 1960s

Sal Daher:  You know, Patrick, I came to Boston as a boy in 1966 and it has changed unbelievably. In those days, restaurants in Boston were … There was Locke-Ober. It was a restaurant at the Ritz and oh yes, Café Budapest and like one other restaurant maybe.

Then everything else was basically like a diner. A nicer diner, a less nice diner but it was roast beef, mashed potatoes, corn or green beans or whatever, or corn beef. It was very prosaic food. The only ethnic food available was in China Town itself. There were Chinese restaurants outside of China Town. On the North End, you went for Italian food.

Patrick Rivelli:  Right, or East Cambridge had Portuguese.

Sal Daher:  Portuguese food, but you would never find an Italian restaurant in a place like in the Back Bay. It didn’t happen. In the Back Bay, there was … Well, Café Budapest was an exception. I think it was there in the 60’s.

Then you go forward 25 years and there’s an explosion of all kinds of restaurants and everything. By the way, Americans in those days, I mean if you were Italian or of Mediterranean ancestry like my family, you drank wine, but other American’s, they didn’t. They drank cocktails. Wine was like a thing that these people from the south drink.

Patrick Rivelli:  Right.

Sal Daher:  Sometime in the 60’s, 70’s, wine became a big thing. Bicycles. I remember nobody rode. A bicycle was a toy. You’re too young to remember this time but I remember there was a bicycle store in Harvard Square called the Bicycle Exchange. It was the only place that they had bicycles with 10 gears. It was weird and strange and very few people bought them. Within 10 years, that place is doing an unbelievable amount of business. Everybody had to have a 10 speed. Everybody was riding bikes who had never ridden bikes before. There were no bike lanes or anything like that. You rode on the road.

There was an explosion of biking. This is basically in the 70’s. Wine drinking, foreign restaurants, bicycles. Unbelievable change in Boston. The Back Bay where you live now had been basically depopulated of people with money because everybody had moved to the suburbs. Some of those gorgeous buildings were basically horrible traps full of students.

Patrick Rivelli:  Yes.

Sal Daher:  They were really almost a couple of steps up from slums and that’s where we lived. My dad was a grad student and I remember the building next to the Harvard Club right now on Commonwealth Avenue was pretty run down. It was pretty grotty. It was student housing. The Harvard Club was very nice and so forth. Boston has changed tremendously since that time but it’s still a lot like that … The Boston accent has become less noticeable but it’s still very much what you’re saying about this sort of resistance of mobility, people sticking to their families and so forth.

Towns like Malden. It’s changed a lot as well but until about 10 years ago, nobody from outside of Malden lived in Malden. Now there’s a big change. That’s an interesting thing to ponder. Very good.

I want to go in a different direction here. How did you get into angel investing? Basically, you had two successful startups. You did an amazing feat of founding and exiting two successful startups in 11 years. I’d be lucky to get an exit from one of my biotech startups, one of them, in 11 years. How did you get into angel investing after that?

Patrick Rivelli:  I got into angel investing in 2002 after I sold the first of the two companies. I sold Smart Therapeutics-

Patrick Gets Into Angel Investing

Sal Daher:  Smart Therapeutics, right.

Patrick Rivelli:  While I was at Smart, I hired a guy who I had known. He was a physician. I’d known him when he was practicing at Stanford. I recruited him. He, at the time, was thinking he was going to try and start his own company and I said “You know, you’ve never really been in a startup. Why don’t you come and work for me and I promise, if we’re successful, after we’re done with Smart, I will help you start a company.”

We sold Smart in 2002 and I had to keep my promise. He had done great work for me at Smart so he wanted to start this company so I helped him in a number of ways, including by investing. This is my very first angel investment and it was driven by this personal connection to Aaron. Aaron Berez, who was the founder.

It wasn’t that I loved the technology. It was in an area that I knew a lot about but it was just this personal connection with him.

Sal Daher:  Also, you believed in him?

