It’s been a strange couple of months at African genomics startup 54gene. In August, it laid off 95 employeesmostly contract staff (in labs and sales departments) hired to work on 54gene’s COVID line of business launched in 2020. In September, co-founder and VP of engineering Ogochukwu Francis Osyphus Leave the company. And this week, founder and now former CEO Dr. Abasi Jan-Obong resigned from his executive position to be substituted by the attorney general Teresa L. Bost.
This news coincided with more 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 left after the first round of layoffs. Biotech did not specify which roles and departments were cut.
The Washington and Lagos-based genomics startup has been hailed as the showpiece of Africa’s fledgling biotech space since it entered Y Combinator in 2019. But while 54gene launched to address the gap in the global genomics market, where African account for less than 3% of genetic material used in pharmaceutical research, its growth in 2020 overlapped elsewhere, with the COVID-19 pandemic, and it hired aggressively to meet demands to be one of the largest providers of COVID tests from Nigeria.
Its readiness to seize this opportunity with its clinical diagnostics arm was also a catalyst for increasing its revenues and generating two big rounds of growth in quick succession: one $15 million Series A that year and a $25 million Series B in 2021 from investors such as Adjuvant Capital, a pan-African firm based in New York Cathay AfricInvest Innovation Fund (CAIF), KdT Ventures and Endeavor Catalyst.
However, 2022 will be a year to forget for the biotech startup. Not only have their revenues declined and nearly 200 employees have been laid off, but the company’s value has also dropped significantly in a period 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 raised when it raised its Series B to around $50 million in a bridge round involving leading investors from the company’s board. .
The sources also said that the bear round closed with a 3x to 4x settlement preference, meaning that investors, usually the lead investor, would receive triple or quadruple their money before other interested parties, including other investors, founders and employees in the event of an exit. . These terms, which put power back in the hands of investors, were rare during the venture capital boom between mid-2020 and last year, but are now commonplace in this fundraising environment.
54gene neither confirmed nor denied the premise of this agreement. Still, he stated in an email response: “Existing investors injected fresh 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 be raising additional capital, attracting strategic partners, or another path forward.”
Liquidation preferences often indicate that investors want to protect themselves if a growth-stage portfolio company comes out worth less than initially expected. In some cases, investors believe the startup could struggle to produce a strong exit due to underlying challenges affecting its business.
when the company first dismissal The news broke, accusations of financial improprieties were leveled against the then CEO and his executives from a group of employees. And although they remain unfounded, these accusations have come to light again after the resignation of Ene-Obong. The affected employees, who say they haven’t received their severance packages and spoke to TechCrunch on condition of anonymity, pointlessly blame 54gene’s current problems on irresponsible hiring, questionable expansion units, and misappropriation of funds. The YC-backed biotech did not respond to TechCrunch’s request for comment about its former executives’ alleged mismanagement of funds and unpaid employee severance packages.
54gene’s secrecy on the matter and Bost’s appointment from her legal role as interim CEO arbitrarily raises questions and leaves room for interpretation that leans toward these accusations, especially since both co-founders resigned within a few weeks of each other. However, in an email to TechCrunch, the company subtly counters that Osifo’s resignation had been in the works for some time and was unrelated to this month’s activities, while Bost, hired last September, was what he needed. 54gene, with the support of the director of operations. Delali Attipoe — for its next phase.
“Teresia is a well-rounded executive with a wealth of experience in the global pharmaceutical and biotech industry, leading global teams and overseeing corporate governance,” the company said. “These skills, along with her 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 form a great team that together will strengthen 54gene’s position as a leader in genomics in the industry.”
Meanwhile, 54gene stated that its former CEO “will continue to support the company in its plans moving forward, such as strategic partnerships and fundraising,” without explaining why he resigned.
However, according to multiple people with knowledge of developments at the company, the terms of 54gene’s new deal contributed to Jan-Obong’s resignation. They say Jan-Obong, who retains his 54gene board seat as he moves into a new role of senior adviser, may have resigned as CEO in protest at 54gene’s revaluation and liquidation preference offered by investors in the company. round bridge. There is some speculation that some of the investors also tried to repeat the company’s previous prized round to get more shares and dilute that of the founders and other investors. 54gene declined to comment on the matter.
The fact that 54gene had to organize a bridging round internally despite having raised more than $45 million in the last three years is a reminder that biotech projects are very capital intensive; for example, it costs around $700 to sequence a human genome (one of 54gene’s main procedures). Typically, biotech companies put investors’ 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 closing its clinical diagnostics arm is somewhat concerning despite the obvious effects of the pandemic. This current crisis, coupled with the arduous task ahead of the company, has also led many tech watchers to question whether its current and former executives can keep Project Moonshot afloat long enough to generate substantial revenue, and much more. less build a solid business.