WEBVTT - This Is What Happens When a Startup Dies 0:00:02.480 --> 0:00:16.400 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.000 --> 0:00:21.520 Hello and welcome to another episode of The Odd Lots podcast. 0:00:21.600 --> 0:00:24.040 I'm Jill Wisenthal and I'm Tracy Alloway. 0:00:24.320 --> 0:00:27.640 Tracy, we always hear about big startup exits, you know, 0:00:27.680 --> 0:00:31.880 people becoming billionaires, companies getting acquired, going ipo, et cetera. 0:00:32.280 --> 0:00:33.920 But I don't think that's most of them. Is not 0:00:34.080 --> 0:00:35.879 that that's just the ones we talk about. You never 0:00:35.960 --> 0:00:38.240 hear about the scores of other ones that always fail. 0:00:38.479 --> 0:00:41.880 No, this is called survival bias, right, so you only 0:00:41.920 --> 0:00:45.120 ever hear about the winners because all the losers are 0:00:45.280 --> 0:00:48.680 basically gone and can no longer communicate. 0:00:49.120 --> 0:00:49.519 That's right. 0:00:49.600 --> 0:00:52.520 And then the other thing is that most startups fail, 0:00:52.640 --> 0:00:55.040 and you know vcs talk about, oh, I need one 0:00:55.080 --> 0:00:57.480 winner for every you know whatever, one hundred and maybe 0:00:57.520 --> 0:01:00.000 twenty losers or whatever. They're probably few in the middle. 0:01:00.240 --> 0:01:03.080 They get two or three x returns, But that's not 0:01:03.120 --> 0:01:06.000 what delivers the big money. But yeah, it's funny because 0:01:06.240 --> 0:01:09.880 the losers, that's the norm, that's the expectation going in 0:01:10.040 --> 0:01:13.520 with any series of investments. And you we really should 0:01:13.520 --> 0:01:14.880 talk about losers more often. 0:01:15.080 --> 0:01:17.399 Yeah, I'm into it. Let's talk about losers. 0:01:17.560 --> 0:01:19.760 I'll say one other thing too, which is that when 0:01:19.800 --> 0:01:24.080 we talk about a lot of startup investing, particularly in technology, 0:01:24.319 --> 0:01:26.240 you know, you don't really think of them as having 0:01:26.640 --> 0:01:29.440 assets or a lot of assets that can be sold. Right, 0:01:29.840 --> 0:01:34.400 So when a sort of cardboard box manufacturer goes bankrupt 0:01:34.520 --> 0:01:37.039 or whatever, well, there's probably some equipment that could be sold. 0:01:37.319 --> 0:01:40.920 There's land, maybe there's a building that could be reproposed, 0:01:40.920 --> 0:01:43.000 and intellectual property maybe. I don't know. 0:01:43.240 --> 0:01:43.920 For some of these. 0:01:44.360 --> 0:01:46.959 With a lot of tech companies, it seems like there's 0:01:47.000 --> 0:01:50.040 nothing there if they don't succeed, and then there's like, 0:01:50.040 --> 0:01:52.320 all right, you just pulled the plug and everybody moves on. 0:01:52.400 --> 0:01:53.920 But I don't really know if that's the case, Like 0:01:53.960 --> 0:01:56.559 I don't actually know what happens at that moment of death. 0:01:56.960 --> 0:02:01.200 Well, from what I remember, bankruptcy ten to be pretty 0:02:01.240 --> 0:02:05.160 complicated in various ways. And I'm thinking back this is 0:02:05.200 --> 0:02:10.120 the ultimate extreme example. But the Lehman Brothers bankruptcy that 0:02:10.200 --> 0:02:13.680 took fourteen years, and I remember covering it for like 0:02:13.800 --> 0:02:16.000 years and years and years and years, and they had 0:02:16.080 --> 0:02:20.480 all these counter parties, this big waterfall of creditors and 0:02:20.520 --> 0:02:23.000 things like that, and I wonder how it works for 0:02:23.240 --> 0:02:24.799 I guess smaller VC. 0:02:24.760 --> 0:02:29.120 Companies totally, and it seems like that whole court experience, 0:02:29.400 --> 0:02:32.079 it's probably something you might want to avoid if you can. 0:02:32.200 --> 0:02:34.360 So anyway, we really do have the perfect guest to 0:02:34.400 --> 0:02:36.880 talk about what happens when a company fails, what happens 0:02:36.919 --> 0:02:39.880 when the startup fails. We are talking with David Johnson. 