Patrick Rivelli:  I believe in him. He had worked for me. I had seen what he could do. I had known him for a number of years at that point. It was a really fun experience. It was about a four or five year process. We wound up raising three rounds of money. I went onto his board. He was a first time CEO. His background wasn’t business.

Sal Daher:  What company was this?

Patrick Rivelli:  It was a company called Chestnut Medical.

Sal Daher:  Chestnut Medical.

Patrick Rivelli:  It wound up being incredibly successful. Aaron did a great job and it’s like anything else. When your first taste of something winds up being a success, then you want more and more and more and more. That’s how I got in-

Sal Daher:  That’s like my first interview, Michael Mark. He started one company. He invested and helped set up another one nad they both had IPO’s.

Patrick Rivelli:  Wow.

Sal Daher:  He thought he had the magic formula.

Patrick Rivelli:  Yeah.
Sal Daher:  Please continue. 

Chestnut Medical Technologies Is Acquired in 2007

Patrick Rivelli:  Chestnut got acquired in I think 2007, something like that. It was both a really fun experience to be an angel investor. In some ways, I was almost happier to see Aaron succeed than I was the companies that I had started with myself.

Sal Daher:  Probably less painful.

Patrick Rivelli:  It was less painful and …

Sal Daher:  He had all the pain.

Patrick Rivelli:  Well, but I mean also, it was so gratifying to see somebody who had wanted to start a company, defer that to come work for me and help make my startup successful and then to see him do it and be so successful and to be able to play a part in that.

Even today, now, a lot of the founders, they’re young. They’re basically the age of my kids so there’s a little bit of a when your kids’ succeed, it makes you happier than when you succeed.

Sal Daher:  Oh, absolutely.

Patrick Rivelli:  It’s like when the founders you back succeed, it makes you happier than when your companies succeed.

Sal Daher:  Homer picked up on that in the Odyssey. Was it Hector that wanted his son to exceed him in every way?

Patrick Rivelli:  Mm-hmm (affirmative).

Sal Daher:  Having gone to Harvard College, I’m sure you’re familiar with that.

Coming up next, I will ask Patrick Rivelli, who despite having had two or three major careers already, is still a young man and what he’s planning next.

First however, I wish to invite listener’s to review on podcast on iTunes to help get the word out about the Angel Invest Boston podcast. Particularly interesting reviews will be quoted in future episodes.

Patrick, instead of asking you what’s next, I cheated. I’m going to ask you another question. Not satisfying with founding these startups, you were also instrumental in getting MIT Angels off the ground. Tell me a little bit about that. MIT Angels in the Bay area and also MIT Angels here in Boston.

Patrick Gets MIT Angels Moving in the Bay Area

Patrick Rivelli:  Again, I started doing angel investing in 2002 and some of it, I had done just as an individual. Some of it, I had done through other groups. I wasn’t really happy with a lot of the angel groups that were existing in the Bay area. There were a lot of groups that would kick the tires on lots of companies and never actually invest. Groups that were more socially oriented, more of a way for a bunch of friends to get together and drink wine and bring in entrepreneurs to entertain them for the evening.

Sal Daher:  Entrepreneurs can be very entertaining.

Patrick Rivelli:  They can but if you’re legitimately trying to raise money-

Sal Daher:  It’s a waste of their time.

Patrick Rivelli:  Yeah, it’s a waste of their time. There were a number of people starting with two young Sloan alums who said there’s a lot of us out here. We’re dissatisfied with a lot of the existing angel groups. Why don’t we start our own group. Maybe there’ll be enough interest.

We were fortunate enough that the MIT Club of Northern California was willing to provide support. These two young Sloan graduates, Swati Chaturvedi and Lisheng Wang, were able to convince the local club to put out something to their membership to say there’s this new group. If you’re interested, write back and we’ll see how much interest there is. There turned out to be tremendous interest right off the bat. It encouraged them. They reached out to me to start helping them in the life sciences. They reached out to some other people to build out other industries.

