54gene valuation drops more than $100 million amid job cuts and CEO departures TechCrunch
It’s been a strange few months at the gene science startup 54gene in Africa. In August, it lay off 95 employeesmostly contract workers (in lab and sales department) hired to work on 54gene’s COVID business launching in 2020. In September, co-founder and VP of Engineering Ogochukwu Francis Osifo leave the company. And this week, the founder and now former CEO Dr. Abasi Ene-Obong give up his executive role to become replace by General Counsel Teresa L. Bost.
This news coincides with more job cuts. The company confirmed to TechCrunch that this second wave of layoffs, which took place on Tuesday, affected more than 100 employees: 55% of the total workforce left after the first round of layoffs. Biotechnology does not specify roles and departments to be cut.
The Washington and Lagos-based genomics startup has been heralded as the highlight of Africa’s nascent biotech space since it joined Y Combinator in 2019. But while 54gene launched to address the gap in the global genomics market, where Africans account for less than 3%. genetic material used in pharmaceutical research, its growth in 2020 has overlapped elsewhere, with the COVID-19 pandemic, and it has been hiring aggressively to meet the need to become one of Nigeria’s largest COVID testing providers.
The readiness to respond to this opportunity with the clinical diagnostics division was also the catalyst for increasing revenue and driving two massive rounds of rapid growth in rapid succession: a 15 million dollars Series A that year and a 25 million dollars Series B in 2021 from investors like New York-based Adjuvant Capital, Pan-African firm Cathay AfricInvest Innovation Fund (CAIF), KdT Ventures and Endeavor Catalyst.
However, 2022 will be a year to forget for the biotech startup. Not only did revenue drop and lay off nearly 200 employees, but the value of the company was also cut significantly during a period when the valuations of startups were plummeting. According to people with knowledge of the matter, 54gene’s valuation has dropped by two-thirds, from the $170 million secured in a Series B raise to around $50 million in a round of demand that included investors. major investor from the company’s board of directors.
The sources also said the sale closed at a 3 to 4x liquidation preference, meaning that investors – usually the main investor – would be returned three or four times the amount of the money. before their stakeholders, including other investors, founders, and employees in the event of an exit. These provisions, which transfer power back to investors, were rare during the venture capital boom between 2020 and last year but are now commonplace in this fundraising environment.
54gene did not confirm or deny the premise of this deal. However, it stated in an emailed response: “Existing investors have poured new capital into the company under conditions that reflect current market conditions. We hope this round will not only assist the company through this challenging period, but also position it for future success – whether it is raising additional capital, attracting a strategic partner or a new venture. another way of the future. “
Typically, liquidation incentives signal that investors want to protect themselves if a company with a growth portfolio exits at a lower value than initially expected. In some cases, investors believe the startup may have difficulty forging a solid exit due to potential challenges affecting its business.
When the company First layoff As the news broke, allegations of financial misconduct were leveled against the then-CEO and his executives from a group of employees. And while they remained unfounded, these accusations came to light again after Ene-Obong resigned. Affected employees – who claim they have not received their severance package and speak to TechCrunch on condition of anonymity – are entirely to blame for 54gene’s current troubles with irresponsible hiring, the dubious expansion motivation and embezzlement of funds. The YC-backed biotech company did not respond to TechCrunch’s request for comment on alleged former executives managing funds and unpaid employee severance packages.
54gene’s secrecy on the matter and Bost’s appointment from her legal role to interim CEO has arbitrarily raised questions and left room for interpretation in favor of allegations. force, especially when both co-founders resigned weeks apart. However, in an email to TechCrunch, the company subtly countered that Osifo’s resignation had been underway for some time and was unrelated to this month’s operations, while Bost, was hired on Last September, was what 54gene needed – with support from COO Delali Attipoe – for its next phase.
“Teresia is a comprehensive operator with extensive experience in the global pharmaceutical and biotech industries, leading global teams and overseeing corporate governance,” the company said. “These skills, coupled with her extensive experience in driving business operations and translating complex regulatory requirements, will be invaluable to 54gene’s leadership in this next phase. of the company. Delali and Teresia will form a great team together cementing 54gene’s position as the industry leader in genomics. “
Meanwhile, 54gene stated that their former CEO “will continue to support the company in its future plans such as strategic partnerships and fundraising” without explaining why he left. office.
However, according to several people with knowledge of developments at the company, the terms of 54gene’s new agreement contributed to Ene-Obong’s resignation. They say that Ene-Obong – retaining his position on 54gene’s board while transitioning to a new senior advisory role – may have resigned as CEO in protest at 54gene’s new valuation. and liquidation incentives offered by investors during the demand round. There is some speculation that some investors have also tried to rerun the company’s previous auction to get more shares while diluting the shares of the founders and other investors. 54gene declined to comment on the matter.
The fact that 54 genes had to arrange a roundabout in the house despite having raised more than $45 million in the past three years is a reminder that biotech projects are capital intensive – for example, it costs about $700 to sequence a human genome (one of 54gene’s Key Procedures). Typically, biotech deploys investors’ funds into research while thinking about future revenue, and this case is no different for 54gene. However, the way in which the genomics startup is aggressively cutting costs by laying off staff in two waves – and shutting down its clinical diagnostics division – is a bit baffling despite the obvious effects. of the pandemic. This current crisis, coupled with the arduous task ahead for the company, has also left many tech observers wondering if the company’s current and past executives can sustain the moonshot project. long enough to generate significant revenue, let alone build a solid business.