54gene's valuation has been reduced by more than $100 million due to job cuts and the departure of the CEO

54gene’s valuation has been reduced by more than $100 million due to job cuts and the departure of the CEO

It’s been a strange two months for African genomics startup 54gene. In August, he laid off 95 employees, mostly contract staff (in labs and commercial departments) hired to work in 54gene’s COVID business line launched in 2020. In September, the co-founder and vice president of Ogochukwu engineering Francis Osifo left the company. And this week, founder and now ex-CEO Dr. Abasi Ene-Obong stepped down from his leadership role to be replaced by General Counsel Teresia L. Bost.

This news coincided with other 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. Biotechnology did not specify which roles and departments were cut.

The Washington and Lagos-based genomics startup has been seen as the centerpiece of Africa’s nascent biotech space since entering Y Combinator in 2019. But while 54gene was launched to fill the gap in the market genomics world, where Africans account for 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 hiring aggressively to meet requirements of being one of the largest Nigerian providers of COVID testing.

Its readiness to seize this opportunity with its clinical diagnostics arm was also a catalyst to increase revenue and lift two huge growth cycles in rapid succession: a $15 million Series A that year and a $25 million Series B. million in 2021 from investors such as New York. Adjuvant Capital, pan-African company Cathay AfricInvest Innovation Fund (CAIF), KdT Ventures and Endeavor Catalyst.

However, 2022 will be a year to forget for the biotech startup. Not only has its revenue shrunk and laid off nearly 200 employees, but the company’s value has also been significantly reduced in a time when startup valuations are falling. According to people familiar with the matter, 54gene’s valuation plummeted by two-thirds, from the $170 million raised in its Series B raise to around $50 million in a round involving senior investors. of the company’s board of directors.

Sources also said the bear cycle closed with a 3x to 4x liquidation preference, meaning investors – usually the lead investor – would be paid back triple or quadruple their money before the other parties. stakeholders, including other investors, founders and employees in the event of an exit. . These terms, which empower investors, were rare during the venture capital boom between mid-2020 and last year, but are now commonplace in this fundraising environment.

54gene has neither confirmed nor denied the premise of this agreement. Yet he said in an email response: “Existing investors have injected new capital into the business on terms that reflect current market conditions. We hope this round will not only support the company through this difficult time, but also position it for success in the future, whether that is to raise additional capital, attract strategic partners or another future path.

Often, liquidation preferences indicate that investors want to protect themselves if a growth-stage portfolio company exits at a lower value than originally expected. In some cases, investors think the startup might struggle to produce a strong exit due to underlying challenges affecting its business.

When news of the company’s layoffs first broke, allegations of financial impropriety were leveled against the then-CEO and his executives among a group of employees. And although they remain unfounded, these accusations resurfaced after Ene-Obong’s resignation. The affected employees — who say they haven’t received their severance packages and spoke to TechCrunch on condition of anonymity — insubstantially blame 54gene’s current problems on irresponsible hiring, questionable expansion campaigns and embezzlement. funds. The YC-backed biotech did not respond to TechCrunch’s request for comment on its former executives’ alleged mismanagement of funds and unpaid employee severance packages.

54gene’s discretion on the matter and Bost’s appointment of his legal role as interim CEO arbitrarily raise questions and leave room for interpretation leaning towards these accusations, especially since the two co-founders resigned within weeks. apart. However, in an email to TechCrunch, the company subtly retorts that Osifo’s resignation had been in the works for some time and was unrelated to this month’s business, while Bost, who was hired last September , was what 54gene needed – with the support of COO Delali Attipoe – for its next phase.

“Teresia is a well-rounded executive with deep experience in the global pharmaceutical and biotech industry, leading global teams and overseeing corporate governance,” the company said. “These skills, coupled with his extensive experience in conducting business operations and translating complex regulatory requirements, will be invaluable leading 54gene in this next phase of the business. Delali and Teresia will be an excellent team that together will strengthen 54gene’s position as the industry leader in genomics.

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

However, according to several people familiar with the company’s events, the terms of 54gene’s new contract contributed to Ene-Obong’s resignation. They say Ene-Obong – retaining his position on 54gene’s board while moving into a new role as senior adviser – may have resigned as CEO in protest at 54gene’s new valuation and preference. liquidation offered by investors as part of the bridge. There is speculation that some of the investors also tried to take over the previous round of the company to get more shares while diluting that of the founders and other investors. 54gene declined to comment on the issue.

The fact that 54gene had to arrange an in-house bridge despite securing more than $45 million over the past three years is a reminder that biotech projects are capital-intensive – for example, it costs around $700. to sequence a human genome (one of 54gene’s main procedures). Typically, biotechs deploy investor funds into 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 batches — and shutting down its clinical diagnostics arm — is somewhat troubling despite the obvious effects of the pandemic. This current crisis, coupled with the daunting task ahead of the company, has also led many tech watchers to wonder if its current and past executives can keep Project Moonshot afloat long enough to generate substantial revenue, let alone to build a strong business.

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