Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of The Odd Lots podcast.
Speaker 3: I'm Jill Wisenthal and I'm Tracy Alloway.
Speaker 2: Tracy, we always hear about big startup exits, you know,
Speaker 2: people becoming billionaires, companies getting acquired, going ipo, et cetera.
Speaker 2: But I don't think that's most of them. Is not
Speaker 2: that that's just the ones we talk about. You never
Speaker 2: hear about the scores of other ones that always fail.
Speaker 3: No, this is called survival bias, right, so you only
Speaker 3: ever hear about the winners because all the losers are
Speaker 3: basically gone and can no longer communicate.
Speaker 4: That's right.
Speaker 2: And then the other thing is that most startups fail,
Speaker 2: and you know vcs talk about, oh, I need one
Speaker 2: winner for every you know whatever, one hundred and maybe
Speaker 2: twenty losers or whatever. They're probably few in the middle.
Speaker 2: They get two or three x returns, But that's not
Speaker 2: what delivers the big money. But yeah, it's funny because
Speaker 2: the losers, that's the norm, that's the expectation going in
Speaker 2: with any series of investments. And you we really should
Speaker 2: talk about losers more often.
Speaker 3: Yeah, I'm into it. Let's talk about losers.
Speaker 2: I'll say one other thing too, which is that when
Speaker 2: we talk about a lot of startup investing, particularly in technology,
Speaker 2: you know, you don't really think of them as having
Speaker 2: assets or a lot of assets that can be sold. Right,
Speaker 2: So when a sort of cardboard box manufacturer goes bankrupt
Speaker 2: or whatever, well, there's probably some equipment that could be sold.
Speaker 2: There's land, maybe there's a building that could be reproposed,
Speaker 2: and intellectual property maybe. I don't know.
Speaker 5: For some of these.
Speaker 2: With a lot of tech companies, it seems like there's
Speaker 2: nothing there if they don't succeed, and then there's like,
Speaker 2: all right, you just pulled the plug and everybody moves on.
Speaker 2: But I don't really know if that's the case, Like
Speaker 2: I don't actually know what happens at that moment of death.
Speaker 3: Well, from what I remember, bankruptcy ten to be pretty
Speaker 3: complicated in various ways. And I'm thinking back this is
Speaker 3: the ultimate extreme example. But the Lehman Brothers bankruptcy that
Speaker 3: took fourteen years, and I remember covering it for like
Speaker 3: years and years and years and years, and they had
Speaker 3: all these counter parties, this big waterfall of creditors and
Speaker 3: things like that, and I wonder how it works for
Speaker 3: I guess smaller VC.
Speaker 2: Companies totally, and it seems like that whole court experience,
Speaker 2: it's probably something you might want to avoid if you can.
Speaker 2: So anyway, we really do have the perfect guest to
Speaker 2: talk about what happens when a company fails, what happens
Speaker 2: when the startup fails. We are talking with David Johnson.
Speaker 2: Here's a managing principle, Resolution Financial Advisors. They're financial advisory
Speaker 2: firm based out of Los Angeles that focuses exclusively on
Speaker 2: the insolvency world. So we're going to learn about all
Speaker 2: of this. David, thank you so much for coming on
Speaker 2: the podcast.
Speaker 4: Thank you, Joe and Tracy.
Speaker 5: I'm delighted to be here.
Speaker 2: This is gonna be a lot of fun. What did
Speaker 2: you start off, What do you do or what is
Speaker 2: Resolute Financial Advisors do? What is your sort of typical
Speaker 2: client and what are they looking for.
Speaker 4: Resolution Financial Advisors is a financial advisory firm, It's true,
Speaker 4: but we don't do a lot of the work that
Speaker 4: other financial advisories firms do. I started my career at
Speaker 4: alvarezm Marcel a long time ago. I think I was
Speaker 4: employee number twenty one of what is now a ten
Speaker 4: thousand person firm well, and I did restructuring work and
Speaker 4: inner management work and forensic accounting work there. So I've
Speaker 4: done a lot of that in my career. That's not
Speaker 4: what we do anymore. We focus like a laser beam
Speaker 4: on what I call the insolvency world, that is, alternatives
Speaker 4: to bankruptcy and other ways to wind down companies create
Speaker 4: value by recovering value, and sometimes we do use the
Speaker 4: bankruptcy code. I am a bankruptcy specialist. I'm a chartered
Speaker 4: financial analyst, and I am a certified insolvency and restructuring advisor,
Speaker 4: And so bankruptcy is the right tool in some cases,
Speaker 4: but for most of the people with whom I do work,
Speaker 4: it's not the right solution.
Speaker 3: So why don't we talk about the various solutions that
Speaker 3: are potentially on the table, Because I think I think
Speaker 3: a lot of people will recognize something like Chapter eleven bankruptcy.
Speaker 3: I know, as the daughter of a commercial airline pilot,
Speaker 3: I am certainly familiar with Chapter eleven bankruptcy, and that
Speaker 3: allows you to keep operating, keep the business going while
Speaker 3: you sort out your various creditors. And then there's Chapter seven,
Speaker 3: which is an actual liquidation, and then there's I assume
Speaker 3: more creative workouts that you are advising on. What are
Speaker 3: the options.
Speaker 5: That's a really good summary, Tracy. Thank you.
Speaker 4: Yes. Chapter eleven is the restructuring. That's where you get
Speaker 4: an automatic stay, a pause from your creditors, and a
Speaker 4: chance to catch your breath, raise new money under favorable terms,
Speaker 4: conduct a sale of the assets in a very very
Speaker 4: court supervised process as its place. I've been through many
Speaker 4: of those. They are terrific if you want to restructure
Speaker 4: a company. Many buyers buying assets out of bankruptcy will
Speaker 4: prefer a judge's order to do it that way. Chapter seven,
Speaker 4: as you said, is when you throw the keys on
Speaker 4: the table and walk away, and bankruptcy court will appoint
Speaker 4: a independent attorney a bankruptcy trustee either called, but they
Speaker 4: tend to be people who are not specialists at selling
Speaker 4: esoteric assets. You don't really expect any value recovery.
Speaker 5: In a chapter seven.
Speaker 4: So what we do is we specialize in alternatives that
Speaker 4: give the company a little bit more control and certainly
Speaker 4: don't ask them to incur so many costs. For example,
Speaker 4: to get into a chapter eleven bankruptcy, you almost certainly
Speaker 4: need upwards of one hundred or two hundred thousand dollars
Speaker 4: just to give a retainer to your bankruptcy council. Sometimes
Speaker 4: that's warranted, but for the companies we'll be talking about today,
Speaker 4: it's not a wise use of money, especially when you
Speaker 4: don't have an expected outcome where there will be a
Speaker 4: sale or restructuring.
Speaker 5: You simply want to shut down.
Speaker 2: I have one really short question, then a real question
Speaker 2: like I've never heard of, like a chapter six bankruptcy.
Speaker 2: Does that exist? Or what's so with all those other.