We just said let’s give this a try. We’re trying to do something different here. We’re trying to look at different kinds of companies. This was three years ago in Silicon Valley so everybody was doing tech.

Sal Daher:  Right, right.

Patrick Rivelli:  We’re a bunch of MIT people and we like science and technology and there was no groups for us. We’d go to other angel group meetings and it would be another dating site, another social media thing, some consumer product. There was nothing that was science or technology based.

It was frustrating because we knew that there great science and technology companies out there but there wasn’t a good way to see them and to invest in them so we thought a couple things. We thought, first, that this was a market inefficiency and we could make money as investors especially after the financial crash in 2008. The VC’s were moving later and later stage and there was this opportunity in science and technology based companies where the first say half million to two million dollars was really, really hard to raise If you were a technology company, the amount of capital that you need is really low.

Sal Daher:  Right, right. Especially a software company.

Patrick Rivelli:  Yeah. All you need-

Sal Daher:  For $250,000 you can discover if you have a market or not.

Patrick Rivelli:  Right, but if you were-

Sal Daher:  For a biotech company, a million and a half before you can get anywhere.

Patrick Rivelli:  Right. If you need to do an animal study, it might cost you a half a million dollars. If you’re an aerospace company, building a prototype might cost a million dollars.

There were all these great ideas that were stalling out after 2008 and we said two things. One is we thought that there’s money to be made here and second, that it was just a shame that these ideas were dying on the vine. There were lots of things coming out of MIT. This is around the time that President Reif announced the Innovation Initiative, which was great in theory and there were some parts of it that were excellent but the thing that they missed is you need money to make the startups happen. The 100k is great but it’s not enough money to move the needled on a science and technology based company.

That was, we thought, a missing piece, and nobody asked us to help but we said we’re alums, we believe in this idea and we’re going to be the ones to provide that capital and fill that gap and we think we can make money by doing that. We did and it’s early days, so we’ll see how it all turns out in the end.

Sal Daher:  It seems to me like three years ago this came up. It seems like maybe 10 years ago, there should have been a MIT Angel group. I’m surprised that it took that long for the idea to be developed. I know that after the group in the Bay are developed, a great developed here in Boston.

Patrick Rivelli:  Right.

Sal Daher:  Do you know if there are groups in any other areas that are …

Patrick Rivelli:  They just started in New York City last month. Everywhere we go where there’s an MIT community and we talk about this idea, it resonates.

Sal Daher:  Right.

Patrick Rivelli:  The hope is that over time, they’ll be a network of chapters and that for folks who live in parts of the country or parts of the world that they don’t have access to deal flow, there could be some other mechanism for them to do angel investing in companies coming out of MIT.

Sal Daher:  That could be very interesting too. Instead of being geographically organized, being organized along specialty areas, like your biotech tract for example.

You moved back to Boston and you’re now associated with the biotech tract of the MIT Angels here.

Patrick Rivelli:  Exactly.

Sal Daher:  You’re the co-director.

Patrick Rivelli:  Yes.

Sal Daher:  Excellent. That’s really amazing.

Patrick Rivelli:  It’s so fun because there’s so much amazing work going on and it’s so interesting. The idea of being an entrepreneur is getting more and more traction at a younger and younger age.

Sal Daher:  I know. The last MIT Angel’s meeting that I was at, those two kids from Harvard …

Patrick Rivelli:  Oh, yes.

Sal Daher:  They literally quit undergrad at Harvard to develop some dental application.

Patrick Rivelli:  Even undergraduates are now … It’s the cool thing to do to be an entrepreneur.

Sal Daher:  Yeah, amazing. Just amazing.

What are you plans next? If you can plan your life, given the theme that we had here all your life is kind of taking opportunities that you’d never expected you have. What are you thinking of doing next? What are your plans?

