Following the tumultuous financial crisis of 2008-2009, if you were going into a fundraising mode, in all likelihood you were soon in a new position at a new company. If you were like most venture-backed companies, you reviewed the now infamous Sequoia Manifesto and hunkered down for a tough road ahead.
In the post-pandemic economy, there are those in Silicon Valley who can relate. Many companies are looking forward to stabilized inflation and interest rates, so their odds of attracting investors improve. If you need help navigating these uncertain times, Ravix Group offers trusted advisory services for liquidations, orderly wind-downs, and Assignment for the Benefit of creditors (ABC).
Does Your Business Require an Intervention?
It is time to step back and take a look at the business.
- Do you have enough cash to last another 9-12 months at least?
- Have you hit significant milestones in revenue and/or product development which will allow you to hit the fundraising trail?
If the answer is no to the questions above, it may be time to consider a 12-Step Program to winding down the business. Doing this under the guidance of an experienced start-up fractional CFO can give you the confidence that you can exit your company the right way.
Every company and industry is different but there are certain steps that every serial entrepreneur needs to go through at some point in their career when the next great idea is not ready for prime time. In this case, what does a 12-Step Program look like for a business in need of a customized recovery plan?
11 Steps to Put Your Startup or Existing Business on the Road to Financial Recovery
- Start with admission.
The success rate for technology start-ups is less than new Manhattan restaurants. Admit it, you gave it your best shot but maybe it is time to move on. So, step #1 is admitting that your startup isn’t working and needs to close. - Turn to a greater power.
Most VCs/Board members have enough of a track record to know when it is time to cut your losses. The reality is that it is their money (on behalf of LPs) and if the Board decides it is time to turn off the lights, you need to get on board that train. - Take care of the flock.
Is there enough cash to pay the employees including any accrued vacation and severance? - Make a list.
Document the vendors, secured and unsecured creditors the company owes money to. - Make direct amends.
Sit down with each vendor/creditor and work out reasonable terms that each party can live with. - Make another list.
This list, arguably the more important one, includes all the customers and other entities who owe the company money. - Turn over the care of the company to others.
Once the decision is made to wind down the business, bring in an unaffiliated third party to help with administering the process. Ravix Group can provide outsourced controllers with the experience you need and a neutral viewpoint. Reserve enough cash to pay your taxes and for the attorneys, accountants, and any other vendors involved in the disposition of the company. Remember you are personally liable for payroll taxes. - Take inventory.
Identify all tangible and intangible assets of the company. This should include leased equipment and a review of the outstanding terms of the lease agreements. - What is the real Intellectual Property of the company?
Identify and realistically evaluate the IP of the company. - Be prepared for the memories.
The company is required by law to stay open for at least a year following termination of all employees. Delaware usually requires the shell company to stay in business for up to 3 years after close, and you’ll need to maintain records for 7 years. - Move on.
This is probably the hardest part of the process. Whether you decided to shut the lights after 6 months or 6 years, this is your baby and the separation anxiety may cause you pain. Take some time but then find your next calling. Don’t be afraid to again sip from the chalice of innovation and opportunity.
You Don’t Have to Live With Regret (Just Don’t Forget the Lesson)
In other regions of the country or the world, it is considered a failure if you have to shut down a company, and CEOs and Board members often feel shame and remorse. Fortunately, this is Silicon Valley, where shutting down a company is sometimes considered fiscally prudent, and a badge of honor worn by many of the best known and most successful entrepreneurs. Make the right decision for your company, bring in the right resources to get through the process, and move on to bigger and better successes.
Ravix Group can help your business or portfolio investment exit gracefully via an orderly wind-down liquidation or an Assignment for the Benefit of Creditors. Contact us online or call (408) 216-0656 to set up a consultation to discuss the advisory service needs of your business.