Speaker 4: Chap There are other bankruptcies. There are some, especially for
Speaker 4: farmers for example. Ok there are some that deal with
Speaker 4: international companies in the United States, but Chapter eleven, Chapter seven,
Speaker 4: and then Chapter thirteen are the ones you hear about
Speaker 4: most of the time.
Speaker 2: Got it Okay? That was just one of those questions
Speaker 2: I've been dying to get off my chest. I probably
Speaker 2: could have asked chat GPT that and got a decent answer,
Speaker 2: But now I got that out of the way. You
Speaker 2: mentioned esoteric asset, so I imagine that there are some
Speaker 2: types of assets that are very easy for anyone to sell,
Speaker 2: like a building or something. It's not very complicated office whatever,
Speaker 2: and then what is an esoteric asset for which if
Speaker 2: you're not a specialist and you might really not know
Speaker 2: how to get top value for it.
Speaker 4: So I do a lot of work in the new economy.
Speaker 4: I've spent most of the past twenty years working with
Speaker 4: Silicon Valley firms who have tech startups, biopharma, clean energy,
Speaker 4: things that are very intellectual property heavy. It is sometimes
Speaker 4: the case that in selling a company's assets, we have
Speaker 4: machinery and equipment or inventory or something that can easily
Speaker 4: be auctioned. But if you have a patent portfolio for
Speaker 4: a specific technology, or if you've got a drug and development,
Speaker 4: or you've got a special software that does something unique,
Speaker 4: there's no benchmark for that. There's no open outcry auction
Speaker 4: system that you can conduct for that. You've really got
Speaker 4: to find the right buyers, narrowly tailored and conduct an
Speaker 4: effort to monetize those assets.
Speaker 3: Okay, I want to talk about the losers because I
Speaker 3: am a firm believer. You know, you always read all
Speaker 3: those business books that are like, here's this massive company
Speaker 3: that was a huge success story. No one ever writes
Speaker 3: about the ones that didn't make it. As you mentioned
Speaker 3: at the beginning, Joe, So, one thing I'm wondering in
Speaker 3: your many, many years of doing this, have you observed
Speaker 3: like a commonality among companies that fail? Is there something
Speaker 3: that is I guess endemic to all the failures?
Speaker 5: I wouldn't say so.
Speaker 4: The people that are doing the investing in those companies
Speaker 4: have a lot more information and probably are a lot
Speaker 4: more intelligent than I am. There was a recent book
Speaker 4: out a year or so ago called The Venture Mindset,
Speaker 4: and it makes the point that Silicon Valley venture firms
Speaker 4: don't really mind losing money. They don't mind investing in
Speaker 4: something that won't succeed. They're much more concerned about missing
Speaker 4: the ones that do succeed. They know that eight out
Speaker 4: of ten, perhaps more but my numbers, eight out of
Speaker 4: ten investments will either break even or fail completely. Is
Speaker 4: the other two or the other one out of that
Speaker 4: ten that will carry the fund for the year. So
Speaker 4: they cast a wide net. They do their best to
Speaker 4: pick intelligently, of course, but they cast a wide net,
Speaker 4: and most of them need to be shut down.
Speaker 3: Well, what's the trigger or the catalyst from going to
Speaker 3: losing money for years and years and years to an
Speaker 3: actual bankruptcy and failure.
Speaker 5: Good question.
Speaker 4: That's when they come to me. The companies come to
Speaker 4: me when they're perhaps pre revenue. They're almost always pre profitability.
Speaker 4: They are relying probably on the next tranch of venture
Speaker 4: funding to come in. If their plan says we're going
Speaker 4: to burn a certain amount of money and the venture
Speaker 4: partners are going to continue to fund us. Eventually the
Speaker 4: venture fund runs out of patience, the fund is full
Speaker 4: or old, or they simply don't believe in the idea anymore.
Speaker 4: That's the first thing. That money doesn't come in. You
Speaker 4: can't make payroll, you can't operate. Or perhaps they've got
Speaker 4: a secured lender, Silicon Valley Bank. I do work with them.
Speaker 4: They do a lot of venture investing. The bank may
Speaker 4: run out of patients, the bank may have to write.
Speaker 5: Down the loan.
Speaker 4: The bank may want to recover their debt and they'll
Speaker 4: cut off their line of credit perhaps or simply fail
Speaker 4: to advance them any more money. Or perhaps the venture
Speaker 4: firm has tried to sell the company, tried to sell
Speaker 4: the technology. They've run an investment banking process and no
Speaker 4: buyer has emerged. So what do you do when you
Speaker 4: come to the end of the road. There's no more
Speaker 4: cash to pay payroll, you can't continue funding your company.
Speaker 5: What do you do?
Speaker 4: All Right?
Speaker 2: So they come to you, and as you said, there
Speaker 2: are going to be these esoteric assets in at least
Speaker 2: some cases for which a typical court appointed liquidator does
Speaker 2: not have the specialty to get the max dollar for them. Incidentally,
Speaker 2: I imagined are situations in which you don't have the specialty,
Speaker 2: but you have to learn it, or you have to
Speaker 2: focus on that. So let's say I'm doing something novel
Speaker 2: in I don't know drug discovery or whatever it is.
Speaker 2: You can give us the example. Some new type of
Speaker 2: asset comes to you. Your job is to get maxtellar
Speaker 2: you haven't really you don't know this specific thing yet,
Speaker 2: maybe because it's novel. Give us an example of some
Speaker 2: esoteric asset in how you saw it out to find
Speaker 2: the buyer who is able to pay max dollar.
Speaker 5: You know.
Speaker 4: Paul McCartney once said that he was fortunate because in
Speaker 4: his line of work he did not need to know
Speaker 4: how to read music. Yeah, I deal in broad based technology,
Speaker 4: as I said, clean tech and biopharma and software and AI,
Speaker 4: all of which I know nothing about. I don't need
Speaker 4: to be a specialist in the technology. I need to
Speaker 4: know how to find the people that know it. So
Speaker 4: I want to put those assets in front of the
Speaker 4: right people. I run what I call a mini investment
Speaker 4: banking process. We have to do it quickly.
Speaker 5: We don't have much money.
Speaker 4: The people that are at the company are going to
Speaker 4: be gone very very soon. So I don't do it
Speaker 4: for six months. I do it for eight weeks. I
Speaker 4: sum up the technology, I put it into a little package,
Speaker 4: and I put it in front of the fifty to
Speaker 4: one hundred companies in that very narrowly targeted space. Whatever
Speaker 4: that space happens to be, Okay, I want to make
Speaker 4: sure that everybody in that respective industry has a chance
Speaker 4: to look at it and opine. I don't have to
Speaker 4: learn it. I have to know enough to talk about
Speaker 4: it a little bit. But I'm there to bring people
Speaker 4: to the table. I want to put them in front
Speaker 4: of the people who invented the technology, the people who
Speaker 4: can tell everybody why it's the greatest thing, and let
Speaker 4: the market tell me what it is.
Speaker 2: So give us an example of ad technology, or give
Speaker 2: us a story about where you had to do that.
