This Is What Happens When a Startup Dies

Summary

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Odd Lots Podcast – Episode Summary

Podcast: Odd Lots (Bloomberg)
Episode: This Is What Happens When a Startup Dies
Date: August 20, 2025
Hosts: Joe Weisenthal & Tracy Alloway
Guest: David Johnson, Managing Principal at Resolution Financial Advisors

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Episode Overview

This episode delves into the underexplored but much more common side of startup life: failure. While much attention is given to dazzling successes, IPOs, and billion-dollar exits, the majority of startups quietly disappear. Joe and Tracy sit down with David Johnson, whose firm specializes in the often messy, unexpected, and occasionally bizarre process of winding down failed companies—especially in the series of events, decisions, and quirks involved in monetizing and liquidating their remaining assets.

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Key Discussion Points & Insights

Survivor Bias in Startup Culture ([01:22]-[02:57])

• Success Stories vs. Overlooked Failures: The episode opens by contrasting the abundance of narratives about big startup wins (IPOs, acquisitions) with the vast number of companies whose failures go unreported.
  • “You never hear about the scores of other ones that always fail.” — Joe Weisenthal [01:24]
  • Tracy points out this is survivor bias: we only hear from winners, because the failed startups no longer have a voice.

Anatomy of Insolvency and Alternative Wind-Downs ([04:05]-[06:41])

• Traditional Bankruptcy: Guest David Johnson outlines the two codes most often referenced: Chapter 11 (restructuring) and Chapter 7 (liquidation).
• Better Alternatives: For most startups, costly bankruptcy court isn't warranted. Instead, Johnson’s firm specializes in less expensive, more controlled alternatives like the "Assignment for the Benefit of Creditors" (ABC).
  • “For the companies we’ll be talking about today, it’s not a wise use of money. Especially when you don’t have an expected outcome where there will be a sale or restructuring. You simply want to shut down.” — David Johnson [06:29]

Esoteric Assets & Value Recovery ([07:25]-[13:38])

• Not All Assets Are Tangible: Many failed startups, especially in tech and biotech, own “esoteric” or difficult-to-value assets like patents, specialized software, medical samples.
• Finding Buyers: Johnson describes a rapid, highly targeted process—he calls it a “mini investment banking process”—to get the asset in front of those most likely to pay for it, often within 8 weeks, not months.
  • “There’s no benchmark for that. There’s no open outcry auction system…You’ve really got to find the right buyers, narrowly tailored, and conduct an effort to monetize those assets.” — David Johnson [07:25]

Memorable Example: Proteogenics ([12:22]-[15:19])

• Bizarre Assets: Johnson recounts liquidating a biotech whose main asset was vats of frozen vaginal fluid stored in a laboratory, alongside research data and samples.
  • “Is there a secondary market for vaginal fluid?” — Tracy Alloway [12:43]
  • Johnson explains they did sell it (and related IP) for about $2 million, mainly to repay secured lenders, though the company had originally raised $50 million.
  • Anecdote: Nearly lost the company’s backed-up technical data when the $2M intellectual property was left in a trash can during the clearance process. [15:19]

Human Psychology and Incentives during Corporate Death ([17:03]-[21:28])

• Disengagement at the Endgame: Founders, board members, and employees typically check out emotionally and practically after realizing the game is up.
• Johnson’s Role: He steps in as the impartial assignee (often through ABCs), takes over, and lets directors “never have to talk to us again.”
  • “The board generally resigns that same day,” after passing assets over to Johnson’s team. [19:43]
  • “Are you paid to be yelled at?” — Tracy Alloway [21:25]
    “I am paid to be yelled at.” — David Johnson [21:28]

The Logistics & Legalities of Unique Corporate Assets ([25:13]-[27:42])

• Strange Inventory: Stories include dealing with cosmetic surgery companies (human heads left in freezers), hazardous lab waste, nuclear material—even pawn shop gold teeth.
  • “As we were moving out, we found four or five human heads in the freezer.” — David Johnson [26:45]
  • “I divide the world into two sections. Things that are my problem, things that are not my problem. And I find that I’m much happier that way.” — David Johnson [27:43]

Creative Deals and Rapid Sales ([28:21]-[30:56])

• Unexpected Recoveries: Johnson describes a case where a company with a failed $50M sale still netted $15M in an ABC process, allowing a senior lender to be paid in full—rare in these situations.

Technology’s Role in Liquidation ([31:35]-[32:38])

• AI & Research Tools: Johnson shares that while his database and targeted outreach are crucial, contemporary AI tools (like Perplexity) help expand and refine the buyer search—especially for arcane or grisly assets.
  • Tracy tries Perplexity mid-show to find buyers for human heads, finding (real) niche companies like Skulls Unlimited. [32:01]-[32:38]

Old Economy, New Economy — All Have Baggage ([33:01]-[36:58])

• Wide Scope: From tech startups to furniture stores, to pawn shops and scooter fleets—a failed business often leaves a wake of strange, awkward, or even hazardous physical leftovers that someone has to process.

