From the Desk of Dr. Doom, Chief Restructuring Officer:
Trigger Warnings: Miscalculated Revenue
In the heart of Silicon Valley, where million-dollar deals were made over a cup of artisanal coffee and a maple bacon donut, yet 90% of companies fail, I was a beacon of hope and despair. They called me Dr. Doom, the Chief Restructuring Officer. While most would find the title daunting, I embraced it with pride. It reflected my razor-sharp acumen and ability to do what’s necessary to save any startup, or at least pay back some creditors.
My phone buzzed, pulling me away from spreadsheets and never-ending emails. Two names flashed on the screen: Doug, the ambitious, freshly minted CEO of SigmaTall, and Gerrald, his introverted, no-nonsense CFO.
“Dr. Doom,” Doug greeted, urgency evident in his voice. “We’ve stumbled upon a financial black hole.”
I leaned back, my sardonic wit at the ready. “Another day in the valley, then?”
Gerrald cut in, his voice as steady as ever, “This is no joke. Terry’s version of GAAP was more… let’s call it ‘creative fiction’.”
A smirk crossed my lips. “GAAP-ish, I presume?” A common mistake with startups – trying to account for revenue and messing things up. Most double count or forget to amortize, and rarely do they “forget” revenue. In this case, the former founder, Terry, was more concerned with his social media following than his bookkeeping. When his content took off, his VCs asked him to spit into two companies – SigmaTall and SigmaTerry, with the former being a software IP that the natural sales CEO Doug could scale. Or so he thought.
Doug huffed, “You have no idea. This isn’t just some minor bookkeeping error. We’re talking about the potential derailment of SigmaTall. When I took this project on, I thought I had $3 million from VCs for growth. I have five sales guys ready to be hired. Now, it looks like I have to pay off debt, and we don’t have enough cash flow to even stay in business.”
As they filled me in, the grim reality took shape. The so-called profitable company Doug was sold on was sinking in $2 million of debt. With his carefree demeanor, Terry had cooked up dummy invoices and concealed software royalty agreements. A disaster waiting to implode.
Doug’s voice was fraught with frustration. “Sara promised me a golden goose! Instead, I’ve inherited a ticking time bomb.”
Sara, the fast-talking VC who could sell ice to Eskimos, had perhaps met her match in Terry. But now, it was my job to untangle this mess.
Meeting the board was like stepping into a lion’s den with fresh wounds. The weight of their collective stares was palpable. The news was stark: Bankruptcy for SigmaTall would be a death knell for the SigmaTerry IP. The ripples would be felt far and wide, decimating value and investor trust.
I reviewed my notes:
- Miscalculated revenue recognition
- Dummy invoices
- Over $3 million in debt
Turnaround or Wind-Down?
The room was silent for what felt like eons before Sara broke the stillness, “We can’t let this ship sink. The new company’s potential is enormous.”
Nods of agreement rippled around the table. In that moment, the decision was made. The VCs would shell out $3 million not for growth but to wind down the original SigmaTall. It was damage control at its finest.
“SigmaTall needs an ABC, Assignment to the Benefit of Creditors. Pay off the debt, close it down, and keep SigmaTerry clean,” I recommended.
The ensuing weeks were a whirlwind. I dove deep into the labyrinth of SigmaTall’s finances, patching holes and making the tough calls. As the dust settled, I took a moment to reflect. SigmaTall was now a cautionary tale in the annals of Silicon Valley’s storied history. But for every Terry, there was a Doug, Sara, or Gerrald, fighters willing to pivot, adapt, and rise from the ashes.
Was it a wind-down if it saves the other startup? Maybe, in the end, it’s a bit of both.
It’s not always Doom and Gloom. See how Dr. Doom saved the day through a restructuring.
The names have been changed to protect the traumatized.