Case Study

Day Zero Diagnostics Prepares for Equity Financing

See how this biotech company was able to use the platform to prep for its first equity financing round and help protect its valuable IP.

Introduction

In a critical medical situation, time is everything. When a patient comes in with a life-threatening infection, a physician has a narrow window to figure out a course of antibiotic treatment, and with every second that passes, that window comes closer to slamming shut. Today, it can take a doctor between 2 to 5 days to diagnose an infection’s resistance to antibiotics, if they’re able to at all. A patient with sepsis can die in a matter of hours.

Day Zero Diagnostics is working to stem the tide of this public health crisis, combining genome sequencing, a large proprietary database, and machine learning to diagnose an infection’s antibiotic resistance profile within hours rather than days. With this information in hand, a doctor can treat a patient with a targeted antibiotic on the first day they are admitted to the hospital—day zero.

With a cause this important, the founding team at Day Zero Diagnostics needed a technology provider that could add real value and allow them to scale efficiently, without diverting key time or resources from their core mission. Fidelity Private Shares℠ was seen as a natural fit.

“There are very few things we go to outside companies to do,” explains Day Zero CEO Jong Lee. “We’re very efficient about the way we use outside resources. When we approach a company like [Fidelity Private Shares], it’s because the technical skillset is critical.”

In 2016, Day Zero was a team of 5 that used Fidelity Private Shares to sell $500,000 in convertible notes to friends and family. By 2019, the company had nearly quadrupled in size and had closed a $8.6 million Series A round to bring its total fundraise to $12 million. Here’s how Fidelity Private Shares helped make that growth possible.

Platform Adoption

Wet lab science can be expensive, and the founders of Day Zero knew that if they were going to succeed in their mission, they’d have to spend their funds wisely. That meant doing as many things in-house as possible, and only engaging outside assistance that they believed was truly worth the money.

Fidelity Private Shares was one of those key outside pieces. Day Zero turned to Fidelity to execute its convertible round, grant equity, obtain board and stockholder consents, operate its data room, and manage all of its key human resources workflows, which helps them save time and allowed them to allocate legal spend to complex, high-value tasks. This decision allowed the company to successfully bootstrap in its early stages and use its limited funds to tackle the challenge of executing a machine learning approach in a field that had not.

Preparing for Equity Financing

The founders of Day Zero knew that their initial $500,000 investment could only go so far, even with their economical approach. If their mission was going to succeed, they would need an institutional investment. Using Fidelity Private Shares meant that when the opportunity for an equity financing presented itself, they could be in a position to execute it efficiently.

Day Zero leveraged the platform as a go-to resource to populate a shared data room with investors, and to immediately download key historical documents. Because Day Zero had worked with [it] since its early stages, their employee agreements, advisory agreements, contracts, legal forms, NDAs, board approvals, and stock option grants were all fully executed and organized. Having all of the necessary documents readily accessible for investors made the equity financing process faster, easier, and more cost-effective.

“Using [the platform] demonstrated to investors a level of organization and controls in our process that felt professional and comprehensive,” says Lee. “Without [it], I am absolutely certain it would have taken me an enormous amount of time or a lot of legal expense to organize all these documents and some would inevitably have been missed.”

Managing Human Resources and IP for a Growing Company

As a life sciences startup, Day Zero requires employees with a high degree of technical and scientific sophistication. Fidelity Private Shares is there to help meet those human resource needs.

“The way I describe our company is that we’re a hard science company. I mean that in both ways: we’re doing the sort of deep, technical science that most startups don’t get engaged in, but I also mean hard in the other sense of the term, which is that almost everything we’re trying to do has never been done before,” explains Lee.

That Day Zero is tackling problems that are both difficult and novel means that the company needs to not just be able to attract, recruit, and manage highly-qualified employees, but also to oversee the intellectual property that they create. Using the platform, Day Zero has grown from a team of 5 to a team 19 with almost no administrative burden, with a more simple, streamlined process for hiring, sharing HR documents, and managing compensation, stock options, and promotions.

In addition, Day Zero uses Fidelity Private Shares to help protect its intellectual property via employee invention assignment agreements, employee confidentiality agreements, and non-disclosure agreements.

Legal Education with Fidelity

The platform wasn’t just a legal operating system for Day Zero; it was also a source of education. The founders of Day Zero are analytical and profoundly intellectually curious—these attributes, combined with the ease-of-use provided by Fidelity Private Shares, meant that by performing workflows within the platform, they could be expanding their own knowledge of corporate structure, governance, and standards.

“I found [it] to be a really educational experience, and I got a lot just by understanding the structure of the workflows,” says Lee. “We got a tremendous amount of insight into processes that might be familiar to somebody who has gone through it 10 times, but were totally unfamiliar to us.” With that foundational knowledge, they were better prepared to leverage high-value legal advice from their company counsel.

Fidelity helped the Day Zero team not just establish the company in its early stages, scale over time, and run day-to-day operations, but also to become more well-rounded and knowledgeable founders who are well positioned to have meaningful conversations with their attorneys about substantive issues and legal strategy.

Helping Make the Day Zero Mission a Reality

Even after multiple successful fundraising rounds, Lee is no less attuned to how critical it is that his company spends its resources on the right things. “One of the core tenets of our culture is that we’re incredibly capital efficient,” he says. “We treat as core the idea that investor money is something that needs to be shepherded, and we’re value oriented in how we spend our money.”

Day Zero has been focused from the beginning on leveraging technology to run an efficient professional business its investors can believe in. Standard processes and documentation can allow companies to scale confidently and raise capital without much fear of surprises. Fidelity Private Shares may provide that foundation for growth so the Day Zero team can invest in saving lives.

About Fidelity Private Shares

Fidelity Private Shares provides end-to-end automated equity management solutions for venture-backed startups. Fidelity is reshaping how companies get started, raise capital, and exit and is used by numerous investors, legal teams, and startups, including companies like Burrow, Firefly Health, Rugged Robotics, Day Zero Diagnostics, and many more.

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