Case Study: Scooter Company Liquidation ([34:30]-[36:58])

• Outcome Variability: In Europe, Johnson’s team managed to sell a failed scooter company’s assets to a new backer, but US scooters remain languishing, abandoned and unpowered.
  • "Those scooters are still sitting on the corners of Los Angeles and Washington D.C. and maybe at the bottom of the river." — David Johnson [36:50]

Legal and Ethical Questions ([37:13]-[40:03])

• Liability for Orphaned Assets: If companies leave scooters (or other dangerous items) in public, who is responsible? If the company is gone, lawsuits become moot.
• Data Privacy: Johnson describes retreading privacy ground in tech failures. With companies like 23andMe, who owns the sensitive data—who has the right to sell? For most, that mandates formal bankruptcy court, not a quick assignment for creditors.

Determining Value for “Priceless” Things ([40:09]-[43:20])

• No Benchmarks: Johnson explains that with many startup assets, there is “no liquid market.” He contacts as many plausible buyers as possible; if multiple offers arrive, market value is set. Sometimes, no one bites.
  • “Something is worth what someone else is willing to pay for it. ...If I shop it to all of the people who should know what it is and how to value it, and they say, sorry, I'm not interested, then I can be pretty sure it's got no market value today.” — David Johnson [40:45]

Best Advice for Founders and Boards ([43:41]-[44:37])

• Time is Leverage: “Coming to us earlier rather than later is always wise.” A longer runway means more options, better value recovery, and a more orderly wind-down. Most founders wait until it’s too late.
  • “If you have six months’ worth of cash instead of six weeks ... I can do a more thorough search. ...The more time we have, the better.” — David Johnson [43:41]

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Notable Quotes & Moments

• On value destruction: “It is often surprising to me that the destruction of value is so great. If you told me $50 to $100 million was invested in X and there's nothing to show for it...where does the money go? That's a very good question... I don't really have a good answer for that.” — David Johnson [17:03]

• On bizarre asset management: "As we were moving out, we found four or five human heads in the freezer." — David Johnson [26:45]

• On dealing with stakeholders: “I am paid to be yelled at.” — David Johnson [21:28]

• On optimism and failure: “I imagine that the founders of startups that might eventually fail, they're probably optimistic by nature, and so they're probably sat there thinking they might get a Hail Mary at the very last minute. And then it doesn't materialize and it's too late and they're scrambling to make payroll.” — Tracy Alloway [46:25]

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Key Timestamps

• Survivor Bias & Failure Rates: [01:24]–[02:57]
• Bankruptcy vs. Alternatives Overview: [04:05]–[06:41]
• Esoteric Asset Liquidation Process: [07:25]–[13:38]
• Proteogenics Story (Vaginal Fluid): [12:22]–[15:19]
• Late-Stage Incentives & The ABC Process: [17:03]–[21:28]
• Human Heads & Hazardous Lab Cleanup: [25:13]–[27:43]
• AI Helping Find Buyers: [31:35]–[32:38]
• Scooter Company Case Study: [34:30]–[36:58]
• Liabilities, Lawsuits, and Orphaned Assets: [37:13]–[40:03]
• Establishing Value for Unique Assets: [40:09]–[43:20]
• Advice for Founders: [43:41]–[44:37]

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Tone & Takeaways

Throughout, the tone is hands-on, occasionally darkly humorous, and refreshingly honest about the weird, messy realities of shutting down a startup. Johnson’s stories, from vats of vaginal fluid to abandoned scooters and pawn shop gold teeth, make clear: most failures are not clean, and someone always has to deal with the peculiar leftovers.

Critical insights: Most startups do fail. Liquidation and value recovery for failed ventures is complicated, unglamorous, but crucial. The earlier professional help is engaged, the better the outcome—emotionally and financially—for those involved.

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For further Odd Lots content, visit bloomberg.com/oddlots, and join in the community discussion on their Discord.

Transcript

[A]

Hi, I'm Lisa Mateo, introducing you to the new Stock Movers report from Bloomberg. These are short audio reports, five minutes or less, delivered right to your podcast feed. Throughout the day, Stock Movers fills you in on the day's winners and losers on Wall street and tells you about the news and data that's driving those gains and losses. If you want to stay plugged into the stock market but don't want to spend all day watching tickers scroll across your screen, then Stock Movers is a place for to get informed. Listen a couple times throughout the day to find out what's moving equities and why. Search for Stock Movers on Apple podcasts, Spotify or anywhere else you listen. Get the latest stock news and data backed by reporting from Bloomberg's 3,000 journalists and analysts across the globe. Subscribe to Stock Movers wherever you get your podcasts.

[B]

Bloomberg Audio Studios Podcasts Radio News hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.

[C]

And I'm Tracy Alloway.

[B]

Tracy, we always hear about big startup exits, you know, people becoming billionaires, companies getting acquired, going ipo, et cetera. But I don't think that's most of them is not that. That's just the ones we talk about. You never hear about the scores of other ones that always fail.

