Case Study #2

 

Company Profile

  • Company raised $95 million from venture capitalists through four rounds of financing.
  • The most recent financing occurred 12 months prior to Sherwood’s involvement.
  • Company provides Customer Relationship Management (CRM) software, requiring a heavy investment in infrastructure in order to develop a viable product. Company will need to achieve significant scale to reach profitability.
  • The business model has undergone significant changes in the past 18 months as the Company has reassessed its target market. The Company believed that a revised model would more effectively address the needs of potential customers.
    Sales growth has been slow. Top-tier customers are testing the software but remain hesitant to make a full buying commitment due to perceived switching costs.

Financial Situation

  • Company has $7 million in cash and had a negative cash burn of $1 million per month.
  • Investors stated that they would not provide additional funding unless the Company achieved key milestones in both revenue growth and debt reduction.
  • A term sheet from investors was not in place.

Sherwood Mandate

  • Initiate steps to reduce the monthly cash burn and, thereby extend runway.

Results

  • Sherwood initiated a review of all trade payables to determine critical versus non-critical items and initiated cash management strategies that enabled the Company’s to meet its critical needs/requirements.
  • Due to prior headcount reductions, Sherwood did not recommend additional layoffs (headcount had been reduced from a peak of 185 to 45).
  • Sherwood negotiated forbearances relating to equipment and software leases and terminated unnecessary leases.
  • Termination was achieved through a combination of equipment return in addition to an affordable termination payout.
  • Sherwood settled non-critical trade payables at a substantial discount.
  • Due to the restructuring, the Company was able to reduce its monthly burn rate to less than $300,000 per month. The additional time (runway) provided for greater traction on the new business model and allowed for additional investment.

 

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