0:02:39.919 --> 0:02:44.720 Here's a managing principle, Resolution Financial Advisors. They're financial advisory 0:02:44.720 --> 0:02:48.440 firm based out of Los Angeles that focuses exclusively on 0:02:48.480 --> 0:02:51.720 the insolvency world. So we're going to learn about all 0:02:51.720 --> 0:02:53.880 of this. David, thank you so much for coming on 0:02:53.880 --> 0:02:54.480 the podcast. 0:02:54.600 --> 0:02:55.560 Thank you, Joe and Tracy. 0:02:55.560 --> 0:02:56.399 I'm delighted to be here. 0:02:56.480 --> 0:02:57.920 This is gonna be a lot of fun. What did 0:02:57.960 --> 0:02:59.520 you start off, What do you do or what is 0:02:59.600 --> 0:03:03.359 Resolute Financial Advisors do? What is your sort of typical 0:03:03.760 --> 0:03:05.160 client and what are they looking for. 0:03:05.600 --> 0:03:09.080 Resolution Financial Advisors is a financial advisory firm, It's true, 0:03:09.280 --> 0:03:10.720 but we don't do a lot of the work that 0:03:10.760 --> 0:03:13.840 other financial advisories firms do. I started my career at 0:03:13.840 --> 0:03:16.280 alvarezm Marcel a long time ago. I think I was 0:03:16.320 --> 0:03:18.639 employee number twenty one of what is now a ten 0:03:18.680 --> 0:03:21.680 thousand person firm well, and I did restructuring work and 0:03:21.760 --> 0:03:25.120 inner management work and forensic accounting work there. So I've 0:03:25.120 --> 0:03:27.280 done a lot of that in my career. That's not 0:03:27.280 --> 0:03:30.160 what we do anymore. We focus like a laser beam 0:03:30.240 --> 0:03:32.959 on what I call the insolvency world, that is, alternatives 0:03:32.960 --> 0:03:37.840 to bankruptcy and other ways to wind down companies create 0:03:37.960 --> 0:03:40.800 value by recovering value, and sometimes we do use the 0:03:40.800 --> 0:03:44.120 bankruptcy code. I am a bankruptcy specialist. I'm a chartered 0:03:44.200 --> 0:03:48.720 financial analyst, and I am a certified insolvency and restructuring advisor, 0:03:49.000 --> 0:03:51.280 And so bankruptcy is the right tool in some cases, 0:03:51.640 --> 0:03:53.480 but for most of the people with whom I do work, 0:03:53.600 --> 0:03:54.720 it's not the right solution. 0:03:55.600 --> 0:03:58.080 So why don't we talk about the various solutions that 0:03:58.120 --> 0:04:00.280 are potentially on the table, Because I think I think 0:04:00.320 --> 0:04:04.200 a lot of people will recognize something like Chapter eleven bankruptcy. 0:04:04.480 --> 0:04:07.320 I know, as the daughter of a commercial airline pilot, 0:04:07.400 --> 0:04:10.720 I am certainly familiar with Chapter eleven bankruptcy, and that 0:04:10.800 --> 0:04:13.960 allows you to keep operating, keep the business going while 0:04:14.000 --> 0:04:17.840 you sort out your various creditors. And then there's Chapter seven, 0:04:18.520 --> 0:04:22.599 which is an actual liquidation, and then there's I assume 0:04:22.880 --> 0:04:26.000 more creative workouts that you are advising on. What are 0:04:26.040 --> 0:04:26.600 the options. 0:04:26.839 --> 0:04:28.320 That's a really good summary, Tracy. Thank you. 0:04:28.400 --> 0:04:31.600 Yes. Chapter eleven is the restructuring. That's where you get 0:04:31.640 --> 0:04:35.600 an automatic stay, a pause from your creditors, and a 0:04:35.720 --> 0:04:39.200 chance to catch your breath, raise new money under favorable terms, 0:04:39.360 --> 0:04:42.279 conduct a sale of the assets in a very very 0:04:42.440 --> 0:04:46.320 court supervised process as its place. I've been through many 0:04:46.320 --> 0:04:48.720 of those. They are terrific if you want to restructure 0:04:48.720 --> 0:04:52.000 a company. Many buyers buying assets out of bankruptcy will 0:04:52.000 --> 0:04:55.360 prefer a judge's order to do it that way. Chapter seven, 0:04:55.400 --> 0:04:56.720 as you said, is when you throw the keys on 0:04:56.760 --> 0:04:59.839 the table and walk away, and bankruptcy court will appoint 0:05:00.320 --> 0:05:04.040 a independent attorney a bankruptcy trustee either called, but they 0:05:04.160 --> 0:05:07.120 tend to be people who are not specialists at selling 0:05:07.240 --> 0:05:11.560 esoteric assets. You don't really expect any value recovery. 