Patrick Rivelli:  I’m going to continue to do angel investing. I’m going to try to … I think there’s a couple things that I can try to do in the angel world and then on the operating side, there may be some things that get interesting.

One of the things in the angel world is I think different angel groups need to work together more. There’s still a lot of territorial-ness and things are more disconnected than I think they should be.

Boston Angel Ecosystem Is Highly Collaborative Despite Some Friction

Sal Daher:  In Boston, I found that there is a little bit of that. There’s a little territoriality and so forth but I’ve also found that if someone is interested in a company and they don’t have enough people in their angel group interested, they’ll very gladly work with other people to get a critical mass of money. If you looking for a lead investor in a round, that territoriality gets dissolved very quickly.

There’s the regional pact, which allows for sharing of information between angel groups so if Launchpad has a write up on something, you can have access to that or if Walnut does a writeup, we can have … Or I know that I have a writeup from MIT Angels, which I belong, and I think probably MIT Angels should be … Is MIT Angels a member of the ACA, Angel Capital Association?

Patrick Rivelli:  I don’t think we are yet but we probably should be.

Sal Daher:  Yeah, and I think integrating into that I think would help and also signing the pact, this pact for sharing information. It lays out the basis on which information is shared, confidentiality, how it’s kept confidential and how it’s used. That could one thing that could help but I think that by nature there’s always a lack of capital for these companies …

Patrick Rivelli:  Right.

Sal Daher:  … and if you’re interested in a company, you tend to find allies in other angel groups. I found in my experience that it’s not so hard. Those things get overcome. There is, you’re absolutely true, there is a little territoriality. Boston Harbor Angel’s, Hub Angels or Walnut and so forth but that gets dissolved very quickly if there’s an interesting deal afoot. That’s very good.

One of the things I like to talk about in this podcast are pivots. I’m just curious from your experience if you’ve witnessed any particularly interesting pivot stories. I’d like to say that if there as a pivot channel on TV, I would binge watch like people binge watch Game of Thrones or The Wire or something.


Patrick Rivelli:  I was involved in a pivot at Smart.

Sal Daher:  Okay.

Patrick Rivelli:  Which is the first company that I started. We were working on two products but one of them we thought was the better one and we learned over time that actually what we thought was our secondary program was actually a superior product so we shelved what had been our leave product and switched.

Sal Daher:  Right. Was the original plan a more focused thing and then you went broader or was it vice a versa or was it just a different type of application?

Patrick Rivelli:  It was a different application. It was technologically more ambitious.

Sal Daher:  Ah, okay.

Patrick Rivelli:  We would have had to do some raw science in order to make that lead program work.

Sal Daher:  Right.

Patrick Rivelli:  In a startup, that can be a rough go.

Sal Daher:  Yeah, it’s very hard to fund. How did you come to the realization that you had to go and bite the bullet and actually do the science?

Patrick Rivelli:  I think some of it was some of the physician advisors. Some of it was I think it was being convinced that there as value and you could help a lot of patients in a shorter period of time. You didn’t need to hit this home run in order to do something that would be valuable for patients and valuable for the business.

Sal Daher:  Right.

Patrick Rivelli:  It was okay to be maybe slightly less ambitious. I don’t know, I think sometimes as an entrepreneur, you shoot for something that’s giant and it’s okay to-

Sal Daher:  Pull back.

Patrick Rivelli:  Yeah, do something a little less…

Sal Daher:  Pull back and do something less ambitious.

Patrick Rivelli:  Yes.

Sal Daher:  Right.

Patrick Rivelli:  That’s not a failure and you’re not less of an entrepreneur.

Sal Daher:  In this case, you went your being less ambitious and it became more ambitious or was it vice a versa?

Patrick Rivelli:  Vice versa. We initially started with something that was much more ambitious.