Speaker 4: Long time ago, I worked on a company called Proteogenics,
Speaker 4: it was more than ten years ago, so I feel
Speaker 4: comfortable releasing the name. They were doing research in neonatal disease.
Speaker 4: They had collected, oh, I don't know how many pints
Speaker 4: of vaginal fluid, all in deep freeze in the basement
Speaker 4: of their laboratory. Didn't have the ability.
Speaker 3: They're a secondary market for vassional fluid.
Speaker 4: Well, that was my job to find out it's exactly
Speaker 4: right now. There were patents, and there were research, and
Speaker 4: there were medical tests, and there were patient records, all
Speaker 4: analyzing for disease, for whatever disease they were looking for.
Speaker 4: We ultimately did sell that technology to a large I
Speaker 4: think Boston based pharmaceutical company.
Speaker 5: I don't know.
Speaker 4: Whatever happened to it from there, but I had to
Speaker 4: manage that process. The company closed overnight, the facility was
Speaker 4: locked with the vaginal fluid in the deep freezers, and
Speaker 4: I had a landlord it wasn't very happy about that.
Speaker 4: So my job was to two things. My job is
Speaker 4: always two things. Number One, monetize the assets, do it
Speaker 4: quickly before the ice cube melts.
Speaker 5: I had to find a buyer.
Speaker 2: Very literal here a melting ice cube, and this is
Speaker 2: sometimes a cliche in the world but you're talking about
Speaker 2: literal melting refrigeration.
Speaker 4: It got a little dicey because the landlord locked me out.
Speaker 4: The landlord'sn't supposed to be able to do that in California,
Speaker 4: but I wound up having to negotiate something and keeping
Speaker 4: the lights on until such time as I could run
Speaker 4: the sale process, get people interested, back up the technical data,
Speaker 4: and move those freezers out on refrigerated trucks, all while
Speaker 4: the clock was ticking, while I had a very limited
Speaker 4: budget to pay the rent and to keep the electricity on. Now,
Speaker 4: that was a good outcome again because we sold the technology.
Speaker 4: I'm thinking, if I remember correctly, maybe two million dollars,
Speaker 4: which is a great outcome in my business. That was
Speaker 4: probably enough to repay the secured lender. There was often
Speaker 4: a bank that's first in line to get paid, and
Speaker 4: then there are unsecured creditors who come second, trade creditors, landlords,
Speaker 4: things like that. So we're going to try to get
Speaker 4: as much. But now there was probably fifty million dollars
Speaker 4: invested in that company from various funds, lenders, equity investors,
Speaker 4: and so we're not going to get those guys repaid.
Speaker 4: But we want to source as much value as we can.
Speaker 4: Somebody will say to me, how much is the technology worth?
Speaker 4: My answer is always I have no idea, But I'm
Speaker 4: going to find out. How Am I going to find out?
Speaker 4: As I said before, We're going to talk to everybody
Speaker 4: in the industry, everybody who knows this technology, everybody who
Speaker 4: is in a position to say this might be useful
Speaker 4: to me, and will let them speak. Sometimes the answer
Speaker 4: is no one.
Speaker 3: Who is the buyer for the fluid?
Speaker 4: And the Fridges don't recall the name of the buyer,
Speaker 4: but it was I remember a large Boston based biotech
Speaker 4: company with a well known name. I just remember that
Speaker 4: as the buyer. And then the day. The other thing
Speaker 4: I remember was the day we moved out. We had
Speaker 4: the technology backed up on an external hard drive. Again,
Speaker 4: they had paid two million dollars for it, and when
Speaker 4: they went to leave, they couldn't find it. We found
Speaker 4: it in the trash can.
Speaker 2: Oh my god.
Speaker 4: So things are a little bit wild West, a little
Speaker 4: bit touch and go, but that's the kind of.
Speaker 5: Work we do.
Speaker 3: I'm just going to get very voyeuristic about corporate failures,
Speaker 3: I guess, and just ask for a bunch of specific examples.
Speaker 3: But have you ever gone into a company and just
Speaker 3: you know, shook your head in disgust or surprise at
Speaker 3: what's been going on? Like how could this company actually
Speaker 3: happened running in this way for I don't know however long.
Speaker 4: It is often surprising to me that the destruction of
Speaker 4: value is so great. If you told me a fifty
Speaker 4: to one hundred million dollars was invested in X and
Speaker 4: there's nothing to show for it, or maybe the technology
Speaker 4: has a buyer for a million or two million dollars,
Speaker 4: where does the money go? That's a very good question.
Speaker 4: And I've been doing this a long time, and I
Speaker 4: don't really have a good answer for that.
Speaker 2: You Know, something I'm curious about is if when a
Speaker 2: company is on its deathbed, if I were a founder,
Speaker 2: or if I were a board member or whatever, like
Speaker 2: I would be pretty checked out. Like I'm kind of
Speaker 2: not surprised in some instances that, like, you know what,
Speaker 2: some important bit of technology it's on a hard drive,
Speaker 2: et cetera, gets thrown in the trash, or no one
Speaker 2: really cares about keeping the refrigeration bill going. But you know,
Speaker 2: if you're whatever involved in this, like you might be
Speaker 2: thinking about your next thing, this is dead. This is
Speaker 2: a waste of time. I see no future upside talk
Speaker 2: about like those late stages and who actually is incentivized
Speaker 2: to till the very end, till the keys are handed over,
Speaker 2: till the sale is made, Like, how do you get
Speaker 2: them focused on extracting that less value when most people,
Speaker 2: I would imagine want to move on at that point.
Speaker 4: That's an excellent segue, Joe, So how do we get hired?
Speaker 4: Why do people bring us in? It's exactly right. If
Speaker 4: I'm on the board of a company, I'm probably residing
Speaker 4: at a venture capital firm or a private equity firm,
Speaker 4: or maybe.
Speaker 5: A venture lender.
Speaker 4: And once I see that there's not going to be
Speaker 4: any recovery or minor recovery, why.
Speaker 2: Would you want to spend another second on it or
Speaker 2: another dollar?
Speaker 4: Yeah, that's exactly right. So I'd rather go focus on
Speaker 4: my things with upside, So they want to as quickly
Speaker 4: as possible hand it off to me. So under the
Speaker 4: rubric of my business, we very often, not always, but
Speaker 4: very often engage in a formal kind of insolvency process
Speaker 4: known as an Assignment for the Benefit of Creditors or
Speaker 4: ABC for short. It's a form of insolvency. That's well
Speaker 4: recognized in many states. It's not under federal bankruptcy law,
Speaker 4: it's under state law. In California. State law on Delaware
Speaker 4: has a long storied history. It's nothing new, goes back
Speaker 4: to English com and law. Under an ABC, a company
Speaker 4: says we have assets, we have debts. We can't continue
Speaker 4: to operate.
Speaker 5: The business, so we're going.
