54gene valuation slashed by over $100M amid job cuts and CEO exit • TechCrunch

It’s been a strange few months at African genomics startup 54gene. In August, it laid off 95 employees, mostly contract staff (in labs and sales departments) hired to work in 54gene’s COVID business line launched in 2020. In September, co-founder and VP of Engineering Ogochukwu Francis Osifo left the company. And this week, founder and now former CEO dr. Abasi Ene-Obong stepped down from his executive role to be replaced by general counsel Teresia L. Bost.

This news coincided with more job cuts. The company confirmed to TechCrunch that this second round of layoffs, which took place on Tuesday, affected more than 100 employees: 55% of the total workforce remaining after the first round of layoffs. The biotech did not specify which roles and divisions were cut.

The Washington and Lagos-based genomics startup has been considered the showpiece of Africa’s new biotech space since joining Y Combinator in 2019. But while 54genes was launched to address the gap in the global genomics market, where Africans make up less than 3%. of genetic material used in pharmaceutical research, its growth in 2020 has overlapped elsewhere, with the COVID-19 pandemic, and it has been aggressively hired to meet the requirements to become one of Nigeria’s largest suppliers of COVID- to be testing.

Its readiness to meet this opportunity with its clinical diagnostics arm was also a catalyst to increase its revenue and raise two large growth rounds in quick succession: a $15 million Series A that year and a $25 million Series B in 2021 from investors such as New York-based Adjuvant Capital, Pan-African firm Cathay AfricInvest Innovation Fund (CAIF), KdT Ventures and Endeavor Catalyst.

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Still, 2022 will be a year to forget for biotech startups. Not only did its revenue decline and it laid off nearly 200 employees, but the company’s value was also significantly reduced at a time when startup valuations are taking a hit. According to people with knowledge of the matter, 54gene’s valuation has fallen by two-thirds, from the $170 million it secured when it raised its Series B to about $50 million in a bridge round involving lead investors from the company’s board.

Sources also said the rounds closed at a 3x to 4x liquidation preference, meaning investors – typically the lead investor – would get their money back three or four times before other stakeholders, including other investors, founders and employees in the event of ‘ a retirement These terms, which shift the power back to investors, were rare during the venture capital boom between mid-2020 and last year, but are now common in this fundraising environment.

54gene has neither confirmed nor denied the premise of this transaction. Still, it said in an emailed response: “The existing investors have injected fresh capital into the company at terms that reflect current market conditions. We hope this round not only supports the company through this challenging period, but also positions it for success in the future – whether it’s raising additional capital, attracting strategic partners or a different future path.”

Often, liquidation preferences indicate that investors want to protect themselves if a growth-stage portfolio company exits at a value lower than initially expected. In some cases, the investors believe that the startup may struggle to achieve a solid exit due to underlying challenges affecting its business.

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When the company’s first layoff news broke, allegations of financial impropriety were made against the then CEO and his managers from a group of employees. And although they remain unfounded, these accusations resurfaced after Ene-Obong’s resignation. Affected employees — who claim they didn’t receive their severance packages and spoke to TechCrunch on condition of anonymity — loosely blame 54gene’s current woes on irresponsible hiring, questionable expansion moves and misappropriation of funds. The YC-backed biotech did not respond to TechCrunch’s request for comment on its former executives’ alleged mismanagement of funds and employees’ unpaid severance packages.

54gene’s silence on the matter and Bost’s appointment from her legal role as interim CEO arbitrarily raises questions and leaves room for interpretation that tilts toward these accusations, especially since both co-founders resigned a few weeks apart. However, in an email to TechCrunch, the company countered that Osifo’s resignation had been in the works for some time and was unrelated to this month’s activities, while Bost, who was hired last September, was what 54gene needed – with support from COO Delali Attipoe – for its next phase.

“Teresia is a well-rounded executive with in-depth experience in the global pharmaceutical and biotechnology industry, leading global teams and overseeing corporate governance,” the company said. “These skills, together with her extensive experience in managing business operations and translating complex regulatory requirements, will be invaluable in steering 54gene into this next phase of the company. Delali and Teresia will make a great team that together will strengthen 54gene’s position as a genomics leader in the industry.”

Meanwhile, 54gene said its former CEO “will continue to support the company in its forward plans such as strategic partnerships and fundraising” without explaining why he stepped down.

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However, according to several people with knowledge of events at the company, the terms of 54gene’s new agreement contributed to Ene-Obong’s resignation. They say Ene-Obong – who retains his position on 54gene’s board while transitioning to a new senior adviser role – may have resigned as CEO in protest at 54gene’s new valuation and the liquidation preference offered to investors in the bridge round. There is some speculation that some of the investors also tried to repeat the company’s previous prestigious round to get more shares, while diluting those of the founders and other investors. 54gene did not want to comment on the matter.

The fact that 54gene had to arrange a bridge round in-house despite raising more than $45 million over the past three years is a reminder that biotech projects are highly capital-intensive—it costs about $700 to sequence a human genome, for example. (one of 54gene’s main procedures). Typically, biotech investors deploy their funds in research while thinking about revenue later and the case is no different with 54gene. Still, the way the genome startup is aggressively cutting costs by laying off staff in two groups — and shuttering its clinical diagnostics arm — is somewhat worrisome despite the obvious effects of the pandemic. This current crisis, coupled with the difficult task ahead of the company, has also led many tech observers to wonder whether its current and former executives can keep the moonshot project going long enough to generate significant revenue, let alone ‘ a solid company.

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