Genetic Testing Provides Tips for Starts and Misses

When a person submits a genetic test, they usually have a desired outcome in mind. That doesn’t mean the results will deliver.

Investing in DNA testing startups is very similar. Over the years, startup investors poured billions of dollars into companies in the area. So far, the results have yielded major successes and flops.

Up front, one of the biggest disappointments for investors has been genetic testing provider 23andMe. The company announced last week that it would lay off about 40% of its workforce and end its clinical trials.

The news follows years of declining stock market fortunes for Silicon Valley-based 23andMe, best known for testing tools that provide people with information about their genetics and health risks. The company, which went public through a SPAC in 2021 and raised more than $1 billion in private equity, had a recent market cap of less than a tenth.

Of course, one company’s problems are no reason for investors to flee the entire sector. While 23andMe has struggled, other genetic testing bets have improved. This includes one of the earlier entrants – Natera – a provider of prenatal testing and genetics that is now a $21 billion public company.

Where VCs are investing now

Recently, venture capitalists have backed large rounds of startups focused on genetic testing. Using Crunchbase data, we have compiled a list of seven such companies that have been funded in the last three quarters.

The biggest recipient of the funding is BillionToOne, a Silicon Valley company that develops technology to detect and measure DNA fragments linked to disease. The startup says its findings could lead to significant improvements in prenatal diagnosis and oncology testing.

Investors obviously like what they see. The 8-year-old company received $130 million in Series D funding in June at a valuation of more than $1 billion. It took out another $140 million in debt financing in September.

The second largest round went to Genome Medical, a startup that partners with healthcare providers to provide genetic counseling services. The South San Francisco-based company has raised $75 million in new equity funding, according to a September Securities filing.

Another investor favorite is Legacy, a male fertility startup focused on frozen sperm testing that has raised $47 million to date. Its offerings include a selection of sperm genetic tests.

Checking the bubble again

But while investors are still enthusiastic about some companies linked to genetic testing, the shadow of excesses from the bubble years remains.

Aside from 23andMe, others that have tried to exit during a tough market haven’t fared well. This includes Invitae, a provider of genetic testing for genetic disorders that filed for bankruptcy earlier this year and sold its assets to testing provider LabCorp. To a lesser extent, Personalis, a provider of cancer tests, is also lagging behind after its 2019 IPO.

VC interest in animal genetics, once a sought-after starting point, has also waned. Dog testing company DNA Embark, which raised $75 million in a 2021 round led by SoftBank, has not received any funding since then. Rival Basepaws, which focuses on cats and dogs, has been sold to animal health company Zoetis in 2022 for an undisclosed amount.

Growth market

However, on the bright side, more money is being spent on genetic testing than ever before.

Last year, genetic testing created a $10.55 billion industry worldwide, according to BioSpace research.

Its report predicts that the number will grow to more than $ 23 billion in 2033. If startups generate even a small percentage of this total, it can add up to very large results.

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Illustration: Anne Dias