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

It’s been an odd few months at African genomics startup 54gene. In August, it laid off 95 employees, mostly contract workers (in labs and sales) employed in 54gene’s COVID line of business, which was launched in 2020. In September, Ogochukwu Engineering co-founder and vice president Francis Osifo left the company. This week, founder and current former CEO Dr. Abasi Ene-Obong resigned from his executive role and was replaced by General Counsel Teresia L. Bost.

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

The Washington and Lagos-based genomics startup has been considered a model for Africa’s emerging biotech scene since it entered Y Combinator in 2019. But while 54gene was launched to address gaps in the global genomics market, with Africans accounting for less than 3% of the genetic material used in drug research, its growth in 2020 overlaps with the COVID-19 pandemic elsewhere, It is actively recruiting to meet demand to become one of the largest providers of COVID testing in Nigeria.

It’s poised to embrace this opportunity through its clinical diagnostics division, a catalyst for growing its revenue and raising two huge growth rounds in rapid succession: a $15 million Series A that year and a $25 million Series B in 2021 from investors including New York Funding – Based in Adjuvant Capital, pan-African firm Cathay AfricInvest Innovation Fund (CAIF), KdT Ventures and Endeavor Catalyst.

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However, 2022 will be an unforgettable year for the biotech startup. Not only has its revenue cut and nearly 200 employees been laid off, but the value of the company has shrunk dramatically during a time when startup valuations have taken a hit. 54gene’s valuation has fallen by two-thirds, from the $170 million it raised in its Series B round to about $50 million in bridge financing from lead investors on the company’s board, according to people familiar with the matter.

The source also said the round closed with a 3 to 4 times liquidation preference, meaning that in the event of an exit, investors (usually lead investors) will be people and employees) had previously tripled or quadrupled their capital returns. These terms that shifted power back to investors were rare during the VC boom of mid-2020 to last year, but are now commonplace in this fundraising environment .

54gene did not confirm or deny the premise of the deal. Nonetheless, it said in an emailed response: “Existing investors have injected new capital into the company on terms that reflect current market conditions. We hope this funding round will not only support the company through this challenging time, but It also sets itself up for future success—whether it’s raising additional capital, attracting strategic partners, or another future path.”

Typically, liquidation preference indicates that investors want to protect themselves when growth-stage portfolio companies exit at lower value than initially expected. In some cases, investors believe the startup may struggle to make a solid exit due to potential challenges affecting its business.

When news of the company’s first layoffs broke, a group of employees brought financial misconduct allegations against the then-CEO and his executives. While the allegations remain baseless, they came to light again after Ene-Obong’s resignation. Affected employees — who claimed they did not receive severance packages and spoke to TechCrunch on condition of anonymity — blamed 54gene’s current troubles on irresponsible hiring, questionable expansion drives and misappropriation of funds. The YC-backed biotech didn’t respond to TechCrunch’s request for comment on alleged money mismanagement by its former executives and unpaid employee severance packages.

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54gene has been tight-lipped on the matter, while Bost’s appointment to the legal role of interim CEO raises questions arbitrarily and leaves room for interpretations that tend to favor the allegations, especially as the two co-founders resigned weeks apart. However, in an email to TechCrunch, the company subtly countered that Osifo’s resignation had been in the works for a while, unrelated to this month’s event, and that Bost, hired last September, was exactly what 54gene needed — Backed by Chief Operating Officer Delali Attipoe – its next phase.

“Teresia is a well-rounded executive with extensive experience in the global pharmaceutical and biotechnology industries, leading global teams and overseeing corporate governance,” the company said. “These skills, combined with her extensive experience in driving business operations and translating complex regulatory requirements, will be invaluable for 54gene at the helm of the company’s next phase. Delali and Teresia will form a great team, Together, we solidify 54gene’s position as the industry leader in genomics.”

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

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However, 54gene’s new deal terms led to Ene-Obong’s resignation, according to several people familiar with the company’s situation. Ene-Obong, who may have stepped down as chief executive to protest 54gene’s new valuation and a liquidation preference offered by investors in a bridge round of financing, may have stepped down as CEO, they said, and he retained his role as a new senior advisor while retaining his role as a senior adviser. 54gene board position. There has been speculation that some investors are also trying to regain previously valuable capital in the company to gain more shares while diluting the founders and other investors. 54gene declined to comment for this story.

The fact that 54gene had to arrange a bridge financing internally, despite having raised more than $45 million over the past three years, is a reminder that biotech projects are highly capital-intensive—for example, sequencing the human genome ( One of them) costs about $700. 54gene’s main program). Typically, biotech companies spend investor money on research before considering revenue, and 54gene’s situation is no different. Still, the way the genomics startup is aggressively cutting costs by laying off workers in two batches and closing its clinical diagnostics unit remains somewhat troubling, even as the impact of the pandemic is clear. The current crisis, combined with the daunting task facing the company, has also left many tech watchers wondering whether its current and past executives can keep moonshots going long enough to generate significant revenue, let alone build a solid business .

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