0:05:11.160 --> 0:05:12.039 In a chapter seven. 0:05:12.600 --> 0:05:15.360 So what we do is we specialize in alternatives that 0:05:15.760 --> 0:05:18.560 give the company a little bit more control and certainly 0:05:18.560 --> 0:05:20.840 don't ask them to incur so many costs. For example, 0:05:20.960 --> 0:05:23.560 to get into a chapter eleven bankruptcy, you almost certainly 0:05:23.600 --> 0:05:26.440 need upwards of one hundred or two hundred thousand dollars 0:05:27.000 --> 0:05:30.039 just to give a retainer to your bankruptcy council. Sometimes 0:05:30.040 --> 0:05:32.960 that's warranted, but for the companies we'll be talking about today, 0:05:33.360 --> 0:05:36.160 it's not a wise use of money, especially when you 0:05:36.760 --> 0:05:38.719 don't have an expected outcome where there will be a 0:05:38.760 --> 0:05:40.000 sale or restructuring. 0:05:40.080 --> 0:05:41.360 You simply want to shut down. 0:05:41.720 --> 0:05:44.039 I have one really short question, then a real question 0:05:44.240 --> 0:05:46.440 like I've never heard of, like a chapter six bankruptcy. 0:05:46.640 --> 0:05:49.000 Does that exist? Or what's so with all those other. 0:05:48.960 --> 0:05:51.680 Chap There are other bankruptcies. There are some, especially for 0:05:51.760 --> 0:05:53.880 farmers for example. Ok there are some that deal with 0:05:53.920 --> 0:05:57.440 international companies in the United States, but Chapter eleven, Chapter seven, 0:05:57.600 --> 0:06:00.000 and then Chapter thirteen are the ones you hear about 0:06:00.080 --> 0:06:00.640 most of the time. 0:06:00.760 --> 0:06:02.400 Got it Okay? That was just one of those questions 0:06:02.440 --> 0:06:04.039 I've been dying to get off my chest. I probably 0:06:04.040 --> 0:06:06.600 could have asked chat GPT that and got a decent answer, 0:06:07.080 --> 0:06:09.080 But now I got that out of the way. You 0:06:09.200 --> 0:06:12.160 mentioned esoteric asset, so I imagine that there are some 0:06:12.200 --> 0:06:15.880 types of assets that are very easy for anyone to sell, 0:06:15.880 --> 0:06:19.000 like a building or something. It's not very complicated office whatever, 0:06:19.040 --> 0:06:22.040 and then what is an esoteric asset for which if 0:06:22.040 --> 0:06:24.320 you're not a specialist and you might really not know 0:06:24.360 --> 0:06:25.640 how to get top value for it. 0:06:25.760 --> 0:06:27.280 So I do a lot of work in the new economy. 0:06:27.400 --> 0:06:29.800 I've spent most of the past twenty years working with 0:06:29.839 --> 0:06:35.239 Silicon Valley firms who have tech startups, biopharma, clean energy, 0:06:35.520 --> 0:06:39.560 things that are very intellectual property heavy. It is sometimes 0:06:39.600 --> 0:06:42.440 the case that in selling a company's assets, we have 0:06:42.520 --> 0:06:45.480 machinery and equipment or inventory or something that can easily 0:06:45.480 --> 0:06:48.080 be auctioned. But if you have a patent portfolio for 0:06:48.080 --> 0:06:51.040 a specific technology, or if you've got a drug and development, 0:06:51.279 --> 0:06:55.039 or you've got a special software that does something unique, 0:06:55.200 --> 0:06:57.799 there's no benchmark for that. There's no open outcry auction 0:06:58.000 --> 0:07:00.719 system that you can conduct for that. You've really got 0:07:00.720 --> 0:07:05.200 to find the right buyers, narrowly tailored and conduct an 0:07:05.279 --> 0:07:07.279 effort to monetize those assets. 