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 workers, hired to work on 54gene’s COVID business line launched in 2020. In September, Engineering Ogochukwu co-founder and VP Francis Osifo left the company. And this week, founder and now former CEO Dr. Abasi Anne-Obong has resigned from her executive role to be replaced by General Counsel Teresia L. will be boosted.

The news coincided with further 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 departments were trimmed.

The Washington- and Lagos-based genomics startup has been considered a showcase of Africa’s new biotech space since entering Y Combinator in 2019. But as 54genes begins to address the gap in the global genomics market, where Africans make up less than 3%. Of genetic material used in drug research, its growth in 2020 overlapped elsewhere, with the COVID-19 pandemic, and it worked aggressively to meet the demands of Nigeria’s largest provider of COVID testing.

Its readiness to meet this opportunity with its clinical diagnostic arm was also the 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 AfricaInvest Innovation Fund (CAIF), KdT Ventures and Endeavor Catalyst.

Still, 2022 will be a year to forget for biotech startups. Not only has its revenue declined and it has laid off nearly 200 employees, but the company’s value has also been significantly trimmed at a time when startups’ valuations are taking a beating. According to people familiar with the matter, 54gene’s valuation has fallen by two-thirds, from the $170 million it secured after raising its Series B to about $50 million in a bridge round that included key investors from the company’s board.

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Sources also said that the down round closed at 3x to 4x liquidation priority, meaning that investors – usually the lead investor – would get their money back triple or quadruple before other investors, founders and other stakeholders, including employees, in the event of an exit. . These terms, which return power to investors, were rare during the venture capital boom between the mid-2020s and last year but have now become commonplace in the fundraising environment.

54gene neither confirms nor denies the basis of this agreement. Still, it said in an emailed response: “Existing investors injected new capital into the company on terms that reflect current market conditions. We hope this round will not only support the company through this challenging period but also position it for future success – whether it’s raising additional capital, Attracting strategic partners or another is the way of the future.”

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

When news of the company’s first layoff broke, allegations of financial impropriety were leveled against its executives by the then-CEO and a group of employees. And although they are unfounded, these allegations have come to light again after Annie-Obong’s resignation. Affected employees — who claim they have not received their severance packages and spoke to TechCrunch on condition of anonymity — unnecessarily blame 54gene’s current woes on irresponsible hiring, questionable expansion drives and misappropriation of funds. The YC-backed biotech did not respond to TechCrunch’s request for comment about the alleged funding of its former executives and unpaid severance packages of employees.

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54gene’s tight-lippedness on the matter and Boast’s appointment from his legal role as interim CEO raises questions of arbitrariness and leaves room for interpretation leaning toward these allegations, especially since both co-founders resigned within weeks of each other. However, in an email sent to TechCrunch, the company argues that Osifo’s resignation has been in the process for some time and has nothing to do with this month’s activity, while Bost, hired last September, was needed by 54gene – with the help of COO Delali Attipoe. Its next step.

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

Meanwhile, 54 Jean said its former chief executive “will continue to support the company in its forward-looking 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 contract contributed to Ene-Obong’s resignation. They say Ene-Obong – while retaining his position on 54gene’s board and moving into a new senior adviser role – may have resigned as CEO in protest at 54gene’s new valuation and liquidation preference offered by investors in the bridge round. Some investors are believed to be trying to recycle the company’s previous valuable round to acquire more shares, undermining the founders and other investors. 54 Jean declined to comment on the matter.

The fact that 54Gene had to bridge the gap in-house, despite securing more than $45 million over the past three years, is a reminder that biotech projects are extremely capital-intensive — for example, it costs about $700 to sequence the human genome (the core processes of a 54Gene). Typically, biotechs use investors’ funds for research while thinking about revenue later, and 54gene is no different. Still, the way the genome startup has been aggressively cutting costs by laying off employees in two batches — and closing its clinical diagnostic arm — is somewhat troubling despite the pandemic’s clear effects. This current crisis, along with the difficult task ahead of the company, has even made many tech watchers wonder if its current and former executives can keep the Moonshot project afloat long enough to generate enough revenue, let alone build a solid business.

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