Speaker 4: To take all of our assets and assign them to
Speaker 4: a third party trustee. That's me and I have Again,
Speaker 4: I have two jobs. One, turn those assets into cash,
Speaker 4: try to collect as much money and put it in
Speaker 4: a trust account for creditors. And my second function is
Speaker 4: to do the administrative wind down of the company. Get
Speaker 4: the final tax returns prepared, store the books and records,
Speaker 4: make sure the w twos go out to the employees
Speaker 4: at the end of the year, wind down the four
Speaker 4: oh one k under Ristle law, properly all the administrative
Speaker 4: things that board of members really do care about and
Speaker 4: should care about, but don't have the expertise or the
Speaker 4: interest to do themselves. Therefore, when the transaction happens, when
Speaker 4: the company signs over these assets to me, the board
Speaker 4: generally resigns that same day. In a Delaware dissolution if
Speaker 4: the company is just going to file PaperWorks to close
Speaker 4: the company without a formal insolvency process, Delaware requires at
Speaker 4: least one director stay on the hook as a director
Speaker 4: for three years, which means you've got to keep insurance
Speaker 4: in place. You've got to continue to bother the directors
Speaker 4: with items he may be at risk. In this case,
Speaker 4: they don't have to. They put all of the work
Speaker 4: on the shoulders of me and my partners, and we
Speaker 4: have a legal fiduciary duty to do the things we've
Speaker 4: talked about to monetize the assets and wind it down,
Speaker 4: and very often we never talk to those directors.
Speaker 3: Again, I'm thinking how to frame this question, but does
Speaker 3: anyone ever try to influence your decisions as a trustee
Speaker 3: who is supposed to be independent following the law. Does
Speaker 3: anyone ever try to kick themselves up the waterfall or
Speaker 3: something like that.
Speaker 4: That's a good question. I've had very few experiences like that.
Speaker 4: We handle the insolvency process very strictly. We adhere to
Speaker 4: a lot of the same rules that occur in Chapter
Speaker 4: eleven in federal bankruptcy. The veneer of having the formal
Speaker 4: ABC insolvency process is itself powerful. We tell our companies.
Speaker 4: If you just walk away and you owe them bank
Speaker 4: money and you owe unsecret creditors money, people are going
Speaker 4: to be angry. People are going to look for somebody
Speaker 4: to sue. People are going to perhaps push for an
Speaker 4: involuntary bankruptcy. You guys, don't want any of that. You
Speaker 4: want to walk away. Instead, make resolution the target. Give
Speaker 4: somebody a place to file acclaim, give them someone to
Speaker 4: yell at, let them know there's a process, and give
Speaker 4: them the assurance that you're acting independently and if there's
Speaker 4: any money to distribute, you'll get your fair share.
Speaker 3: Are you paid to be yelled at?
Speaker 5: Is that?
Speaker 1: Basically it?
Speaker 4: I am paid to be yell Okay?
Speaker 3: Well, the other thing I wanted to ask is I
Speaker 3: mentioned at the beginning the Lehman Brothers bankruptcy, which took
Speaker 3: more than a decade to resolve and was perhaps an
Speaker 3: extreme example. But you do often hear about bankruptcy proceedings
Speaker 3: that go on for years and years and years. And
Speaker 3: in your business, it sounds like you're trying to be
Speaker 3: pretty fast with the wind down, right, You're trying to
Speaker 3: get as much money as possible, and maybe that means
Speaker 3: you have to move really, really quickly. So I'm curious
Speaker 3: how you kind of balance the need for speed with
Speaker 3: the financial and legal complexities of actually winding down a company.
Speaker 4: Bankruptcies have gone for a long time do so because
Speaker 4: there are material assets that have to get sold or
Speaker 4: divvied up, and you often have a huge constituency of creditors.
Speaker 4: Those creditors can form their own committee, they can hire
Speaker 4: their own council, their own financial advisors. There's many competing interests.
Speaker 4: You're right, Eleman would be an extreme example. That was
Speaker 4: my old boss, Brian Marcel. We spent years doing that one.
Speaker 4: In these cases, you don't have that in my cases
Speaker 4: because you have a single asset, or you have assets
Speaker 4: that have unknown value and likely several million dollars at most,
Speaker 4: we're not talking about a billion dollars. In most cases,
Speaker 4: they go through my process, so there's less to manage.
Speaker 4: You don't have some of the legal benefits of bankruptcy,
Speaker 4: but nor do you have the restrictions. You don't have
Speaker 4: to ask a judge for permission to do all sorts
Speaker 4: of things. You don't have to usually have a large
Speaker 4: staff of financial advisors, managing the cash. It is true
Speaker 4: that sometimes in my processes we can you to run
Speaker 4: the operations of the company, but on a skeleton crew
Speaker 4: and maybe for a few months at most, so they're
Speaker 4: not nearly as complicated. The outcome is not nearly as
Speaker 4: fraud for so many creditors. But I will give you
Speaker 4: one example of when we had hoped to do an
Speaker 4: ABC but wound up doing a Chapter eleven instead. It
Speaker 4: was a company a few years ago that was in
Speaker 4: the sports business. They had a website that accumulated or
Speaker 4: curated sports writering. We had one sports writer who only
Speaker 4: wrote about the Florida Marlins, and one sports writer that
Speaker 4: only wrote about this team in San Francisco.
Speaker 5: Sorry, I'm not much of a sports buff.
Speaker 4: So they had a collection of people, all of whom
Speaker 4: were contracted with this company, and the company had the
Speaker 4: website and was a well known brand. We had hoped
Speaker 4: to do an assignment for the benefit of creditors because
Speaker 4: we had ten million dollars of debt. We had a
Speaker 4: buyer who wanted to pay ten million dollars for the assets.
Speaker 4: Sounded like a great match. Unfortunately, there are special rules
Speaker 4: in bankruptcy that come in handy here that we can't
Speaker 4: take advantage of in the outside of the bankruptcy process.
Speaker 4: Specifically in bankruptcy if you have contractors like that, if
Speaker 4: you have executory contracts, you can drag those contracts along
Speaker 4: and put them in a sale to a buyer, and
Speaker 4: those contractors have to go along with that, along with
Speaker 4: the bankruptcy court. In an ABC, I don't have that power.
Speaker 4: So I would have had to negotiate with one hundred
Speaker 4: or two hundred sports writers to get them to go
Speaker 4: along with the sale to the buyer, and that was
Speaker 4: not tenable. Therefore, we filed a Chapter eleven. We processed
Speaker 4: the sale with the buyer through a Chapter eleven three
Speaker 4: to sixty three sale process, and the sale was completed.
Speaker 4: Now here's the downside. We had a ten million dollar
Speaker 4: long We had a ten million dollar buyer. By the
Speaker 4: time the bankruptcy process was paid, bankruptcy Council and my
Speaker 4: firm and the creditors committee and their counsel and their
Speaker 4: financial advisors, and the delays and the special insurance and
Speaker 4: the funds that had to be set aside, the buyer
Speaker 4: did pay ten million dollars. The lender only walked away with.
Speaker 3: Seven The lawyers always win.
Speaker 4: Huh, there are a lot of people who take a
Speaker 4: toll on the way through bankruptcy.
