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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