0:07:08.320 --> 0:07:10.640 Okay, I want to talk about the losers because I 0:07:10.640 --> 0:07:12.920 am a firm believer. You know, you always read all 0:07:12.960 --> 0:07:16.080 those business books that are like, here's this massive company 0:07:16.120 --> 0:07:19.000 that was a huge success story. No one ever writes 0:07:19.040 --> 0:07:21.760 about the ones that didn't make it. As you mentioned 0:07:21.800 --> 0:07:25.840 at the beginning, Joe, So, one thing I'm wondering in 0:07:25.880 --> 0:07:28.680 your many, many years of doing this, have you observed 0:07:28.920 --> 0:07:33.600 like a commonality among companies that fail? Is there something 0:07:33.640 --> 0:07:37.640 that is I guess endemic to all the failures? 0:07:38.880 --> 0:07:39.720 I wouldn't say so. 0:07:39.760 --> 0:07:42.120 The people that are doing the investing in those companies 0:07:42.520 --> 0:07:44.480 have a lot more information and probably are a lot 0:07:44.520 --> 0:07:46.840 more intelligent than I am. There was a recent book 0:07:46.880 --> 0:07:48.920 out a year or so ago called The Venture Mindset, 0:07:49.080 --> 0:07:52.320 and it makes the point that Silicon Valley venture firms 0:07:52.480 --> 0:07:57.120 don't really mind losing money. They don't mind investing in 0:07:57.160 --> 0:08:00.160 something that won't succeed. They're much more concerned about missing 0:08:00.280 --> 0:08:03.840 the ones that do succeed. They know that eight out 0:08:03.880 --> 0:08:06.120 of ten, perhaps more but my numbers, eight out of 0:08:06.160 --> 0:08:10.840 ten investments will either break even or fail completely. Is 0:08:10.920 --> 0:08:12.520 the other two or the other one out of that 0:08:12.600 --> 0:08:15.000 ten that will carry the fund for the year. So 0:08:15.040 --> 0:08:16.640 they cast a wide net. They do their best to 0:08:16.640 --> 0:08:19.160 pick intelligently, of course, but they cast a wide net, 0:08:19.440 --> 0:08:20.840 and most of them need to be shut down. 0:08:21.400 --> 0:08:24.360 Well, what's the trigger or the catalyst from going to 0:08:24.760 --> 0:08:27.440 losing money for years and years and years to an 0:08:27.480 --> 0:08:29.480 actual bankruptcy and failure. 0:08:29.600 --> 0:08:30.200 Good question. 0:08:30.320 --> 0:08:32.320 That's when they come to me. The companies come to 0:08:32.360 --> 0:08:37.240 me when they're perhaps pre revenue. They're almost always pre profitability. 0:08:38.000 --> 0:08:41.079 They are relying probably on the next tranch of venture 0:08:41.120 --> 0:08:43.160 funding to come in. If their plan says we're going 0:08:43.160 --> 0:08:44.720 to burn a certain amount of money and the venture 0:08:44.760 --> 0:08:47.559 partners are going to continue to fund us. Eventually the 0:08:47.640 --> 0:08:50.839 venture fund runs out of patience, the fund is full 0:08:51.000 --> 0:08:53.240 or old, or they simply don't believe in the idea anymore. 0:08:53.280 --> 0:08:55.240 That's the first thing. That money doesn't come in. You 0:08:55.280 --> 0:08:59.000 can't make payroll, you can't operate. Or perhaps they've got 0:08:59.000 --> 0:09:01.960 a secured lender, Silicon Valley Bank. I do work with them. 0:09:02.000 --> 0:09:04.280 They do a lot of venture investing. The bank may 0:09:04.360 --> 0:09:06.240 run out of patients, the bank may have to write. 0:09:06.080 --> 0:09:06.560 Down the loan. 0:09:06.640 --> 0:09:09.320 The bank may want to recover their debt and they'll 0:09:09.360 --> 0:09:11.680 cut off their line of credit perhaps or simply fail 0:09:11.720 --> 0:09:15.040 to advance them any more money. Or perhaps the venture 0:09:15.040 --> 0:09:16.959 firm has tried to sell the company, tried to sell 0:09:16.960 --> 0:09:20.040 the technology. They've run an investment banking process and no 0:09:20.120 --> 0:09:22.680 buyer has emerged. So what do you do when you 0:09:22.679 --> 0:09:24.080 come to the end of the road. There's no more 0:09:24.120 --> 0:09:26.680 cash to pay payroll, you can't continue funding your company. 0:09:26.960 --> 0:09:27.600 What do you do? 0:09:28.120 --> 0:09:28.440 All Right? 