Speaker 2: Yes, that sounds like a good way to put it.
Speaker 2: Tell us about another weird esoteric asset for which you
Speaker 2: had to find a buyer.
Speaker 4: I have a cute little story from a while back,
Speaker 4: company called Coapt. Coapt was developing some new technology for
Speaker 4: cosmetic surgery. We did operate that company for a few weeks.
Speaker 4: We did run a sale process, and we did find
Speaker 4: a buyer. Now, a couple funny things about this company. First,
Speaker 4: when we go into a company like this, we have
Speaker 4: to remember sell the assets, but we also have to
Speaker 4: wrap everything up. People get up from their desks and
Speaker 4: walk away. They leave things almost as if they were
Speaker 4: taken by aliens in some cases. So we do everything. Remember,
Speaker 4: the board put us in charge. We've got to monetize
Speaker 4: the assets, but we've got to report to the landlord.
Speaker 4: We've got to get rid of the furniture. Perhaps back
Speaker 4: in the Vaginal Fluid company, I forgot to mention there
Speaker 4: was E. Coli in their laboratory.
Speaker 2: Lovely, Lovely.
Speaker 4: So we very often contract with hazardous materials firms to
Speaker 4: make sure we clean those things up. That's part of
Speaker 4: the deal. Remember we're putting a bow on these things
Speaker 4: for the directors and they expect to not have They
Speaker 4: don't want to hear about any blowback anything later on.
Speaker 4: So we have a full service process here, so a
Speaker 4: coapp though. Remember this was cosmetic surgery. They had a
Speaker 4: technology for a special device with hooks that they would
Speaker 4: drill into your skull and then they would pull the
Speaker 4: skin up over those hooks.
Speaker 5: I've seen pictures of that.
Speaker 4: That was the technology that was being developed.
Speaker 2: I've seen these images so disturbing. I can't even believe
Speaker 2: that's real.
Speaker 4: Anyway, keep going, it's real, and we did sell it
Speaker 4: to somebody. Somebody found value in that enough to get
Speaker 4: the bank repaid almost in that case. But the real
Speaker 4: trick to the story here was that to practice this,
Speaker 4: to experiment on this, to develop this technology, you actually
Speaker 4: need real human.
Speaker 5: Heads to do it.
Speaker 4: Apparently, so as we were moving out, we found four
Speaker 4: or five human heads in the freezer. So if you're
Speaker 4: a director of a company, if you're in Silicon Valley
Speaker 4: and you're deciding where to allocate your investments and you
Speaker 4: find out that this one's gone down, do you want
Speaker 4: to be the one making the decision or trying to
Speaker 4: figure out how to get rid of things like that.
Speaker 4: I have lots of stories about things that just nobody
Speaker 4: would want to deal with. Now you might ask yourself,
Speaker 4: what do you do with human heads? Yep, you'll be
Speaker 4: surprised to learn that there are actually people that specialize
Speaker 4: in this industry. A van rolled up. These are people
Speaker 4: that look like they might have worked for the circus.
Speaker 4: This is not an industry where you attract every day,
Speaker 4: run of the mill people.
Speaker 5: I suppose, so I deal with things like that.
Speaker 4: I had nuclear waste in one.
Speaker 3: Of my Wait, wait, what do they do with the heads?
Speaker 5: I wasn't going to ask that question.
Speaker 4: Okay, I'm sorry. I don't have more to the story,
Speaker 4: but we found somebody to take them off from hours on.
Speaker 3: Your job is done.
Speaker 4: I divide the world into two sections, things that are
Speaker 4: my problem, things that are not my problem, and I
Speaker 4: find that I'm much happier that way.
Speaker 5: But I did have.
Speaker 4: Nuclear waste one time. There was a nuclear medicine company.
Speaker 4: Not buckets of glowing rods, but you know, something you
Speaker 4: could hold in your hand, but still it needed to
Speaker 4: be disposed of properly. Once again, these things that people
Speaker 4: who signed up to be a director don't want to
Speaker 4: spend their time solving.
Speaker 3: I was about to ask, what's the weirdest thing you
Speaker 3: ever had to sell? But I'm assuming you know human
Speaker 3: heads would be up there along with nuclear waste. So
Speaker 3: maybe I'll ask instead, what's the most creative buyer solution
Speaker 3: that you have come up with?
Speaker 4: Well, let me tell another story then, And I don't
Speaker 4: want to mention the name because was Fortune five hundred
Speaker 4: company that was involved, but I'll tell you enough to
Speaker 4: be interesting. I got a call about a year and
Speaker 4: a half ago from an attorney who sends me a
Speaker 4: business here in New York. Actually, they said, my client
Speaker 4: has a disaster. They need to talk to you right away.
Speaker 4: I get on the phone with the bord of directors. Ah,
Speaker 4: we just found out the CEO has been lying to
Speaker 4: us and we're out of cash and we can't make
Speaker 4: perrol and we've got to shut down right away. Okay,
Speaker 4: So we came in took over. It turns out the company,
Speaker 4: and again I can't get too specific, I can tell
Speaker 4: you it was so new economy that it just screamspeak
Speaker 4: dot com silliest concept that I had heard in a
Speaker 4: long time, and I wish I could tell you.
Speaker 5: What it was.
Speaker 4: The company was teed up to be sold for fifty
Speaker 4: million dollars, and the CEO was running out of cash
Speaker 4: but trying to extend his runway to.
Speaker 5: Get to the sale.
Speaker 4: So he was going to hard money lenders, almost like
Speaker 4: check cashing shops, and borrowing two hundred and fifty thousand
Speaker 4: dollars at a time, again and again and again to
Speaker 4: try to pay for payroll and extend his run way
Speaker 4: till he could get.
Speaker 5: The sale done.
Speaker 4: He ran out of time. The board found out that
Speaker 4: he was doing this, they found out they didn't have
Speaker 4: any cash left over, and they shut the company down
Speaker 4: right away. Now the buyer was still very interested in
Speaker 4: the company. If the company didn't really exist anymore. All
Speaker 4: of the employees were terminated, all the systems were shut down,
Speaker 4: but they still have the technology, They still had the patents,
Speaker 4: they still had the interface, they still had the customer base,
Speaker 4: They stild the business plan. So the buyer said, we'd
Speaker 4: still like to buy the technology, but we're not going
Speaker 4: to pay fifty million dollars anymore. So we negotiated a
Speaker 4: little bit. We shopped the company around a little bit,
Speaker 4: but these guys were at the table and they were
Speaker 4: ready to buy. They bought the company for fifteen million
Speaker 4: dollars one five. They got essentially the same technology. Now
Speaker 4: they had to put Humpty Dumpty back together again, but
Speaker 4: they got a great bargain buying the company through this
Speaker 4: ABC insolvency process. Didn't have to go through bankruptcy, didn't
Speaker 4: have to pay all those fees. It was done in
Speaker 4: a matter of weeks, not months, and they got what
Speaker 4: they were looking for. At the same time, I was
Speaker 4: able to collect enough money to repay the venture lender
Speaker 4: in full, which is rare.
