Case Study #5

Company Profile

• Company has raised $65 million from venture capitalists through four rounds of financing.
• The most recent financing occurred 14 months prior to Sherwood’s involvement.
• Company provides product lifecycle automation software.

Financial Situation

• Company has $1.5 million in cash with a monthly cash burn rate of $800,000
• Company has Accounts Payable of $4 million
• Company is seeking additional funding; however preliminary feedback is not encouraging. A “critical” investor is requiring that all prior investors fund their pro-rata share or it would not participate in the next round.
• The Board intends to clarify the funding situation within two weeks. If funding is unavailable, the Board intends to initiate an insolvency proceeding.

Sherwood Mandate

• The Board needs to clarify its ability to fund the Company without the “critical” investor.
• The Board directs Sherwood to communicate the Company’s financial situation to key vendors to determine their receptiveness to a financial restructuring.
• The Board wants to confirm that the Company will have some working capital to achieve key milestones if additional funds are forwarded.

Results

• Sherwood contacted key creditors to initiate settlement negotiations. Payment would be based upon available cash plus a portion of the newly invested capital.
• The Company and the Board were not able to keep the funding syndicate together. Company concluded that additional fund raising efforts were not going to be successful.
• Company entered into an Assignment for the Benefit of the Creditors (“ABC”) with Sherwood.
• Sherwood initiated the orderly wind-down of the estate and monetized key assets.
• Sherwood maintained the IP platform for two months while it finalized an asset sale with a key competitor.
• Sherwood made distributions to creditors. There was no secured creditor, so unsecured creditors received 60% of their outstanding balance.

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