0:09:28.480 --> 0:09:30.880 So they come to you, and as you said, there 0:09:30.880 --> 0:09:33.079 are going to be these esoteric assets in at least 0:09:33.120 --> 0:09:37.000 some cases for which a typical court appointed liquidator does 0:09:37.040 --> 0:09:40.960 not have the specialty to get the max dollar for them. Incidentally, 0:09:41.040 --> 0:09:44.240 I imagined are situations in which you don't have the specialty, 0:09:44.320 --> 0:09:45.800 but you have to learn it, or you have to 0:09:45.840 --> 0:09:49.640 focus on that. So let's say I'm doing something novel 0:09:49.880 --> 0:09:53.200 in I don't know drug discovery or whatever it is. 0:09:53.840 --> 0:09:56.520 You can give us the example. Some new type of 0:09:56.520 --> 0:09:59.199 asset comes to you. Your job is to get maxtellar 0:09:59.320 --> 0:10:01.600 you haven't really you don't know this specific thing yet, 0:10:01.600 --> 0:10:04.680 maybe because it's novel. Give us an example of some 0:10:05.080 --> 0:10:08.760 esoteric asset in how you saw it out to find 0:10:09.000 --> 0:10:10.840 the buyer who is able to pay max dollar. 0:10:11.360 --> 0:10:11.520 You know. 0:10:11.520 --> 0:10:13.760 Paul McCartney once said that he was fortunate because in 0:10:13.760 --> 0:10:15.640 his line of work he did not need to know 0:10:15.679 --> 0:10:20.800 how to read music. Yeah, I deal in broad based technology, 0:10:21.120 --> 0:10:24.720 as I said, clean tech and biopharma and software and AI, 0:10:25.240 --> 0:10:28.079 all of which I know nothing about. I don't need 0:10:28.120 --> 0:10:30.640 to be a specialist in the technology. I need to 0:10:30.679 --> 0:10:32.920 know how to find the people that know it. So 0:10:32.960 --> 0:10:34.960 I want to put those assets in front of the 0:10:35.000 --> 0:10:37.640 right people. I run what I call a mini investment 0:10:37.679 --> 0:10:39.679 banking process. We have to do it quickly. 0:10:39.720 --> 0:10:40.679 We don't have much money. 0:10:40.800 --> 0:10:42.760 The people that are at the company are going to 0:10:42.800 --> 0:10:44.560 be gone very very soon. So I don't do it 0:10:44.559 --> 0:10:47.440 for six months. I do it for eight weeks. I 0:10:47.480 --> 0:10:49.800 sum up the technology, I put it into a little package, 0:10:49.800 --> 0:10:51.600 and I put it in front of the fifty to 0:10:51.679 --> 0:10:56.000 one hundred companies in that very narrowly targeted space. Whatever 0:10:56.000 --> 0:10:58.080 that space happens to be, Okay, I want to make 0:10:58.080 --> 0:11:01.640 sure that everybody in that respective industry has a chance 0:11:01.679 --> 0:11:03.839 to look at it and opine. I don't have to 0:11:03.880 --> 0:11:05.520 learn it. I have to know enough to talk about 0:11:05.559 --> 0:11:07.560 it a little bit. But I'm there to bring people 0:11:07.559 --> 0:11:09.160 to the table. I want to put them in front 0:11:09.160 --> 0:11:11.280 of the people who invented the technology, the people who 0:11:11.280 --> 0:11:14.800 can tell everybody why it's the greatest thing, and let 0:11:14.840 --> 0:11:15.960 the market tell me what it is. 0:11:16.520 --> 0:11:20.440 So give us an example of ad technology, or give 0:11:20.520 --> 0:11:22.679 us a story about where you had to do that. 0:11:22.800 --> 0:11:25.559 Long time ago, I worked on a company called Proteogenics, 0:11:25.960 --> 0:11:28.040 it was more than ten years ago, so I feel 0:11:28.120 --> 0:11:32.040 comfortable releasing the name. They were doing research in neonatal disease. 0:11:33.000 --> 0:11:37.400 They had collected, oh, I don't know how many pints 0:11:37.400 --> 0:11:41.160 of vaginal fluid, all in deep freeze in the basement 0:11:41.200 --> 0:11:43.920 of their laboratory. Didn't have the ability. 0:11:43.960 --> 0:11:46.520 They're a secondary market for vassional fluid. 