Speaker 5: Now there are unsecured.
Speaker 4: Creditors that weren't paid, and equity, of course is completely
Speaker 4: out of the money. But the technology lives on. They
Speaker 4: hired some of the former employees, the senior lender got paid.
Speaker 4: That's a pretty good outcome in my world.
Speaker 2: I don't know if you have experience with this, but
Speaker 2: it strikes me that for finding the right buyers, it
Speaker 2: seems like this is where AI could be really useful.
Speaker 2: You come upon some asset that you've never experienced before,
Speaker 2: like human heads, et cetera, and then I go in
Speaker 2: and say, what is the type of buyer that would
Speaker 2: maybe be in the market to purchase human heads or whatever.
Speaker 2: I'm curious if you've found that to be the case,
Speaker 2: because I imagine you know your rolodex, your intuition, the
Speaker 2: research you do. But have you found the technology over
Speaker 2: time in your industry has made it easier to rapidly
Speaker 2: locate the ideal buyer of certain certain assets.
Speaker 4: A bit now, I'm fifty four. My partners are younger
Speaker 4: than I am, so they're more interested.
Speaker 5: In SAVVA doing that.
Speaker 4: But when I find a company who has an asset
Speaker 4: for sale, I say to the owners of the company,
Speaker 4: or the inventor of the intellectual property or the president
Speaker 4: of the company, tell me, you know, oh yeah, the
Speaker 4: top five companies that should buy this. Your competitors, your customers,
Speaker 4: your suppliers. Give me the top four or five people
Speaker 4: that you know at the top of your head, and
Speaker 4: then I'm going to use AI to develop a larger list. God,
Speaker 4: I can usually get that to fifty or up to
Speaker 4: one hundred of people really targeted. I've got thousands of
Speaker 4: people on my database. But I don't want to send
Speaker 4: this opportunity to everybody. I want the people in that industry.
Speaker 4: You have a chance to look at it.
Speaker 3: I just typed into Perplexity the question I have legally
Speaker 3: acquired some human heads that I need to sell. Who
Speaker 3: would be a potential buyer? And it's given me a list,
Speaker 3: including specific names such as Bone Dealers, Skulls Unlimited, and
Speaker 3: the Bone Room. I don't know if that's a.
Speaker 4: Yeah, But Skulls Unlimited, that's fantastic.
Speaker 3: Maybe it exists. That's pretty funny.
Speaker 4: We do a lot of work with new economy, but
Speaker 4: old economy as well. For example, right now we're liquiding
Speaker 4: two retail furniture stores.
Speaker 2: Wait, Skull's Unlimited world leader in real and replica skulls,
Speaker 2: and they say, do you need a skull clean? So
Speaker 2: this is I don't know if they do human ones.
Speaker 2: It looks like it's mostly animals and stuff. Anyway, at
Speaker 2: least the Perplexity came up with a company. It is
Speaker 2: in this cold business anyway, keep going.
Speaker 4: There are niche industries, yes, so old economy as well.
Speaker 4: I've done a lot of brick and mortar work, especially
Speaker 4: down here in the Los Angeles area versus Silicon Valley.
Speaker 4: As I say, we're doing some furniture companies. At one
Speaker 4: point I was serving as a receiver for a chain
Speaker 4: of pawn shops. Now, a receivership is a little bit
Speaker 4: different than bankruptcy. It's different than the ABC we talked about.
Speaker 4: It is the case that a lender or even investors
Speaker 4: don't have faith in management and they want a babysitter.
Speaker 4: They want someone to keep take control of the cash,
Speaker 4: lookover management, shoulders, perhaps hire and fire management, ultimately perhaps
Speaker 4: sell the company. But this is not when you want
Speaker 4: to shut a company down or destroy something. You just
Speaker 4: want some adult supervision. So I served as a receiver
Speaker 4: for this chain of pawn shops, which was really check
Speaker 4: cashing stores, but they dealt in gold. They had a
Speaker 4: big vault in their headquarters where they would store some
Speaker 4: of the gold. If you go into a check cashing
Speaker 4: store and you have a gold necklace and you want
Speaker 4: to borrow fifty dollars, they'll keep your gold necklace.
Speaker 5: Got very interesting.
Speaker 4: Though, when people were depositing their gold teeth into the vault,
Speaker 4: and you know, if they don't come back and repay
Speaker 4: the loan, the gold teeth stay in the vault. So
Speaker 4: we had a lot of interesting things to deal with there.
Speaker 4: And again in a check cashing store all cash business.
Speaker 4: You see a lot of one hundred dollars bills, buckets
Speaker 4: and buckets of those things floating around. So new economy
Speaker 4: those are easy to value, at least they're easy to value.
Speaker 4: But new economy old economy that there's a lot of
Speaker 4: management and judgment calls, and what do I do about
Speaker 4: this situation in my line of work.
Speaker 2: We were talking earlier before we started. You did a
Speaker 2: scooter company, and I've wondered about those scooter because you know,
Speaker 2: some of the they're still going. All the companies in
Speaker 2: that business seemed terrible. The ones that have gone public
Speaker 2: have done awful. Yes, Yes, and you're going to say
Speaker 2: that I was very bullish on the scooters. I still
Speaker 2: actually liked them. When I'm in a city, it's not
Speaker 2: a bad way to get around medium length distances. Nonetheless,
Speaker 2: my understanding is that they have not been particularly, at
Speaker 2: least in the US, particularly profitable companies. What happens when
Speaker 2: they have like a bunch of old brands and scooters
Speaker 2: laying around, That's.
Speaker 4: An interesting question. It isn't an interesting business. I think
Speaker 4: it was probably over invested in. I have a story
Speaker 4: with both a good outcome and a bad outcome. So
Speaker 4: a company called super Pedestrian, which is not what I
Speaker 4: was familiar with, but it's up there with Lime and
Speaker 4: Bird and it does the exact same thing. Has a
Speaker 4: very large presence in Europe. Company rant it of cash.
Speaker 4: The venture lender, not a bank, but the venture lender
Speaker 4: contacted us and said, we need somebody to figure out
Speaker 4: what to do. How do we get our money back?
Speaker 4: It's got to be value here. We invested ex gazillion dollars.
Speaker 4: We've got a lot of scooters all over the United States,
Speaker 4: all over Europe. What do you do? So we started
Speaker 4: out in Europe. Turns out there was a lot of
Speaker 4: interest from European investors, and so we had scooters in Spain,
Speaker 4: we had scooters in the UK, we had scooters in France,
Speaker 4: we had scooters in Germany, we had scooters in Switzerland.
Speaker 4: And I don't do a lot of work in Europe.
Speaker 4: I don't know European insolvency law. I don't know all
Speaker 4: the very different ones. I sometimes do work over there,
Speaker 4: but I rely on local specialists sometimes. But I had
Speaker 4: a lot of attention on that business. Fortunately, we were
Speaker 4: able to get counsel in the UK who did a
Speaker 4: fantastic job of corralling all of these buyers and selling.
