đ©New Chapter 11 Filing - uBiome Inc.đ©
uBiome Inc.
September 4, 2019
Back in our July 4th weekend edition, we wrote the following:
#BustedTech. One year youâre on the Forbesâ 2018 Next Billion-Dollar Startups list and the next year youâre getting raided by the FBI. This is the story of uBiome, a SF-based microbiome startup. Per Forbes:
The new interim CEO of troubled microbiome startup uBiome, Curtis Solsvig, is a longtime turnaround and restructuring expert at financial advisory firm Goldin Associates and the former chief restructuring officer of failed drone startup Lily Robotics.
One manâs billion-dollar valuation is another manâs clean-up job.
And, now, another manâs bankruptcy.
Annnd another manâs sacrifice:
The Debtor filed this Chapter 11 Case to provide an innovative business with a fresh start under new management, and to preserve approximately 100 jobs through a court-supervised sale process that is intended to maximize the value of the Debtorâs assets for the benefit of all stakeholders.
âŠcertain business practices formulated and implemented by the Debtorâs original founders have resulted in cessation of certain aspects of the Debtorâs business, investigations by certain federal and state investigatory bodies (the âInvestigationsâ), loss of revenue and significant potential contingent liabilities.
Godspeed founders. You just got napalmed. AGAIN.
And as they should. The debtor has been in triage for some time now.
The company empowers consumers to access analysis of their DNA/microbiomes via the use of at-home kits. Said another way, people poop in an $89.99 âexplorer kitâ and the company analyzes the sample through (a) a proprietary gene sequencing process and (b) a cloud-based database of microbiomes to determine whatâs what in the customerâs GI system â a much less invasive discovery methodology than the gut-wrenching (pun intended) colonoscopy. The consumer receives results that provide suggestions for diet, weight control, gut inflammation, sleep disorders and non-dietary supplements. Frankly, this all sounds rather bada$$.
The company also had a clinical business. Doctors could prescribe the tests and bill the customersâ insurance. Similarly, the company launched a clinical product geared towards the analysis of vaginal swabs (i.e., STDs, HPV, gyno disorders). Together these clinical products were called âSmartX.â
Suffice it to say, this idea was big. The companyâs founders leveraged the open-source results from the Human Microbiome Project (launched by the National Institutes of Health) and built something that could really make a lot of peopleâs lives easier. The venture capitalists saw the opportunity, and the tech media celebrated the companyâs rapid capital raises and increasing valuation: $1.5mm seed in â14, $4.5mm in August â14 (led by a16z), $15.5mm Series B in October â16, and $83mm Series C in September â18. (PETITION Note: the company now says it raised $17mm in â16 and $59mm in â18, exclusive of $36.4mm of mostly-now-converted convertible notes, which means that the media appears to have been fed, or reported, wrong numbers).* Valuation? Approx $600mm.
Armed with gobs of money, the company established some valuable IP (including over 45 patents and your poop data, no joke) and commercial assets (its certified labs). On the other side of the ledger, there is $5.83mm of outstanding secured debt and $3.5mm of unsecured debt, ex-contingent liabilities includingâŠwait for itâŠâ[p]otential fines for civil and criminal penalties resulting from the InvestigationâŠ.â Ruh roh.
The Founders implemented certain business strategies with respect to the SmartX products that were highly problematic, contained significant operational (but not scientific) flaws and, in some instances, were of questionable legality. These issues included improper insurance provider billing practices, improper use of a telemedicine physician network (known as the External Clinical Care Network), overly aggressive and potentially misleading marketing tactics, manipulation of customer upgrade testing, and improper use of customer inducements. Moreover, certain information presented to potential investors during the three rounds of capital raise my have been incorrect and/or misleading. Although uBiome believes the science and technology behind uBiomeâs business model in this developing area is sound, these issues â among others â have resulted in significant legal exposure for the Debtor.
Score one for VC due diligence! The USA for the ND of California, the FBI, the DOJ and the SEC are all up in the company poop now. This investigation, much like the opioid crisis, also calls into question the ethical practices of doctors. Because we really ought not trust anybody these days.
Anyway, the company has since taken measures to right the ship. The board suspended and then sh*tcanned the founders and recruited new independents. Theyâve verified that the company suffered from bad business practices rather than bad science or lab practices (Elizabeth Holmes, holla at us!!). And theyâve hired bankers to market the companyâs assets (no stalking horse bidder at filing, though). The company received a commitment from early investor 8VC for a $13.83mm DIP of which $8mm in new money; it will take slightly more than 60 days to see if a buyer emerges. One selling point according to the company: it plans for its Explorer Kits to be in CVS Health Corp. ($CVS)! Thatâd be great if CVS planned for that too. Womp womp.
Anyway, the way bankruptcy is going these days chapter 11 probably ought to be renamed chapter 363.
*There are many reasons why d-bag startup founders hype their own raises. First, it promotes an aura of success which can help acquire new customers. Second, they love the adulation (see Elizabeth Holmes). Third, it helps with recruiting. And, fourth, the VCs must like it and use it for subsequent fundraising (given that they never correct the record).
Jurisdiction: D. of Delaware (Judge Silverstein)
Capital Structure: $5.83mm credit facility (Silicon Valley Bank)
Professionals:
Legal: Young Conaway Stargatt & Taylor LLP (Michael Nestor, Joseph Barry, Andrew Magaziner, Joseph Mulvihill, Jordan Sazant)
Board of Directors: Kimberly Scotti, L. Spencer Wells, D.J. (Jan) Baker
Financial Advisor/CRO: Goldin Associates LLC (Curtis
Investment Banker: GLC Advisors & Co LLC
Claims Agent: Donlin Recano & Co. Inc. (*click on the link above for free docket access)
Other Parties in Interest:
DIP Agent: Silicon Valley Bank
Legal: Morrison & Foerster LLP (Alexander Rheaume, Todd Goren, Benjamin Butterfield) & Ashby & Geddes PA (Gregory Taylor, Katharina Earle)
DIP Participants: 8VC Fund I LP, 8VC Entrepreneurs Fund I LP
Legal: Gibson Dunn & Crutcher LLP (Matthew Williams, Eric Wise, Jason Zachary Goldstein) & Cole Schotz PC (Norman Pernick, Patrick Reilley)