Sal Daher:  Ah, okay. You had a much more ambitious plan and then you narrowed in and you figured out if we can do this little thing, there’s a big market. It’ll make a big impact and we’ll actually have a business whereas the other thing is just too much, too much to shoot for.

Patrick Rivelli:  Right, it would have been a science project first and then a development project.

Sal Daher:  Right. This is the norm that people have ambitions and then they discover that they have to narrow to something less ambitious but that’s doable and so forth.

The other day, I had an interview with Fred Bamber, who’s a Walnut member and a venture capitalist. He was telling the company that he was invested in that was doing some kind of security stuff for websites and they were doing a very particular aspect of the security and then the founder discovered really that the customers weren’t interested in that. They really were interested in security for the entire site. They went much more ambitious and then they were successful. The very target of business really didn’t have … the customers didn’t see value in it.

The more ambitious thing, harder to build, took more capital, was the solution. Typically, it’s nine cases out of ten, you go from more ambitious to less ambitious which is your case here.

You were talking about another pivot that you …

Patrick Rivelli:  Well, so the other one that comes to mind is one that you know about which is SQZ.

Sal Daher:  Ah, yes.

Patrick Rivelli:  Which is a really interesting pivot and it’s something that I see a lot of in the life sciences.

Sal Daher:  Tell us a little bit about SQZ if people are not familiar with it.

Patrick Rivelli:  SQZ is a company that came out of MIT that developed a technology for transfection, which is to get stuff into cells. The way they do it is by pushing a cell through a narrowing in a channel. They squeeze the cell and as the cell is in its squeezed state, the cell membrane becomes porous and you can get stuff into the cell. Genetic material or quantum dots or all sorts of stuff. Then as the cell is un-squeezed, it closes back up and whatever you put in remains in the cell.

Sal Daher:  It becomes active and transfects…

Patrick Rivelli:  It becomes active.

Sal Daher:  … transforms the cell into something else.

Patrick Rivelli:  Yes. When they started, they thought that the killer app was to sell this to researchers because researchers in every lab are using other techniques to transfect materials into cells. They usually do it by zapping the cells with electricity. They shock the cell.

Sal Daher:  Electroporation.

Patrick Rivelli:  Right, or they attach it to lyposomes or other things that are able to-

Sal Daher:  Lipofectamine.

Patrick Rivelli:  … Are able to cross and so, because they came out of a research lab, all their friends, all their fellow grad students and post doc’s and faculty advisors-

Sal Daher:  Are research guys.

Patrick Rivelli:  They’re research guys so sort of the natural thing is well-

Sal Daher:  We can sell to other research guys.

Patrick Rivelli:  Do what you know. The guy on the next lab bench would see and say, “Oh, this is so cool. I want one of those.” That was initially what they thought is that they would sell boxes to fellow researchers.

  It turns out that researchers have no money, that if they’re going to get money, it’s through a grant and the grant funding cycles take a year so your sales cycle is really, really long and …

Sal Daher:  It takes a lot of time to train the researchers in the techniques because these techniques are not fully worked out yet. It’s very new technology.

Patrick Rivelli:  Right.

Sal Daher:  Right.

Patrick Rivelli:  Even though the guy on the lab bench next to them wanted their box and said oh yes, in practicality, it wasn’t happening.

Sal Daher:  Right.

Patrick Rivelli:  I give them credit. What they realized that they could do is they could use their technology internally themselves to develop therapeutics. It was a huge pivot because instead of a relatively unregulated product, you’re now going to a highly regulated product with a lot of clinical testing before it gets to the market. Your customers are going to be very different and your capital needs are going to be very different.

  What I think is most impressive about them, the talent and the skills of the management team suddenly are very different because instead of a sales set of skills where the focus is how can I sell this box to researchers and training and customer support, it’s much more of a science and product development and clinical and regulatory skill set.

Sal Daher:  It’s setting up collaborations with large pharmaceuticals like the Roche deal that they have …

Patrick Rivelli:  Yes.