Speaker 4: We didn't have to take apart the companies this time.
Speaker 4: We sold the German entity, and this French entity and
Speaker 4: the Spanish entity all to a company I think from
Speaker 4: Norway who was well funded and believed in scooters, and
Speaker 4: so we were able to flip that almost in a
Speaker 4: matter of a month or two, and that business is
Speaker 4: still going.
Speaker 5: I still see them in the news.
Speaker 4: On the other hand, we didn't have so much luck
Speaker 4: in the United States. We didn't find anybody interested enough
Speaker 4: in the local business here, and after a lot of
Speaker 4: searching and a lot of bill paying and a lot
Speaker 4: of landlords locking up the scooters. To my knowledge, those
Speaker 4: scooters are still sitting on the corners of Los Angeles
Speaker 4: and Washington, d C.
Speaker 5: And maybe at the.
Speaker 4: Bottom of the unusable and unusable because once the technology
Speaker 4: gets turned off, they're like bricks. Wow. So good outcome.
Speaker 4: In Europe, I wish them well.
Speaker 2: I like the scooters, but I did. Do you think
Speaker 2: that there is this element of like sort of weird
Speaker 2: public vandalism about it at some point where like a
Speaker 2: company just thinks it can deposit its products on this
Speaker 2: it's like what, like, where did these come from? I
Speaker 2: was going to see them in digits anyway, Tracy, keep going.
Speaker 3: I was going to ask, so the scooters that are
Speaker 3: left over, would the company be liable for anything that
Speaker 3: like happened to those or if they, I don't know,
Speaker 3: caused an accident of some sort. If I'm cycling down
Speaker 3: the sidewalk and I accidentally run into a defunct scooter,
Speaker 3: could I sue the failed company?
Speaker 4: Oh? Would you sue the company?
Speaker 3: But it doesn't exist.
Speaker 5: It doesn't exist, so I can't.
Speaker 4: So there's no Oh you can sue.
Speaker 5: Yes, you can sue all day long, but there's nothing
Speaker 5: to recover.
Speaker 4: Okay, that's both a blessing and a curse. I remember
Speaker 4: when this scooters first came to Los Angeles a few
Speaker 4: years ago, and people would just throw them in the river,
Speaker 4: throw them in the ocean. It was astounding to me
Speaker 4: that that business model could work. Somebody believed in it.
Speaker 4: There are a lot of those scooters still around Los Angeles,
Speaker 4: and again, they're not useful unless you have the technology active.
Speaker 4: So I don't know what happened. I wound up leaving
Speaker 4: that company before that was fully resolved. But that is
Speaker 4: the question there whereas all sorts of government penalties, cities
Speaker 4: and post fines, or I want to make sure we
Speaker 4: had insurance, for example, if we're going to operate scooters,
Speaker 4: so we're a little bit hamstrong. We don't want to
Speaker 4: be operating a scooter company. I've got a small firm,
Speaker 4: I'm not staffed. I can certainly rely on some of
Speaker 4: the former employees if I can pay them, but I
Speaker 4: don't want to be operating a company like that.
Speaker 2: I have just one last question, but one particularly complicated
Speaker 2: and interesting liquidation or sale or failure that's in the
Speaker 2: news for the last several months have been twenty three
Speaker 2: in me, which raises all kinds of interesting things about
Speaker 2: like privacy in particular. I'm curious if this is a
Speaker 2: story you've followed in whether you have any insight to
Speaker 2: bear on how a situation like that will or should
Speaker 2: play out from a legal perspective.
Speaker 4: I followed it just a bet, just enough to know
Speaker 4: that I would not want to be making the decisions
Speaker 4: as an assignee in an ABC. In that case, that's
Speaker 4: a case that belongs in bankruptcy court, okay, because you've
Speaker 4: got a judge who will make the decisions for you.
Speaker 4: I don't want to be responsible for selling personal identifiable
Speaker 4: information without someone telling me it's okay.
Speaker 2: But actually imagine that in all I mean twenty three
Speaker 2: in me is an extreme example because it's so personal,
Speaker 2: but I have to imagine personal identifiable information. It's actually
Speaker 2: got to be pretty common in a lot of Internet startups, etc.
Speaker 2: Where people have to submit information to set up an account, etc.
Speaker 2: I imagine that there are a lot of maybe not
Speaker 2: quite as tricky, but still pretty tricky questions that are
Speaker 2: raised with some of these companies.
Speaker 4: We do have to take care I sold the business
Speaker 4: earlier or last year. In the ticketing I actually have
Speaker 4: done four or five deals in the ticketing business, like
Speaker 4: a sub hub type competitor, And there are of course
Speaker 4: credit card information and personal information. We don't generally sell that,
Speaker 4: and so as long as I'm careful that it doesn't
Speaker 4: get disseminated out in the public, I don't have to
Speaker 4: worry about that too much. There is sometimes the case
Speaker 4: if I sell a company, I have to review their
Speaker 4: Internet privacy policy to make sure I'm able to.
Speaker 5: Sell the customer list.
Speaker 4: And we do take that seriously and we do work
Speaker 4: with counsel to make sure that we aren't going to
Speaker 4: be on the hook. Certainly it don't want to make
Speaker 4: those decisions and have someone come back and say I
Speaker 4: did something illegal.
Speaker 3: I could sit here and listen to corporate failure stories
Speaker 3: for hours, but we are running out of time, so
Speaker 3: I'm just going to ask one other question, which is
Speaker 3: for esoteric assets, how do you go about ensuring that
Speaker 3: you have that you're getting a reasonable price. So something
Speaker 3: like human heads, I imagine there is no secondary market
Speaker 3: for human heads. There's no What I mean is there's
Speaker 3: no exchange showing you a price bench mark. That's right,
Speaker 3: there's no benchmark human head price. So someone could make
Speaker 3: you an offer, but I imagine without expertise in that
Speaker 3: particular market, you wouldn't necessarily know if it was a
Speaker 3: good price or not. So how do you go about
Speaker 3: making sure that you're getting the most money possible.
Speaker 4: I get that question a lot, and the answer is
Speaker 4: there are no benchmarks. There's no liquid market for these
Speaker 4: type of assets that are very unique and very interesting technology.
Speaker 4: In some cases, you have to ask the market. Something
Speaker 4: is worth what someone else is willing to pay for it.
Speaker 4: So it's important that I get the opportunity in front
Speaker 4: of everybody who might have an interest. That's why I
Speaker 4: said earlier, fifty to one hundred people in that industry.
Speaker 4: And if I shop it to all of the people
Speaker 4: who should know what it is and how to value it,
Speaker 4: and they say, sorry, I'm not interested, and I could
Speaker 4: be pretty sure.
Speaker 5: It's got no market value today.