0:11:46.559 --> 0:11:48.920 Well, that was my job to find out it's exactly 0:11:48.960 --> 0:11:52.080 right now. There were patents, and there were research, and 0:11:52.080 --> 0:11:54.640 there were medical tests, and there were patient records, all 0:11:54.679 --> 0:11:58.199 analyzing for disease, for whatever disease they were looking for. 0:11:59.040 --> 0:12:02.400 We ultimately did sell that technology to a large I 0:12:02.400 --> 0:12:04.960 think Boston based pharmaceutical company. 0:12:05.000 --> 0:12:05.480 I don't know. 0:12:05.400 --> 0:12:08.240 Whatever happened to it from there, but I had to 0:12:08.240 --> 0:12:13.280 manage that process. The company closed overnight, the facility was 0:12:13.880 --> 0:12:18.280 locked with the vaginal fluid in the deep freezers, and 0:12:18.320 --> 0:12:20.319 I had a landlord it wasn't very happy about that. 0:12:20.760 --> 0:12:23.480 So my job was to two things. My job is 0:12:23.480 --> 0:12:27.040 always two things. Number One, monetize the assets, do it 0:12:27.120 --> 0:12:28.920 quickly before the ice cube melts. 0:12:29.120 --> 0:12:29.960 I had to find a buyer. 0:12:30.520 --> 0:12:34.200 Very literal here a melting ice cube, and this is 0:12:34.240 --> 0:12:36.520 sometimes a cliche in the world but you're talking about 0:12:36.559 --> 0:12:38.200 literal melting refrigeration. 0:12:38.679 --> 0:12:40.880 It got a little dicey because the landlord locked me out. 0:12:41.280 --> 0:12:43.760 The landlord'sn't supposed to be able to do that in California, 0:12:43.840 --> 0:12:47.320 but I wound up having to negotiate something and keeping 0:12:47.320 --> 0:12:49.800 the lights on until such time as I could run 0:12:50.200 --> 0:12:53.679 the sale process, get people interested, back up the technical data, 0:12:54.240 --> 0:12:58.199 and move those freezers out on refrigerated trucks, all while 0:12:58.240 --> 0:13:00.480 the clock was ticking, while I had a very limited 0:13:00.480 --> 0:13:03.600 budget to pay the rent and to keep the electricity on. Now, 0:13:03.640 --> 0:13:06.119 that was a good outcome again because we sold the technology. 0:13:06.360 --> 0:13:08.800 I'm thinking, if I remember correctly, maybe two million dollars, 0:13:09.240 --> 0:13:11.240 which is a great outcome in my business. That was 0:13:11.240 --> 0:13:14.360 probably enough to repay the secured lender. There was often 0:13:14.400 --> 0:13:16.560 a bank that's first in line to get paid, and 0:13:16.600 --> 0:13:20.440 then there are unsecured creditors who come second, trade creditors, landlords, 0:13:20.720 --> 0:13:23.640 things like that. So we're going to try to get 0:13:23.640 --> 0:13:25.839 as much. But now there was probably fifty million dollars 0:13:25.880 --> 0:13:30.839 invested in that company from various funds, lenders, equity investors, 0:13:31.280 --> 0:13:33.000 and so we're not going to get those guys repaid. 0:13:33.440 --> 0:13:35.480 But we want to source as much value as we can. 0:13:35.720 --> 0:13:38.200 Somebody will say to me, how much is the technology worth? 0:13:38.920 --> 0:13:41.560 My answer is always I have no idea, But I'm 0:13:41.600 --> 0:13:43.800 going to find out. How Am I going to find out? 0:13:44.320 --> 0:13:46.360 As I said before, We're going to talk to everybody 0:13:46.440 --> 0:13:49.520 in the industry, everybody who knows this technology, everybody who 0:13:49.720 --> 0:13:51.720 is in a position to say this might be useful 0:13:51.760 --> 0:13:55.120 to me, and will let them speak. Sometimes the answer 0:13:55.160 --> 0:13:55.560 is no one. 0:13:56.480 --> 0:13:58.640 Who is the buyer for the fluid? 