54Gene’s struggles and the dreaded down round
54Gene’s struggles and the dreaded down round
Everyone's asking: where did all that money go?
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54Gene is back in the news
In August, we talked a lot about the layoffs and salary cuts at Nigerian startups. At the time, one of the companies that confirmed that it laid off staff was the biotech startup, 54Gene. Here’s what I wrote at the time:
“Another company where there have been salary cuts is 54Gene, the genomics startup that raised $25 million in September 2021. During the pandemic, 54Gene was at the forefront of providing accessible Covid-19 testing labs, but travel restrictions have since eased to pre-2020 levels. With those changing times have come new challenges to the business, and in an email, 54Gene confirmed that it has laid off workers.”
At the time, 54Gene laid off 95 of an estimated 285 employees. I also exclusively reported at the time that some management staff had also been asked to take salary cuts in exchange for equity, a claim that the company confirmed in an email. Despite all of those deep-cutting measures, 54Gene is back in the news again for changing its leadership and another round of layoffs.
Do we have runway?
On October 25, 54Gene announced a change of leadership, with its co-founder and CEO, Dr. Abasi Ene-Obong stepping down. He was replaced by the company’s General Counsel, Teresia Bost. While 54Gene didn’t share any clear reasons for the leadership change, it said that more job cuts are on the way.
Two sources who spoke to me anonymously confirmed that there were more job cuts this week. One source told me that the interim CEO, Teresia Bost took charge of the newest rounds of layoffs and estimated that the new round of job cuts will leave the company with a headcount of fewer than 40 people. Did anyone see this coming?
One source told me that in August, the employees who took a pay cut in exchange for equity did it because Dr. Abasi had assured them that it was a move to extend runway. “He assured us that we had runway till at least December, so I didn’t see this coming,” my source shared. There was also a plan to raise an additional $40 million in funding, but that reportedly fell through weeks before the deal could be agreed upon.”
Despite raising a combined $44.7 million in funding and being heralded for venturing into biotech and gene sequencing, there will now be questions about 54Gene’s future. A combination of cash flow issues, the inability to raise follow-on funding, and a business that was always going to burn cash before really seeing results are at the heart of 54Gene’s struggles.
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Where did all of the money go?
Biotech is generally considered an expensive industry, with long years of research before any sort of meaningful revenues, come in. 54Gene’s focus on African genomic research means that it will only make revenue when this research is bought or used to create pharmaceuticals. But Covid testing opened a revenue line for the business. The company created multiple business functions to support its covid testing business, hiring a lot of support staff. Yet, the company didn’t seem to anticipate an end to mandatory covid testing, which killed that revenue line.
With that revenue line gone, it focused on what could be another quick win: diagnostic labs. In December 2021, it created 7River Labs to provide advanced diagnosis for Africans. A look at some of the news items during the launch of its diagnostics business shows how it spent some of its funding. An article from Disrupt Africa said, “a series of diagnostic hubs fitted with state-of-the-art technology that offer healthcare providers and patients access to world-class, cost-effective, speedy, reliable and advanced molecular diagnostics. Sample collection centers with over 100 employees are already open in Lagos, Abuja, Kano, and Port Harcourt, with more centers due to launch in 10 major Nigerian cities in the coming months. Pan-African expansion for 7RiverLabs is also planned over the course of 2022.”
Three sources told me that it was within this period that the company ramped up hiring, poaching stars from global companies, and investing in expensive equipment. One source at the company told me that the vision for 7River Labs was to provide genetic counseling, advanced diagnostics and become a one-stop shop for patient education. Despite all of the investment in diagnostics, the expected returns did not materialize.
The dreaded down round
Today, the startup says it’s renewing its focus on unique genomic research and a report from Techcrunch says that it has now secured bridge funding. From all indications, it appears that in securing funding at a time when the business is in dire straits, the company’s valuation has now been cut to $50 million, from $170 million after it raised funding in 2021, making this a down round. Did the investors in this bridge round insist on a change of leadership? That may be one theory about the CEO’s replacement.
It’s another reminder of the challenging nature of startups and emphasizes how much has changed in a year. While 54Gene will be hoping for better fortunes in the future, its ex-employees will have some questions about their equity arrangement and what will come of it. 54Gene declined all requests for comments for this article.
What I’ve been reading:
Elon Closes In, a look at how the weak leadership vacuum at Twitter has kept the company adrift for years
This email from Evan Spiegel when he was 23 and in the early years of building Snap
Need it take 7,500 to run Twitter?
Expectations (Five Short Stories)
Edited by: Jimi Osheidu & Adedayo Bakare