How a Hardware Company with 6 Months of Runway & $3 Million in Debt Avoided Bankruptcy

October 18, 2023by Dan Saccani

From the Desk of Dr. Doom, Chief Restructuring Officer:

Trigger Warnings: Uncontrolled Debt, Zero Profitability 

From the Desk of a Chief Restructuring Officer
From the Desk of a Chief Restructuring Officer

It was a routine morning when my inbox flashed with an introduction email from Bailey, a known board member from the industry. The subject: “Harry’s Crisis: Urgent Intervention Needed”. The content was straightforward; Harry’s decade-long dream startup venture was in jeopardy, grappling with a $3 million debt and only 6 months of runway left.

In my first interaction with Harry, brimmed with tension. His voice wavered as he briefed me on the dilemma: a hardware company he’d birthed, nurtured, and now watched crumble. The raw emotion was palpable. I could feel the weight of the challenges he’d weathered – from design issues to fierce competitors. Yet, beneath that weariness, I sensed his resilience.

I dived straight into the numbers. A brief glance and the culprit was clear: 20% margins. Simply put, even if Harry liquidated his inventory, the return wouldn’t be enough to break even. Add to that the $1 million debt notice from the bank and the staggering $2 million owed to the contract manufacturer, Sarkle Inc. The numbers didn’t lie; Harry was standing on the precipice of bankruptcy.

Startup founders dig themselves in a hole they can’t get out of

It’s always essential to bring on a fresh set of eyes when evaluating a failing startup. Many times, founders dig themselves into a ditch, and they don’t know how to get out, and they don’t know when to stop. They keep digging because that’s all they know. 

I’ve faced many crises in my tenure, and my approach is always methodical. First on my list: re-evaluate the operational costs. We couldn’t afford any excess baggage. Decisions had to be swift. I streamlined the team, retaining only those pivotal for daily operations. Next, renegotiating vendor contracts to improve cash flow became imperative. Positive cash flow proved our lifeline.

The bank, aware of the bleak outlook, was surprisingly receptive. After several negotiations, we knocked down the $1 million debt significantly. Yet, the real challenge lay with Sarkle Inc. Their call was next.

A thorough conversation with Mr. Smith, the wise man behind Sarkle Inc., brought some unexpected revelations. It turned out that despite the owed amount, he still believed in the product’s potential. With the improved margins and Harry’s groundwork, Mr. Smith agreed to take the product line under Sarkle Inc.’s wing.

The contract manufacturer surveys startups semiconductor inventory

When I updated Harry about the progress, the relief in his voice was unmistakable. The journey had been arduous, but together, we’d carved out a new direction amidst the storm. 

My role as a Chief Restructuring Officer often dumps me in turbulent waters. Yet, every crisis holds an undercurrent of opportunity. Harry’s story was yet another testament to that fact. Even in the darkest of times, with the right strategies and decisions, there’s always a way forward.

It’s not always doom and gloom. Sometimes, with the proper restructuring, there’s a light at the end of the tunnel, and a company can be saved.  

The names in this story have been changed to protect the traumatized. 

Need to speak to a Chief Restructuring Officer or wind-down expert immediately? Contact us: 

Dan Saccani

As the Founder and Executive Director of Ravix Group, an outsourced financial services firm for startups, Dan brings an impressive 35-year track record in the startup and technology sectors. With a focus on venture capital funding, debt financing, and mergers & acquisitions, and startup accounting, he has established a reputable position in the industry. Dan's expertise spans a wide array of sectors including life sciences, software development (saas), semiconductor technology, hardware innovation, clean tech, and the internet industry. In the last two decades alone, Dan has played a pivotal role in consulting with various startups, aiding them in navigating the complexities of financial growth and development. Under Dan's guidance, clients at Ravix Group have successfully raised over $1 billion in venture capital funding and secured $400 million in debt and lease financing. Dan has adeptly managed over $3 billion in mergers & acquisitions, showcasing a deep understanding of the financial landscape and strategic business growth in the tech sector.
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