As startup valuations reset and venture capital firms hunt for unconventional deals, one investor is looking to the bankruptcy courts. Bambu Ventures, an early-stage VC firm, last month agreed to acquire telemedicine company Lemonaid Health — once a $400 million bet by 23andMe — for just $10 million.
The transaction is more than a bargain buy. It’s also an intriguing deal that illustrates how an early-stage VC firm can operate by a private-equity playbook to revive a distressed asset.
DNA testing company 23andMe acquired Lemonaid for $400 million in 2021. Lemonaid operated as a division of 23andMe until the parent company filed for Chapter 11 bankruptcy earlier this year.
Last month, New York-based Bambu made a deal with Chrome Holding Co. — the rebranded former parent company 23andMe Holding — in which the venture firm agreed to buy Lemonaid for a staggering 40x less than the DNA company had originally paid for the telehealth brand.
So why did Bambu Ventures make a play for Lemonaid? Just how did it win the bid? And what are its plans for the asset? Crunchbase News recently spoke with Kyle Pretsch, COO of Lemonaid SPV Inc. and general partner at Bambu Ventures, to discuss all this and more. The interview has been edited for brevity and clarity.
This is not your typical startup purchase. What prompted you to 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 team. It’s an incredible, exciting market, and it’s a mission that we can all feel good about, which is increasing accessibility to healthcare. Obviously, there’s a phenomenal market for that, but at the end of the day, we are working to provide improved transparency, the ability to improve your lifestyle at an affordable cost, and do it in a nice, systemic fashion, to reach more people.
23andMe has been an incredible custodian of this company and so we didn’t just see it as a company. We saw something much, much more. We plan to operate it independently. We like the fact that this is a space we’re familiar with. This is a space we have other holdings in.
We expect there will be opportunities along the way to use those contributions to help grow Lemonaid.
I understand that you’re paying about $10 million for Lemonaid when 23andMe paid $400 million to acquire it just a few years ago. Do you view this as an incredible opportunity?
Yes. We don’t believe the value of the asset has eroded since 2021.
Regeneron is buying the rest of 23andMe. How did you end up with Lemonaid?
Regeneron actually didn’t bid for Lemonade. It excluded it from their purchase. And technically Regeneron didn’t win 23andMe, either.
At one point, it had been identified as the winning bidder, but an organization called TTAM Research Institute, which was a research institute founded in part by Anne Wojcicki, the original founder of 23andMe, ended up prevailing in the repurchasing of the assets out of bankruptcy.
It, too, excluded Lemonaid from its bid. So both organizations put forth what’s called a stalking horse bid, which is if no one else bids, they would absorb the asset for a certain amount. And we ended up bidding in excess of that.
This feels very similar to a private-equity play. Do you think this sort of transaction is becoming more common? Are you going to do it more often?
This is a really unique situation, and for so many reasons I don’t think venture capital is going to find itself stalking the bankruptcy courts.
Nor do I think this was a standard bankruptcy case. But I do think our firm specifically brings a very PE style to venture capital. That’s what we do as a firm. And I think this was an exceptional opportunity where you have a venture-like company with PE idealism and process that can go ahead and reconstitute its growth track. We expect venture growth with PE discipline, and we’re happy to marry the two.
The fact that we identified it in bankruptcy court is a huge testament to our firm, how we worked and how we adapted to chase after a vision that we really, really, found meaningful. I believe this is a once-in-a-lifetime opportunity.
So it’s not something you’ve done before?
I have some experience in this space, but this is not a situation that I’ve ever come across. We’ve looked at things in bankruptcy before, but I think if you talk to anybody involved in this particular case, they would say: “Never has anything like this existed” for 10 different reasons.
How do you distinguish yourselves as a VC firm, and did Bambu Ventures actually conduct this acquisition?
Bambu Ventures is an operating firm for a variety of venture capital funds. Specifically, our key fund right now is a $50 million to $100 million fund, and Lemonaid is not being purchased from the fund.
We offer co-investments and sometimes pursue side deals, and this was something that I think the fund will have some participation in, but this is an act outside of that fund.
The same principles, however exist, which is, as a firm we believe in finding the companies that are being given these low values, or are being sometimes overshadowed or overlooked, and then bringing our team to it, and bringing discipline and execution to it, and reinvigorating growth — overlooked assets, plus PE discipline in well-known environments. And that, plus our team, is a formula for our success.
The purchasing entity is actually Lemonaid SPV. Bambu Ventures is a guarantor, because that’s a new company.
How is this transaction similar or different from a PE-type acquisition?
The mechanics are a little bit different in that it’s not being owned by a fund or an LP. It’s owned by an SPV. This is very similar to any kind of corporate transaction. We have a cap table. We have set up what we think is an incredible list of investors. We’ve taken some fund money from other VC funds to help instill that it has a list of interested LPs and parties.
So I would say this is very, very similar. The only key difference is we’re investing in a different company … From an organizational governance perspective, we went ahead and moved the investor funds directly into a top, or holding, company with its own cap table, versus a fund.
What will you do differently with Lemonaid?
The 23andMe team have been great stewards to this company, they’ve been great partners in transition and have really set this transaction up for success. I think there are immediate opportunities to advance within patient care, and that’s adding product and reaching more patients.
We plan on investing in marketing spend. Obviously 23andMe, through its process, had reduced that marketing spend heavily.
Will you be competing with companies such as Ro and Hims & Hers?
There is more than enough white space that we can all operate within our own moats and in our own domains without this warriors’ battle.
I will say that we do have visions of incredible growth, and we do have visions of creating a holistic offering that serves more and creates an improved consumer experience.
Illustration: Dom Guzman
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