0:13:58.720 --> 0:14:01.199 And the Fridges don't recall the name of the buyer, 0:14:01.200 --> 0:14:04.479 but it was I remember a large Boston based biotech 0:14:04.520 --> 0:14:06.880 company with a well known name. I just remember that 0:14:07.800 --> 0:14:09.440 as the buyer. And then the day. The other thing 0:14:09.480 --> 0:14:11.400 I remember was the day we moved out. We had 0:14:11.440 --> 0:14:14.520 the technology backed up on an external hard drive. Again, 0:14:14.559 --> 0:14:16.640 they had paid two million dollars for it, and when 0:14:16.679 --> 0:14:18.480 they went to leave, they couldn't find it. We found 0:14:18.480 --> 0:14:19.200 it in the trash can. 0:14:19.280 --> 0:14:19.880 Oh my god. 0:14:20.040 --> 0:14:22.200 So things are a little bit wild West, a little 0:14:22.200 --> 0:14:24.960 bit touch and go, but that's the kind of. 0:14:25.160 --> 0:14:25.600 Work we do. 0:14:41.520 --> 0:14:45.680 I'm just going to get very voyeuristic about corporate failures, 0:14:45.760 --> 0:14:48.440 I guess, and just ask for a bunch of specific examples. 0:14:48.480 --> 0:14:50.920 But have you ever gone into a company and just 0:14:51.120 --> 0:14:55.600 you know, shook your head in disgust or surprise at 0:14:55.640 --> 0:14:58.920 what's been going on? Like how could this company actually 0:14:58.920 --> 0:15:02.640 happened running in this way for I don't know however long. 0:15:03.240 --> 0:15:06.000 It is often surprising to me that the destruction of 0:15:06.080 --> 0:15:08.640 value is so great. If you told me a fifty 0:15:08.680 --> 0:15:11.080 to one hundred million dollars was invested in X and 0:15:11.120 --> 0:15:14.119 there's nothing to show for it, or maybe the technology 0:15:14.160 --> 0:15:16.200 has a buyer for a million or two million dollars, 0:15:16.520 --> 0:15:18.440 where does the money go? That's a very good question. 0:15:18.480 --> 0:15:19.880 And I've been doing this a long time, and I 0:15:19.880 --> 0:15:21.160 don't really have a good answer for that. 0:15:21.360 --> 0:15:25.280 You Know, something I'm curious about is if when a 0:15:25.320 --> 0:15:28.960 company is on its deathbed, if I were a founder, 0:15:29.120 --> 0:15:31.320 or if I were a board member or whatever, like 0:15:31.400 --> 0:15:33.440 I would be pretty checked out. Like I'm kind of 0:15:33.480 --> 0:15:36.480 not surprised in some instances that, like, you know what, 0:15:36.640 --> 0:15:39.640 some important bit of technology it's on a hard drive, 0:15:39.920 --> 0:15:42.520 et cetera, gets thrown in the trash, or no one 0:15:42.560 --> 0:15:45.720 really cares about keeping the refrigeration bill going. But you know, 0:15:45.760 --> 0:15:47.640 if you're whatever involved in this, like you might be 0:15:47.680 --> 0:15:49.480 thinking about your next thing, this is dead. This is 0:15:49.480 --> 0:15:51.960 a waste of time. I see no future upside talk 0:15:51.960 --> 0:15:56.400 about like those late stages and who actually is incentivized 0:15:56.880 --> 0:16:00.240 to till the very end, till the keys are handed over, 0:16:00.360 --> 0:16:02.600 till the sale is made, Like, how do you get 0:16:02.640 --> 0:16:06.280 them focused on extracting that less value when most people, 0:16:06.280 --> 0:16:07.880 I would imagine want to move on at that point. 0:16:07.920 --> 0:16:10.480 That's an excellent segue, Joe, So how do we get hired? 0:16:10.520 --> 0:16:13.160 Why do people bring us in? It's exactly right. If 0:16:13.160 --> 0:16:16.800 I'm on the board of a company, I'm probably residing 0:16:16.840 --> 0:16:19.000 at a venture capital firm or a private equity firm, 0:16:19.080 --> 0:16:19.640 or maybe. 0:16:19.400 --> 0:16:20.240 A venture lender. 0:16:21.160 --> 0:16:22.720 And once I see that there's not going to be 0:16:22.720 --> 0:16:25.040 any recovery or minor recovery, why. 0:16:24.880 --> 0:16:26.880 Would you want to spend another second on it or 0:16:26.920 --> 0:16:27.520 another dollar? 