As startup valuations reset and enterprise capital firms hunt for unconventional deals, one investor is turning to the bankruptcy courts. Bambu’s venturesan early-stage VC company agreed to amass a telemedicine company last month Lemonade health — after betting $400 million 23 and Me – for just $10 million.
The deal is greater than just a bargain purchase. It’s also an intriguing deal that illustrates how an early-stage VC firm can follow the private equity playbook to revive distressed assets.
23andMe DNA testing company acquired Lemonaid to value $400 million in 2021 Lemonaid operated as a division of 23andMe until its parent company filed for Chapter 11 bankruptcy earlier this yr.
Last month it was produced by Bambu from New York agreement from Chrome Holding Co. — the former and renamed parent company of 23andMe Holding — in which the enterprise firm agreed to buy Lemonaid for an astonishing 40 times lower than DNA originally paid for the telehealth brand.
So why did Bambu Ventures play for Lemonaid? But how did he win the tender? What are the plans for this asset? Crunchbase News recently spoke with Kyle PretschCOO of Lemonaid SPV Inc. and general partner at Bambu Ventures to debate all this and more. The interview has been edited for brevity and clarity.
This is not a typical start-up purchase. What made you buy Lemonaid? Are you going to operate as an independent startup?
Lemonaid wasn’t just a company. It was a vision. It was an incredibly exciting band. It’s an amazing, exciting market and a mission we will all feel good about, increasing access to healthcare. Obviously there’s a phenomenal market for this, but ultimately what we’re working on is providing more transparency, that is, having the ability to improve your lifestyle at an reasonably priced cost and doing it in a nice, systemic technique to reach more people.
23andMe was an incredible custodian of this company, so we didn’t just see it as a company. We saw something much, much more. We plan to run it independently. We like the proven fact that it’s a space we know. This is a space in which we have different interests.
We expect there might be opportunities along the technique to use these inputs to assist grow Lemonaid.
I understand you are paying about $10 million for Lemonaid, whereas just a few years ago 23andMe paid $400 million for it. Do you see this as an amazing opportunity?
Yes. We do not consider that asset values have declined since 2021.
Regeneration buys the rest of 23andMe. How did you find yourself at Lemonaid?
Regeneron didn’t actually bid on Lemonade. It excluded him from the purchase. Technically, Regeneron didn’t win 23andMe either.
At one point he was identified as the winning bidder, but the organization got here calling TTAM Research Institutewhich was a research institute founded in part by Anne Wojcicki, the original founder of 23andMe, ultimately prevailed in a bankruptcy buyout.
She also excluded Lemonaid from her offer. So the two organizations presented a so-called stalking horse offer, which suggests that if no one else makes an offer, they may seize the assets for a specific amount. And in the end we offered a higher amount.
It is much like playing the private equity market. Do you think these types of transactions are becoming more common? Are you going to do this more often?
This is a truly unique situation, and for many reasons I do not think enterprise capital will haunt the bankruptcy courts.
I also don’t think this was a standard bankruptcy case. However, I consider that our firm particularly brings a PE style to enterprise capital. This is what we do as a company. I think it was a unique opportunity where you have a venture-like company with PE idealism and processes that may proceed and replicate the growth path. We sit up for growing the enterprise with PE discipline and are blissful to marry these two.
The proven fact that we identified this in the bankruptcy court is a huge testament to our company and how we worked and how we adapted to pursue a vision that basically made sense to us. I consider this is a once in a lifetime opportunity.
So this is not something you’ve got done before?
I have some experience in this space, but I have never encountered a situation like this. We’ve looked at bankruptcy cases before, but I think if you refer to anyone involved in this particular case, they’ll say, “There’s never been anything like this,” for 10 different reasons.
What sets you apart as a VC firm and did Bambu Ventures actually pull off this acquisition?
Bambu Ventures is the operating company for various enterprise capital funds. Specifically, our key fund is currently a $50-100 million fund and Lemonaid is not purchased from that fund.
We offer co-investments and sometimes we do side deals, and I think that was something that the fund would have some involvement in, but it’s an activity outside the fund.
But the same principles are there, which is that as a company we consider in finding firms that are given such low value or that are sometimes overshadowed or missed, and then bringing our team into that and giving them discipline and performance, and revitalizing growth – missed assets and PE discipline in well-known environments. And this, plus our team, is the recipe for our success.
The purchasing entity is actually Lemonaid SPV. Bambu Ventures is the guarantor because it is a recent company.
How is this transaction similar or different from a PE acquisition?
The mechanics are barely different in that it is not owned by a fund or LP. It is owned by a special purpose vehicle. This is very much like any type of corporate transaction. We have a table with hats. We’ve put together what we think is an amazing list of investors. We took some money from other VCs to assist seed it with a list of interested LPs and sites.
So I might say it’s totally, very similar. The only key difference is that we are investing in a different company… From a governance perspective, we have gone further and moved investor funds on to a leading company or holding company with its own capitalization table, fairly than to a fund.
What will you do in a different way with Lemonaid?
The 23andMe team has been great stewards of this company, they have been great partners in the transition, and they really made this transaction a success. I consider there are immediate opportunities for growth in patient care, and that involves adding product and reaching more patients.
We plan to take a position in marketing expenses. Of course, 23andMe has significantly reduced its marketing spend in the process.
Will you be competing with firms like Ro AND Him and her?
There is good enough white space for all of us to operate inside our own moats and inside our own domains without this warrior battle.
I’ll say that we have a vision for incredible growth, and we have a vision for creating a holistic offering that serves more and delivers a higher consumer experience.