Sal Daher:  … on oncology.

Patrick Rivelli:  Right.

Sal Daher:  Also, they raised the Series B money, I guess the total of 22 million dollars, to carry on some of this development in house, as well.

Patrick Rivelli:  Right, so when they started-

Sal Daher:  They’re finally playing to their strengths which is development the technology and the science or collaborating with other deep pocketed institutions or companies that have the where with all to continue helping them develop that instead of getting into the business of selling transfection technology competing with lipofectamine or electroporation companies which is all of sales and not developing technology.

Now, they’re finally playing to their strengths.

Patrick Rivelli:  It took a lot of courage to do that and it took a change in the leadership of the company to match what the new skill sets were and that-

Sal Daher:  Once again, this reminds me of what you were describing when you had that experience with Target, failing at being the production guy. Imagine these guys, absolutely brilliant and incredibly capable guys not achieving the goals they had set for themselves. Probably the first time in their lives they met failure but they managed to overcome it with a lot of wisdom and are in a very promising path right now.

Patrick Rivelli:  Yes, it’s a great example of a pivot and a really courageous one because it would have been easy to either continue down the path and say well, this is what we had planned to do, we believe this. Obviously they wouldn’t have started the company around that if they didn’t have faith that this would succeed. They could have continued down that road and run into a brick wall, had the company die, and say well, our timing was bad or whatever.

Instead, they were willing to be very self-critical and realize that they should switch paths.

Sal Daher:  You know, when I invested in the company, in SQZ … I bought that line that they were going to sell it to the lab bench next to them.

Patrick Rivelli:  Yes.

Sal Daher:  I thought that oh, that’s really easy, it’s accessible and so forth. It’ll generate money for them to do the real science which is the stuff that they’re really good at but instead of them spending all their time raising money and so forth … There was a very wise analyst that looked at this for a group in Boston here that I know and they passed on the deal at the time and the reason they passed on the deal is they said these guys shouldn’t be doing this. They’re barking up the wrong tree. They should be doing the science.

Patrick Rivelli:  Yes.

Sal Daher:  Eventually, I guess they came around to that view which was much wiser.

Patrick Rivelli:  I see that all the time. It’s the seduction of early revenue. It’s the seduction of not having to dance with the FDA and all that that entails but sometimes, you know, going the hard path is really the smart thing to do.

Sal Daher:  I’m invested in a company, and I’ve been invested for several years now. I can’t mention the name because of regulatory reasons but the situation when I went in was one where they had a VC that put in 16 million dollars to develop the product and the VC wanted the product to be FDA approved.

They had a fight. The company had a fight and the VC cut them off because the company didn’t want to do FDA approvals. They wanted to do something that would have been consumer driven and so forth. My partner and I came in as part of a bridge loan to the next raise to keep the lights on and after they raised money, they did a bunch of things, guess what? They’re going the FDA path.

Patrick Rivelli:  Yes.

Sal Daher:  They realized that they cannot get reimbursed in a consumer product. There’s too much noise in the consumer market but when you have something that’s FDA approved and it’s a prescription, it’s taken seriously and there’s money to reimburse you and so forth whereas if you’re not on the FDA path, there is not.

That was a little bit of the same thing. Going from non-FDA approval to FDA approval which can seem counter-intuitive.

Patrick Rivelli:  I see that all the time

Investing in Biotech vs. Non-biotech Companies – Patrick’s Crucial Calculation – Very Instructive

Sal Daher:  Yeah. Tremendous.

I think we got into this a little bit but compare and contrast investing in a biotech company versus investing in a non-biotech company, in your experience.

Patrick Rivelli:  I think there’s a couple things about biotech that make it a little bit different than some other industries. Number one is the time frames tend to be longer so for those people who have short investor horizon, if they want resolution in two years, three years, probably not for them.

Sal Daher:  Not for them.