0:16:27.600 --> 0:16:30.000 Yeah, that's exactly right. So I'd rather go focus on 0:16:30.040 --> 0:16:32.520 my things with upside, So they want to as quickly 0:16:32.520 --> 0:16:35.320 as possible hand it off to me. So under the 0:16:35.400 --> 0:16:38.680 rubric of my business, we very often, not always, but 0:16:38.840 --> 0:16:42.360 very often engage in a formal kind of insolvency process 0:16:42.600 --> 0:16:45.520 known as an Assignment for the Benefit of Creditors or 0:16:45.520 --> 0:16:48.760 ABC for short. It's a form of insolvency. That's well 0:16:48.800 --> 0:16:52.160 recognized in many states. It's not under federal bankruptcy law, 0:16:52.440 --> 0:16:55.440 it's under state law. In California. State law on Delaware 0:16:56.240 --> 0:16:59.400 has a long storied history. It's nothing new, goes back 0:16:59.440 --> 0:17:02.840 to English com and law. Under an ABC, a company 0:17:02.880 --> 0:17:06.600 says we have assets, we have debts. We can't continue 0:17:06.640 --> 0:17:07.360 to operate. 0:17:07.080 --> 0:17:08.960 The business, so we're going. 0:17:08.840 --> 0:17:11.000 To take all of our assets and assign them to 0:17:11.040 --> 0:17:14.919 a third party trustee. That's me and I have Again, 0:17:14.960 --> 0:17:17.480 I have two jobs. One, turn those assets into cash, 0:17:17.880 --> 0:17:19.399 try to collect as much money and put it in 0:17:19.440 --> 0:17:22.679 a trust account for creditors. And my second function is 0:17:22.800 --> 0:17:25.720 to do the administrative wind down of the company. Get 0:17:25.760 --> 0:17:28.640 the final tax returns prepared, store the books and records, 0:17:28.720 --> 0:17:30.480 make sure the w twos go out to the employees 0:17:30.520 --> 0:17:31.959 at the end of the year, wind down the four 0:17:32.000 --> 0:17:34.640 oh one k under Ristle law, properly all the administrative 0:17:34.640 --> 0:17:37.159 things that board of members really do care about and 0:17:37.160 --> 0:17:39.639 should care about, but don't have the expertise or the 0:17:39.640 --> 0:17:43.640 interest to do themselves. Therefore, when the transaction happens, when 0:17:43.640 --> 0:17:46.160 the company signs over these assets to me, the board 0:17:46.240 --> 0:17:51.160 generally resigns that same day. In a Delaware dissolution if 0:17:51.160 --> 0:17:53.480 the company is just going to file PaperWorks to close 0:17:53.520 --> 0:17:57.320 the company without a formal insolvency process, Delaware requires at 0:17:57.359 --> 0:17:59.560 least one director stay on the hook as a director 0:17:59.600 --> 0:18:02.800 for three years, which means you've got to keep insurance 0:18:02.840 --> 0:18:05.520 in place. You've got to continue to bother the directors 0:18:05.560 --> 0:18:07.840 with items he may be at risk. In this case, 0:18:07.920 --> 0:18:09.400 they don't have to. They put all of the work 0:18:09.520 --> 0:18:11.760 on the shoulders of me and my partners, and we 0:18:11.840 --> 0:18:14.920 have a legal fiduciary duty to do the things we've 0:18:14.920 --> 0:18:16.880 talked about to monetize the assets and wind it down, 0:18:17.200 --> 0:18:19.479 and very often we never talk to those directors. 0:18:19.480 --> 0:18:23.640 Again, I'm thinking how to frame this question, but does 0:18:23.680 --> 0:18:28.959 anyone ever try to influence your decisions as a trustee 0:18:29.000 --> 0:18:33.000 who is supposed to be independent following the law. Does 0:18:33.000 --> 0:18:36.919 anyone ever try to kick themselves up the waterfall or 0:18:36.920 --> 0:18:38.440 something like that. 0:18:38.440 --> 0:18:41.480 That's a good question. I've had very few experiences like that. 0:18:42.280 --> 0:18:45.600 We handle the insolvency process very strictly. We adhere to 0:18:45.800 --> 0:18:48.200 a lot of the same rules that occur in Chapter 0:18:48.240 --> 0:18:52.639 eleven in federal bankruptcy. The veneer of having the formal 0:18:52.680 --> 0:18:57.640 ABC insolvency process is itself powerful. We tell our companies. 0:18:58.359 --> 0:19:00.280 If you just walk away and you owe them bank 0:19:00.320 --> 0:19:03.080 money and you owe unsecret creditors money, people are going 0:19:03.080 --> 0:19:04.720 to be angry. People are going to look for somebody 0:19:04.720 --> 0:19:06.679 to sue. People are going to perhaps push for an 0:19:06.720 --> 0:19:09.240