Seattle bioengineering company Arzeda launched in 2010 with technology developed at the UW. Until it got a big venture-capital infusion this summer, its strategy was to bootstrap using outside computing power and to find big industrial customers for its research efforts.
At the mind-stretching intersection of computer science and biology is a futuristic company that got itself off the ground the old-fashioned way: bootstrapping.
Seattle bioengineering company Arzeda launched in 2010 with technology developed at the University of Washington. The company’s founders from the beginning embraced a pay-as-you-go strategy that raised money by selling bioengineered molecules to industrial customers.
Despite being in business for seven years, Arzeda only last month nailed down its first multimillion-dollar venture-capital investment — a $12 million infusion led by the OS Fund.
Arzeda co-founder and CEO Alex Zanghellini, who earned a doctorate in biochemistry at the UW, said the company will use the money to hire staff and expand its computing system and lab, among other things. “It’s very important,” he said.
Arzeda’s bootstrapped beginning was partly by necessity because of the nature of its technology, which was new and evolving.
Such bootstrapping has also become more possible in recent years with the rise of cloud computing, which lets entrepreneurs subscribe to potent computing services without making costly investments to set up their own servers.
Arzeda certainly needs plenty of computing power to do its work.
The company’s biologists and computer scientists use Arzeda’s software to custom-design proteins for specific commercial uses. This takes considerable computing power, which Arzeda buys from Amazon’s and Microsoft’s cloud-computing services.
The 17-employee company then creates and tests the engineered proteins in its lab. Designs that pass muster are sold to customers in the form of instructions, much like blueprints, that tell the companies how to create the proteins with specific combinations of amino acids.
Arzeda’s customers and contract chemical manufacturers use the blueprints to make large amounts of the engineered proteins. Essentially, the companies modify yeast or bacteria cells so they will copy the designed molecules as they reproduce in fermentation vats. Zanghellini describes it as an industrial process that “puts the factory in the cell.”
Arzeda’s custom molecules are used to make such disparate things as nylon running clothes, chemicals and hybrid seed for crops. In many cases, Arzeda’s bioengineered proteins are substitutes for petroleum-based compounds.
Among the company’s customers are DuPont Pioneer, the seed giant, and Mitsubishi Rayon, a maker of synthetic materials. Another customer, Invista, makes a variety of fibers, fabrics and chemicals.
The private company does not disclose its financial results, although Zanghellini said customer revenue tripled from 2015 to 2016.
Arzeda got its start in 2008 at the University of Washington Center for Commercialization. A team of scientists, including Zanghellini, incorporated the company the following year, and Arzeda received a $250,000 seed investment from the Washington Research Foundation. By 2010, the company was in business.
At the beginning the company was lean to the point of austerity. Arzeda literally started in a garage that lacked running water, forcing its founding scientists to buy double-distilled water from a laboratory supplier. The company soon moved to a larger space with a water supply.
The founders rejected the notion of getting a lot of startup cash from venture capitalists. They wanted more time to refine the technology and find promising markets, Zanghellini said, and equity investors might not have the patience.
“We … wanted to better understand where the value was in the technology,” Zanghellini said. “We worked very hard to do that.”
The company got a big break when DuPont Pioneer hired it to design and test a protein that would improve the performance of crops from its seeds. The deal gave Arzeda some revenue and showed that its technology had commercial value.
Although financing startups with venture capital gets a lot of attention, bootstrapping remains a common strategy with its own advantages.
“It’s a great way to bring in cash without having to pay it back or having equity investors who expect a return,” said Matt Medlin, a shareholder at Bellevue accounting firm Clark Nuber and a board member for the Technology Alliance.
The growth of cloud-computing services appears to be encouraging bootstrapping, especially in the tech sector, because it gives startups a cheaper alternative to spending enormous sums of money on their own computers.
“It saves them a ton of cash,” Medlin said, money that they can spend instead on operations.
Nonetheless, many startups reach a point where they need access to larger sums of money to expand the business, he said. When that moment arrives, startup executives may look for loans or equity investors.
Arzeda reached that point, and in late July it announced the $12 million investment by OS Fund, Bioeconomy Capital, Sustainable Conversion Ventures and the Washington Research Foundation.
As the lead investor, OS Fund got a seat on Arzeda’s board, although the fund is not disclosing its ownership stake.
Jeff Klunzinger, the fund’s co-founder and managing director, who is based in Chicago, said Arzeda looked like a good investment because of its technology and the longevity of its executive team.
While already having customers and sales revenue was not a requirement for the OS Fund, it was a big plus, Klunzinger said.
“It de-risks the company significantly,” he said.