It’s been a strange few months at African genomics startup 54gene. In August, it fired 95 employees, mostly contract staff (in laboratories 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 ex-CEO Dr. Abasi Ene-Obong stepped down from his executive role to be replaced by Attorney General Teresia L. Bost.
This 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 cut.
The Washington and Lagos-based genomics startup has been seen as the biggest seed in the biotech space in Africa since it entered Y Combinator in 2019. But while 54gene 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 coincided elsewhere, with the COVID-19 pandemic, and aggressively employed to meet the demands of being one of Nigeria’s largest providers of COVID testing.
Its preparation to meet this opportunity with its clinical diagnostics arm was also a catalyst to increase its revenue and raise two huge growth rounds in quick succession: a $15 million Series A that is -year and a $25 million 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 its revenue drop and it laid off nearly 200 employees, but the company’s value also dropped significantly 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 secured when it raised its Series B to about $50 million in a bridge round involving key investors from the board of company.
Sources also said that the down round closed at a liquidation preference of 3x to 4x, which means that investors – typically the lead investor – will be repaid in three times or quadruple their money before other interested parties, including investors other, founders and employees in case of exit. . These terms, which shift power back to investors, were rare during the venture capital boom between mid-2020 and last year but are now commonplace in this environment of fundraising.
54gene has not confirmed or denied the premise of this agreement. Still, in an email response she stated: “The existing investors have injected new capital into the company on terms that reflect current market conditions. We hope that this round will not only support the company during this challenging period but also position it for future success — whether that be 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 initially expected. In some cases, investors believe that the startup may suffer to produce a solid exit due to underlying challenges that affect its business.
When news of the company’s layoffs first broke, allegations of financial impropriety were brought against the then-CEO and his executives by a group of employees. And although they remained unfounded, these accusations resurfaced after Ene-Obong’s resignation. Affected employees — who claim they have not received their severance packages and spoke to TechCrunch on condition of anonymity — unsubstantiatedly 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 on the former executives’ alleged mismanagement of funds and unpaid employee severance packages.
54gene’s follow up on the matter and the appointment of Bost from her legal role to interim CEO arbitrarily raises questions and leaves room for interpretation leading to these charges, especially since the two co-founders they resigned a few weeks apart. However, in an email to TechCrunch, the company subtly argues that Osifo’s resignation had been ongoing for some time and was not related to this month’s activities, while Bost, hired in Last September, it 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 biotechnology industry, leading global teams and overseeing corporate governance,” the company said. “These skills, along with her breadth of experience managing business operations and translating complex regulatory requirements, will be invaluable at the helm of 54gene in 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 stated that its former chief executive “will continue to support the company in its future plans such as strategic partnerships and fundraising” without explaining why he resigned.
However, according to several people with knowledge of events in the company, the terms of the new agreement of 54gene contributed to the resignation of Ene-Obong. They say Ene-Obong — who has kept his position on the 54gene board while moving to a new senior adviser role — may have resigned as CEO in protest at 54gene’s new valuation and the liquidation preference offered by investors in the bridge round. There is some speculation that some of the investors also tried to repeat the previous appreciated round of the company to get more shares while reducing that of the founders and other investors. 54gene declined to comment on the matter.
The fact that 54gene had to arrange a bridge round internally despite raising more than $45 million over the past three years is a reminder that biotech projects are very capital intensive – for example, it costs about $700 to sequence a human genome (one from 54gene main procedures). Typically, biotechs use investors’ funds in research while thinking about income 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 closing its clinical diagnostics arm — is somewhat worrisome despite the obvious effects of the pandemic. This current crisis, along with the difficult task ahead of the company, has also led many tech watchers to question whether its current and past executives can keep the moonshot project afloat long enough to generate revenue. substantial, let alone build a solid business.