Inside The Startup Reinventing America’s Trillion Dollar Chemical Industry

Solugen is reinventing the trillion-dollar chemical manufacturing industry by combining biology and chemistry in a new way. In this episode of Hard Tech, YC's Jared Friedman visits co-founders Gaurab Chakrabarti and Sean Hunt at their Houston HQ to see how they went from a $7,000 PVC reactor to a billion-dollar company competing with industry giants. They cover the breakthrough behind their enzymatic + catalytic production, how they found their first customers, and why starting small and staying close to customers let them win in a capital-intensive industry. Chapters:00:00 - A New Kind of Chemical Plant01:02 - Fusing Biology + Chemistry In a New Way02:23 - The Eureka Moment: From Pancreatic Cancer to Hydrogen Peroxide03:30 - Using A Sugar Feedstock Over Oil and Gas 04:22 - Proving Enzymes Work at Scale In Chemical Manufacturing05:16 - The $7K PVC Reactor06:44 - Finding First Customers at YC08:12 - What The Co-founders Got Out of YC09:33 - Seed Round to Bio Forge10:32 - Scaling to a Full-Size Plant (Bioforge)11:57 - The Future of American Manufacturing12:29 - The Next Decade of Solugen Apply to Y Combinator: https://www.ycombinator.com/applyWork at a startup: https://www.ycombinator.com/jobs

• 0:00Speaker 00

  This reactor in Houston, Texas, represents a whole new approach to chemical manufacturing.

• 0:05Speaker 01

  We make chemicals in a completely new way. We started off by making hydrogen peroxide. Now we sell products for water treatment, national defense, infrastructure, agriculture. You name it, we make a chemical for it.

• 0:16Speaker 00

  The story of Soligen is as scrappy as it gets. It all started with this prototype, built out of PVC pipes the founders bought from Home Depot.

• 0:25Speaker 02

  In its heyday, this did $12,000 a month in revenue.

• 0:28Speaker 00

  Fast forward to now, Soligen is a billion-dollar company shipping out tanker trucks of products that power critical U.S. industries. So how did they go from this single beaker of hydrogen peroxide to this full-scale manufacturing plant? I visited Soligen HQ in Houston, Texas to find out.

• 1:00Speaker 00

  What do you guys do here? What is Soligen?

• 1:02Speaker 01

  We use biology to create chemicals that allow us to create smaller chemical plants and have a cleaner, safer, more environmentally friendly footprint. We've invented a process called chemi enzymatic processing, where we take the specificity of biology by taking an enzyme and pairing it with a metal catalyst, which is what's traditionally used in industry. What we've done with these is by marrying these two, you can actually create more efficient reactions. So instead of having a 60% yield, you can have 96% yield, which is what we have at scale, thrice because of these two catalysts.

• 1:35Speaker 00

  Soligen is the first company to fuse biology and chemistry in this way, pulling enzymes from living cells, in this case, corn syrup, and pairing them with novel metal catalysts. The output is chemicals that can be used in everything from agriculture to skincare. Traditionally, chemical plants relied on fossil fuel feedstock, which has led to all kinds of unintended consequences. This new approach is cleaner, safer, and more efficient.

• 2:00Speaker 02

  We receive rail cars of corn syrup and then we run our utility system. We change the parameters of the plant, the way that the enzymes are reacting, the way that the metal catalysts are reacting to oxidize the corn syrup how we want. And then at the end, we evaporate water. We take the final products, we store them in finished good tanks, or we send them to a blend farm to get blended with other chemicals. And that's the process.

• 2:22Speaker 00

  Cyagen started with a true eureka moment, the kind of freak invention that normally happens only in science fiction. Sean was working in the chemicals industry, and Gorab was in medical school studying pancreatic cancer.

• 2:34Speaker 02

  I was working on this Skunk Works project to try to do direct hydrogen peroxide synthesis, where you react hydrogen and oxygen gas directly together over a metal catalyst. And then, you know, I was working on this project. And then Gorab was like, oh yeah, no, like I found this like really crazy mechanism in pancreatic cancer where it's like locally 50% hydrogen peroxide concentration. I was like, what? That's wild.

• 2:51Speaker 00

  It turned out that an obscure enzyme found in pancreatic cancer cells that Gorab was studying was the key to a new process for making industrial hydrogen peroxide.

• 3:01Speaker 01

  So these pancreatic cancer cells, they put out peroxide. Peroxide creates almost like an invisibility cloak around the pancreatic cancer that makes it difficult for immune cells to come in. It was like, that's a very interesting discovery, but why? And so, once we asked the question, why? We found out the reason was an enzyme. It was just a mutated enzyme that's found only in pancreatic cancer. And so that's when we said, what if the two worlds could collide, right? What if enzymes and metal catalysts could coexist?