Patrick Rivelli:  I think the median exit is around seven years so it’s a little bit longer time frame. The other thing from an angel perspective that’s important to keep in mind is that the total capital needs over the life of the company are going to be large. Larger than you’re likely to be able to raise from angels. At some point, you’re going to need to raise institutional money. What’s really important, at least from my perspective is, before you go into a biotech investment, you need to understand the whole trajectory of the company and is your angel round going to be sufficient to trigger an institutional round.

It’s not like some industries where you can bring in capital in other ways or you can raise multiple rounds of angel money. Once you get into clinical testing, you’re looking at tens of millions of dollars for a typical biotech.

Sal Daher:  You’re not going to get a strategic player to come in until you’ve spent tens of millions of dollars validating the technology.

Patrick Rivelli:  Right. You might get corporate venture capital but it’s not, you know-

Sal Daher:  Not strategic capital which is the big money.

Patrick Rivelli:  Right. For any life sciences company, I always like to map out the entire life of the project from where it is today to the finish line.

Sal Daher:  Very instructive.

Patrick Rivelli:  Then think about phases and think about this very first phase needing to get you to a milestone that is going to get institutional money in. A lot of founders-

Sal Daher:  By institutional money, you mean venture capital-

Patrick Rivelli:  VC’s.

Sal Daher:  Money that comes in chunks of five, ten million dollars.

Patrick Rivelli:  Exactly.

Sal Daher:  Instead of money that comes in chunks from angels of a hundred thousand, five hundred thousand or even up to a million and a half.

Patrick Rivelli:  Right.

Sal Daher:  In an angel round for a biotech firm.

Patrick Rivelli:  Right. I think unless you know the whole trajectory and the capital needs that tie to that and that your very first financing is sized properly to get you to institutional money, I think you wind up getting into trouble and I see lots of company who they come in and they want to raise money to do part of the stuff that’s going to be needed to get institutional money but they’re forgetting certain things. Especially things that are not the fun, sexy stuff.

Everybody always wants to do stuff for efficacy but they forget that basic safety stuff, it’s not glamorous. Basic manufacturing, GMP manufacturing, it’s not glamorous but you need to do it-

Sal Daher:  … and it costs money.

Patrick Rivelli:  … and it costs money. If you don’t have that in your plan, you’re not going to have what you need to unlock that institutional money. Then you’ll be in this desperate situation where the VC’s are saying oh, this is great, you have seven out of the ten boxes checked. We really like all of this. Check those last three boxes and then we’re in.

Sal Daher:  Those last three boxes will cost you 30 million dollars.

Patrick Rivelli:  Right, or whatever.

Sal Daher:  You have no way of raising.

Patrick Rivelli:  You have no way of raising.

Sal Daher:  Right.

Patrick Rivelli:  I think unlike some other industries, where I think you can wade in and then take it as it goes, I think in biotech, you need to plan it out much more in advance. It’s harder to freelance once you get in.

Sal Daher:  You should be saying if these guys raise a couple of angel rounds and they got a million and a half, will it get them to the point where they can raise institutional money or not?

Patrick Rivelli:  Right.

Sal Daher:  That’s the big question for you.

Patrick Rivelli:  Yes.

Sal Daher:  Excellent. Patrick, I can’t express how grateful I am for you to come and to sit here, take time out of your very busy life and talk to us and to give us the benefit of your wisdom.

I’m very grateful to you, as I’m sure our listeners are as well, and I’d like to wrap this up, so thanks a lot for being here.

Patrick Rivelli:  Oh, well thanks. It’s been fun.

Sal Daher:  It’s really delightful.

Listeners, if you enjoyed this podcast, kindly review it on iTunes. I’m Sal Daher. This is Angel Invest Boston, conversations with Boston’s most interesting angels and founders.

I’m glad you were able to join us. Our engineer is James Willets. Our theme was composed by John McCusik. Our graphic design is by Maywood Art. This is Angel Invest Boston. I’m Sal Daher.