Reticula Pt. 1 - Pandemic Scale Sequencing

Update: If you’re interested in what Reticula actually is you might want to skip to parts 2 and 3 (where I describe the approach).

Upfront I want to say that Reticula is my company and if this doesn’t interest you, I apologize for the spam. I really appreciate the hundreds of people who have signed up for my newsletter and don’t want to waste your time. But hopefully you’ll find some of the ideas of interest.

In this post I’m going to discuss the company background. And may follow up with posts on the market and technology, depending on levels of interest/irritation.

Background

Reticula started as a YC pitch called ACSeq, I applied in April 2021 and went to interview. The pitch was DNA/RNA sequencing as cheap per sample as qPCR. Highlighting the lack of impact that sequencing has had on COVID19 diagnostics. Essentially saying, lets get sequencing so cheap ($1 COGS on runs, $500 on instruments) that we can replace qPCR with sequencing (with all its advantages).

I had a basic proof-of-concept, essentially showing I could do the required optics cheaply.

The interview went ok but they didn’t invest citing that “solo founder in Japan seems like it's probably running against some headwinds”. This is fair. YC appear to have only invested in one Japanese company. Which is surprising given the size of the Japanese economy and how much YC have invested elsewhere in Asia.

However, having talked to Japanese investors in the past this seems fair. I don’t think it’s an issue with Japanese startups, but there’s a lack of good options for seed and further investment.

But unlike some of the ideas I’ve previously applied to YC with this one stuck with me. So I worked up a deck and started contacting a few investors. This resulted in 1 (and a half) offers. But things didn’t pan out, and was a pretty painful process. This is mostly just a consequence of how the investment environment is set up.

I received my first offer from Jason Pontin at DCVC. The DCVC process took quite a long time, but it was quite valuable. Jason correctly said we needed a new name, and I dug up Reticula a Latin word meaning “Small Net”. It has some nice associations with one of my favorite books and some personal associations too.

But things didn’t work out. The initial deal proposed as $650K pre-seed incubation. DCVC post-money: 43%. (Founder 34%; reserving 8% for future investors + 15% pool.). This didn’t feel like enough to get what they wanted done (full proof-of-concept on sequencing, the budget for which we’d discussed as being $700K). I asked if we could push the amount, so we’d have enough to get the project done, and the valuation would be better. But I didn’t hear back by the time agreed.

So, I started asking around and emailed a few other people mentioning the DCVC deal. One of those people was Hermann Hauser (founder of Acorn, and involved in the foundation of ARM Limited). I’ve talked to Hermann a few times about sequencing in the past, and given his background in Tech, he’s surprisingly sharp on Bio.

Unfortunately Hermann forwarded my email to DCVC and as Jason said “Inevitably, Herman forwarded your email to Matt, because Herman and Matt are good friends, which has made the negotiation for an additional $300K difficult.”. Without a no shop in place, I don’t understand why I would not be at liberty to discuss terms with others. I guess this is where the deal started to go south.

I asked around about DCVC, but most people had a negative impression as not being particularly founder friendly. And I was getting the sense that this might be a difficult relationship.

DCVC did come back with a revised deal: $700k for 43% for DCVC, An additional $100K-$150K reserved for a mutually agreed 3rd party investor, convertible note.

This is essentially a note with a $1.6M cap. which means at the next round DCVC would invest at a $1.6M valuation. Generally in Bio I would say at series A you want to be looking at a $10M valuation. So I couldn’t see how this would work, essentially it felt like a deal where the numbers don’t matter, DCVC would just set the terms at the next round, maybe we’d need to do a recap.

At the same time I talked to Jenny Rooke at Genoa. Jenny is an awesome and insightful investor, she offered a note covering 50% of what I’d need up to $1M. The idea was to take this to DCVC and help push terms in the right direction, or find someone else similar to work with. I talked to Jason and he said they’d discuss it internally.

DCVC then pulled the deal.

This was a surprise to me, and clearly a mis-step on my part. So now with no money on the table I followed up with Jenny. She recommended we take a second pass with General Inception. I’d talked to GI before and they’d passed, so it felt like this might be a low probability option, but went ahead anyway.

This was now October 12th 2021. So we started talking again, the idea was we’d do a 1 or 2 month project where we’d kind of talk to some “key opinion leaders” and figure things out. The process turned out to take ~4.5 months from that October start date. The most useful part of this was getting to know the General Inception folks better, they’re awesome. And I got a much clearer understanding of how they think about companies.

But the KOL interviews themselves, not so much. In some cases these were with people I’d spoken to already. In others, the feedback I got was that there were some niche applications where the presented specifications would work, or that there would be regulatory issues. But this was mostly known information. And I didn’t get much of a sense of how I would need to shift the play to move things forward.

Which brings me to today. Where, without any funding, I don’t think I want to work through another long due diligence process.

There are probably a few lessons to draw from the experience. But right now the most significant is the asymmetry between bootstrapped founders and investors is difficult to manage as a founder. The problem is they have far more resources, and gain value from meetings away as part of their thesis building process. As a founder, you have limited resources which can easily get depleted…