• 3:30Speaker 00

  Here's how it works. Cyagen feeds corn syrup to the enzymes, the same ones from the pancreatic cancer cells, which transform it into new compounds. They then use metal catalysts to further process those into the final chemicals that can be used to build all kinds of products we use in our everyday lives. In most chemical plants, the feedstock comes from oil and gas, which inevitably produces toxic byproducts. Cyagen literally starts with sugar.

• 3:56Speaker 01

  We had to suspend belief for a second. People believe that anything to do with biology and chemicals, it's just a bad mix. Because, oh, biology is too sensitive. It's going to break down, blah, blah, blah, blah, blah. But we said, let's suspend that criticism for a second and just look at the numbers. And we say, if we can make the enzyme last this long on stream and the product is this concentration, we can make a lot of money. And that's where we started.

• 4:22Speaker 00

  This insight that organic enzymes could operate at industrial scale and efficiency was the company's first key breakthrough. Today, Cylogen operates both a biology and metal lab where it produces its own enzymes and metal catalysts in-house.

• 4:36Speaker 01

  These are actually enzymatic reactors. So what we do, we grow bugs. We break the bugs open. We take the enzymes and we put them in these reactors. And we can stress them out and figure out what they're capable of doing at scale. We have outfitted this with probably some of the best analytics that you can ever have for enzymes, which gives us a good insight into how things will scale.

• 4:57Speaker 00

  Across from the biology lab is Cylogen's metals lab.

• 5:00Speaker 01

  We just went to the enzyme lab. Yeah. Basically, now we pair that enzyme with the right metal. And so you can basically mix and match which metal and which enzyme you want to pair together.

• 5:10Speaker 00

  Their next big insight was a commercial one. Previous startups that had tried to do something like this all started by raising a huge amount of funding and building a large-scale plant. Cylogen took a different approach. They built their first reactor for just $10,000 and then started selling to customers almost immediately. Gradually, they scaled up to larger and larger plants. So you did this techno-economic analysis and you're like, wait a second, this could actually work.

• 5:35Speaker 02

  So May 2016, we got unofficial second place in the MIT 100K competition.

• 5:40Speaker 01

  We lost.

• 5:40Speaker 02

  We got, we lost gloriously.

• 5:42Speaker 01

  Yeah.

• 5:43Speaker 02

  But we got $10,000.

• 5:44Speaker 00

  $10,000, that doesn't seem like very much money.

• 5:47Speaker 02

  I think capital-constrained force is very creative thinking. Because like with 10 grand, like you have a very confined space of what you can afford to buy to try to make the product. And so ours ended up being PVC, like a Walmart shelf. You know, we couldn't even afford the metal catalyst parts. It was just the enzyme portion.

• 6:05Speaker 00

  This was the very first Soligen reactor.

• 6:08Speaker 02

  Yep, this is the first one, complete with Schedule 80 PVC from Home Depot. This is like a bubble column with a membrane. So you sparge air in to the bottom. Inside, there's the liquid with the corn syrup and the enzyme, and it's kind of spinning in a loop. Then they're reacting, which makes the peroxide. And then this is a membrane. And so the membrane keeps the enzyme in the bubble column. And then the permeate on the membrane is the peroxide product.

• 6:37Speaker 00

  Armed with just their $10,000 reactor but no customers, Sean and Gorb applied and were accepted into YC, where they deferred a few months and set out to first try and sell the tiny volumes of peroxide they could make.

• 6:49Speaker 02

  We made our first product in like September 2016. We couldn't afford any controls, right? This is a total manual operation. We'd come in in the morning. We would try to get this reactor to a steady state. And then I'd go to work. He was, he'd go to the hospital. He was in his last year of med school. I was on surgery rotation. He's on surgery rotation.

• 7:06Speaker 00

  Wow.

• 7:07Speaker 02

  Yeah, 36-hour shifts. Good times. And then in the evenings, go in and try to retune it to a steady state. And then our first three customers were Float Spa hot tub owners in Dallas. We discovered the supply chain dislocations because for these hot tub owners, they were buying 3% peroxide in the brown bottle on the store. That went through multiple distributors, multiple downpackers, putting in little brown bottles, shipping it to the store, retail markup. It's like, oh, we only have 10 grand, but like we're actually manufacturing the chemical and we're like bypassing like huge distribution value chains. So on weekends, we would pour the chemicals in people's hot tubs. We looked at a bunch of markets to be like, where can we just like wedge ourselves into?

• 7:46Speaker 00

  When we first accepted Soligen into YC, they had zero revenue, but they deferred by a batch and spent six months getting those first customers. By the time they started at YC, they were gaining traction. Typically, when people think about hard tech companies like you guys in YC, they're like, that makes no sense. What could you possibly accomplish for like a few hundred thousand dollars? To most people, it intuitively seems hilariously mismatched to the like costs and timelines of something like a new chemical plant.