Speaker 4: If I get four or five people to say, hey,
Speaker 4: this is interesting, let me do some homework, let me
Speaker 4: talk to management, let me make an offer, and I
Speaker 4: get four or five offers, and the offers are all
Speaker 4: centered around three million dollars. Well, I've identified the market
Speaker 4: value of that technology. If I've got three offers at
Speaker 4: five hundred thousand dollars and one offer at five million dollars,
Speaker 4: go to grab the five million dollar offer, that's the
Speaker 4: value of the technology. So I know better than anybody
Speaker 4: else what that technology is worth. In fact, I had
Speaker 4: to go to court only one time, I think, in
Speaker 4: almost twenty years, where it was this co op case. Again.
Speaker 4: I'll tell you that where I sold the technology for
Speaker 4: let's call it, three million dollars and I repaid the
Speaker 4: secured lender and there was no money for anybody else.
Speaker 4: There was a planiff' attorney who was representing some people
Speaker 4: who had said that they were injured, not by this
Speaker 4: new technology we discussed, but something else. The company had done,
Speaker 4: some kind of derma filler or something, and those patients
Speaker 4: had potential claims, contingent claims. They said they suffered injury.
Speaker 4: They weren't adjudicated. There were no judgments, but the planeiff's
Speaker 4: attorney may have had a case as patients may have suffered. Nevertheless,
Speaker 4: when we sold the technology, there was enough money to
Speaker 4: pay back the bank and nobody else. The planet's attorney
Speaker 4: took us to court and they said, yes, you sold
Speaker 4: the company for three million dollars, but if you knew
Speaker 4: what you were doing, Johnson, you would have sold it
Speaker 4: for eleven million dollars and we all would have gotten paid.
Speaker 4: He said, I have an Ivory Tower economists right here
Speaker 4: at my desk, and he says this company was worth
Speaker 4: eleven million dollars. And I said, really so, because here's
Speaker 4: my binder. Here are the people that I reached out
Speaker 4: to to sell this technology, fifty sixty seventy of them,
Speaker 4: and here are the ten that said they were interested
Speaker 4: in looking at it, and they signed non disclosure agreements.
Speaker 4: And after doing their diligence. Four of them came to
Speaker 4: me with an offer to buy the company, and I
Speaker 4: chose the one with the highest price. So if your
Speaker 4: Ivory Tower economists wanted to buy this company for eleven
Speaker 4: million dollars, I sure wish I would.
Speaker 5: Have met it.
Speaker 4: I would have been happy to sell it to them.
Speaker 4: But I know in the real world that something is
Speaker 4: worth what someone's willing to pay. And I asked everybody,
Speaker 4: and this is what they told me.
Speaker 3: I'm going to ask one more question. I can't resist,
Speaker 3: But is there a lesson about corporate mortality that you
Speaker 3: wish more executives or entrepreneurs would learn and internalize? If
Speaker 3: you could give a piece of advice to executives of
Speaker 3: failing companies or companies that are managing to survive but
Speaker 3: there's always a risk of failure, what would it be.
Speaker 5: I won the court case.
Speaker 4: By the way, I'll give you the same advice that
Speaker 4: everybody says, coming to us earlier rather than later is
Speaker 4: always wise. You only have as long as your cash
Speaker 4: runway allows you to be there. So if you have
Speaker 4: six months worth of cash instead of six weeks worth
Speaker 4: of cash, I can do a more thorough search. I
Speaker 4: can come up with potentially other buyers create more value.
Speaker 4: I can keep more people around for a longer period
Speaker 4: of time. I can make better preparations for the preservation
Speaker 4: of the technology. So earlier is always better. And I
Speaker 4: do a lot of contingency planning. People come to me
Speaker 4: and say, I've got an offer on the table, but
Speaker 4: I don't know if it's going to close, So how
Speaker 4: do I prepare for the downside? Or we think we're
Speaker 4: gonna get that next round of venture funding, but just
Speaker 4: in case it doesn't come in, what do I do?
Speaker 4: So I do a lot of that kind of planning.
Speaker 4: And the more time we have the better. On the
Speaker 4: other hand, I have gotten the phone call before. I
Speaker 4: can't make payroll on Friday?
Speaker 5: Can you help me?
Speaker 2: Should have called me earlier. David joneson I think if
Speaker 2: I were on the board of a company and you
Speaker 2: showed up and said, you know what, tough situation, but
Speaker 2: we're gonna get give a max dollar, I think I
Speaker 2: feel really good. I feel like you do a good
Speaker 2: job for us. I really appreciate you coming on odd
Speaker 2: loads and telling us about this a niche that I
Speaker 2: knew nothing about.
Speaker 5: This has been fun.
Speaker 4: Thank you.
Speaker 5: Joe thank you Chasing.
Speaker 2: Tracy. That was a lot of fun. I didn't know
Speaker 2: anything about any of this topic, and he was the
Speaker 2: perfect guest for that.
Speaker 3: Yes, a very niche topic for someone who specializes sometimes
Speaker 3: in very niche sales. That was so interesting. I'm trying
Speaker 3: to think what my big takeaway is here. I mean,
Speaker 3: I guess the emphasis on how comfortable a lot of
Speaker 3: Silicon Valley actually is with losing money for years and
Speaker 3: years and years and then how suddenly that tap can
Speaker 3: be turned off.
Speaker 2: Well, so I thought your last question and his last
Speaker 2: answer about like sooner the better was really interesting and
Speaker 2: really important, And I just feel like if I were
Speaker 2: a founder of a company, I would never do sooner.
Speaker 2: I would hold out till the very last second, the
Speaker 2: last dollar in my account in order to make payroll.
Speaker 2: I would never call David up until I was absolutely
Speaker 2: forced out of the room. Even though you know, you
Speaker 2: get into a what do they call principal agent problems here, right,
Speaker 2: because you're suddenly operating for yourself as someone who's trying
Speaker 2: to keep your equity in the money in the hopes
Speaker 2: that it can go on. Meanwhile, you're burning through credit
Speaker 2: or cash and probably you know diminishing their recovery value
Speaker 2: by the day. A lot of interesting incentive disalignment potential
Speaker 2: at the end of life there.
Speaker 3: Yeah, And I imagine that the founders of startups that
Speaker 3: might eventually fail, they're probably optimistic by nature, and so
Speaker 3: they're probably sat there thinking they might get a Hail
Speaker 3: Mary at the very last minute, and then it doesn't
Speaker 3: materialize and it's too late and they're scrambling to make payroll.
Speaker 2: I guess this is what the board, right, the board
Speaker 2: is supposed to solve some of these incentive alignment problems,
Speaker 2: and it's like, bro, come on, you gotta give up.
Speaker 2: You got to you gotta begin the liquidation phase, which
Speaker 2: I guess is why the founder in one of his
Speaker 2: stories was taking you know, personal check cashing loans to
Speaker 2: keep it going, precisely because the board or maybe wouldn't
Speaker 2: have let it keep going had they been aware of
Speaker 2: the true financial state of the company. The anyway, very
Speaker 2: interesting conversation.
Speaker 3: Bro, you got to give up, signed the chairman. Yeah, exactly,
Speaker 3: All right, shall we leave it there.
Speaker 2: Let's leave it there.
Speaker 3: This has been another episode of the Oud Lots podcast.
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