• 8:12Speaker 01

  This fundamentally goes back to the customer experience, which is what YC taught us to do, right? It was really like, for me, it was like grad school for customers. This is how I look at YC, where it's like, the second you have a PhD in your customer and you're an expert in their world, then you know exactly what you can and can't build. It's that simple. If you know this customer is not the right fit, that's okay. Go to the next customer.

• 8:32Speaker 00

  I remember the picture of the beaker because in your demo video, that's what it was.

• 8:37Speaker 01

  Do you remember this?

• 8:37Speaker 02

  The blue beaker and then we had the color change back and forth with the metal catalyst.

• 8:41Speaker 00

  But I remember another thing about your application, which is, even though the only thing you'd actually made was like one beaker full of this stuff, you had the idea completely worked out. Like you totally understood the reason that this would work. You'd worked out all the techno economics, like all the math was done. The idea was fully flushed out. I don't think the, like, the core idea has changed one bit since the blue beaker phase.

• 9:05Speaker 01

  Literally the same.

• 9:06Speaker 00

  Yeah, it's just like a million times larger.

• 9:08Speaker 01

  Yeah, it's just larger.

• 9:13Speaker 00

  During YC, you guys were still driving around with like buckets of peroxide and selling them to spas. You finished YC, you raised your $4 million seed round. What happens then?

• 9:24Speaker 01

  So we moved to where our customers were, which was Houston, Texas. And we used the seed capital to build our first big pilot reactor, not just a PVC pipe reactor, but a proper 1500 gallon type reactor.

• 9:35Speaker 02

  And then our first oil and gas field trial was January 2018. And so we had billboards targeting this guy so we could go get our first oil and gas field trial.

• 9:42Speaker 00

  Wait, you had billboards targeting one guy?

• 9:44Speaker 01

  So what we did, there was one guy at the saltwater disposal company, who controlled all of the chemical spent. What we figured out was where he frequents, like, he actually goes to the field where he goes and where he lives, or at least the neighborhood he lives in. And we bought up the billboard, and billboards are cheap.

• 10:02Speaker 00

  Along the highway that he commutes to work in, so that every day as he's commuting to work, he's just seeing your billboards.

• 10:08Speaker 01

  And then eventually he gets a call from us. It's like a priming aspect of it that we knew this was the guy. I was willing to spend 10 to 15K just to make sure that we can get in front of the guy. And the second that he saw that and he got a call from us, he was like, oh, I see your billboards everywhere. And so that's when he felt special, right? And this goes back to the customer experience. Do you think the CEO of Dow would do that? No, no way. They were not going to do that.

• 10:32Speaker 00

  Soon, Syagen had signed enough customers that they were able to raise money again and build their first state-of-the-art plant, the Bioforge One.

• 10:40Speaker 02

  So this is Bioforge. Everything you're looking at here was built in five locations simultaneously and then shipped here on trucks. We rented a crane for four months and just stacked it up like Legos. So all of the tan tanks are filled with corn syrup. That's our raw material. We are able to hold four rail cars of corn syrup at any one time, which is about 800,000 pounds. So it's like 800,000 pounds of corn syrup in these four large tan tanks. That's the starting material for the whole plant. That's the starting material for the whole plant. And then the plant runs continuously 24/7. So this is the full-scale version of the PVC reactor. Is this the bubble column? This is the bubble column. It's so tall. 60 feet tall.

• 11:22Speaker 02

  It's identical to the PVC reactor from Y Combinator. It's just 10,000 gallons instead of seven gallons. We sparge air in the bottom. Corn syrup and enzyme go in the top and the two react together. All the other stuff is necessary, but like this piece is the magical piece, right? This is the reactor that makes it happen, yep. We feed in one Coke bottle of enzyme. And you get two to four tanker trucks of product. That's how efficient the enzyme is. Wow.

• 11:48Speaker 00

  After filling up the tanks, Syagen loads up trucks to distribute the chemicals to nearby customers.

• 11:53Speaker 02

  So this is the end of the line. This is where customers pull up either with their own trucks or Syagen supplies trucks and does all the logistics for them. And we're able to fill up trucks at about 300 gallons per minute.

• 12:05Speaker 00

  Building out lots of factories near customers to keep shipping costs down is a key part of how Syagen has managed to undercut its larger competitors. What has it been like to build new, like, physical stuff in America?

• 12:18Speaker 02

  It is definitely challenging, but if you're in a part of the country that wants to have manufacturing back, that's favorable to manufacturing, like it is absolutely possible to build in America. What does Siagen look like in 10 more years? It's actually going to be multiple different assets. So we're actually like, we've taken enzymes and metal catalysts and applied them to not just bio forages, but other types of manufacturing assets that combine them. And we'll be solving the most fascinating customer problems that like right now, like we're not even aware of them.

• 12:46Speaker 01

  Some of the problems that we're going to solve, they don't exist yet. And so it's like just creating a culture that's willing to like be wrong and solve those problems is actually what's most important right now.