[C]

No, this is called survival bias. Right. So you only ever hear about the winners because all the losers are basically gone and can no longer communicate. That's right.

[B]

And then the other thing is that most startups fail and you know, VCs talk about, oh, I need one winner for every you, whatever, 100, maybe 20 losers or whatever. They're probably a few in the middle. They get 2 or 3x returns, but that's not what delivers the big money. But yeah, it's funny because the losers, that's the norm. That's the expectation going in with any series of investments. And yeah, we really should talk about losers more often.

[C]

Yeah, I'm into it. Let's talk about losers.

[B]

I'll say one other thing too, which is that when we talk about a lot of startup investing, particularly in technology, you know, you don't really think of them as having assets or a lot of assets that can be sold. Right. So when a sort of cardboard box manufacturer goes bankrupt or whatever, well, there's probably some equipment that can be sold. There's land, maybe there's a building that could be repurposed, some intellectual property maybe, I don't know. For some of these, with a lot of tech companies it seems like there's nothing there if they don't succeed. And, and then there's like, all right, you just pull the plug and everybody moves on. But I don't really know if that's the case. Like, I don't actually know what happens at that moment of death.

[C]

Well, from what I remember, bankruptcy tends to be pretty complicated in various ways. And I'm thinking back, this is the ultimate extreme example. But the Lehman Brothers bankruptcy that took 14 years, and I remember covering it for like years and years and years and years and they had all these counterparties, all this big waterfall of creditors and things like that. And I wonder how it works for, I guess, smaller VC companies.

[B]

Totally. And it seems like that whole court experience is probably something you might want to avoid if you can. So anyway, we really do have the perfect guest to talk about what happens when a company fails, what happens when the startup fails. We are talking with David Johnson. He is a managing principal at Resolution Financial Advisors. They're a financial advisory firm based out of Los Angeles that focuses exclusively on the insolvency world. So we're going to learn about all of this. David, thank you so much for coming on the podcast.

[D]

Thank you, Joe and Tracy. I'm delighted to be here.

[B]

This is going to be a lot of fun. Why don't you start off, what do you do? Or what does Resolution Financial Advisors do? What is your sort of typical client and what are they looking for?

[D]

Resolution Financial Advisors is a financial advisory firm, it's true, but we don't do a lot of the work that other financial advisory firms do. I started my career at Alvarez and Marcel a long time ago. I think I was employee number 21 of what is now a 10,000 person firm.

[C]

Wow.

[D]

And I did restructuring work and interim management work and forensic accounting work there. So I've done a lot of that in my career. But that's not what we do anymore. We focus like a laser beam on what I call the insolvency world. That is alternatives to bankruptcy and other ways to wind down companies. Create value by recovering value. And sometimes we do use the bankruptcy code. I am a bankruptcy specialist. I'm a chartered financial analyst and I am a certified insolvency and restructuring advisor. And so bankruptcy is the right tool in some cases, but for most of the people with whom I do work, it's not the right solution.

[C]

So why don't we talk about the various solutions that are potentially on the table because I think a lot of people will recognize something like Chapter 11 bankruptcy. I know, as the daughter of a commercial airline pilot, I am certainly familiar with Chapter 11 bankruptcy. And that allows you to, you know, keep operating, keep the business going while you sort out your various creditors. And then there's Chapter seven, which is an actual liquidation. And then there's, I assume, more creative workouts that you are advising on. What are the options?

[D]

That's a really good summary, Tracy. Thank you. Yes, chapter 11 is the restructuring. That's where you get a, an automatic stay, a pause from your creditors and a chance to catch your breath. Raise new money under favorable terms. Conduct a sale of the assets in a very, very court supervised process has its place. I've been through many of those. They are terrific. If you want to restructure a company, many buyers buying assets out of bankruptcy will prefer a judge's order to do it that way. Chapter seven, as you said, is when you throw the keys on the table and walk away. And bankruptcy court will appoint a independent attorney, a bankruptcy trustee they're called. But they tend to be people who are not specialist at selling esoteric assets. You don't really expect any value recovery in a Chapter seven. So what we do is we specialize in alternatives that give the company a little bit more control and certainly don't ask them to incur so many costs. For example, to get into a Chapter 11 bankruptcy, you almost certainly need upwards of 100 or $200,000 just to give a retainer to your bankruptcy counsel.

[C]

Wow.

[D]

Sometimes that's warranted, but for the companies we'll be talking about today, it's not a wise use of money. Especially when you don't have an expected outcome where there will be a sale or restructuring. You simply want to shut down.

[B]

I have one really short question and a real question like I've never heard of like a Chapter 6 bankruptcy. Does that exist? Or what's up with all those other chapters?

[D]

There are other bankruptcies. There are some, especially for farmers, for example. There are some that deal with international companies in the United states. But chapter 11, chapter 7 and then chapter 13 are the ones you hear about most of the time.

[B]

Got it. Okay. That was just one of those questions I've been dying to get off my chest. I probably could have asked Chad GPT that and got a decent answer, but now I got that out of the way. You mentioned esoteric assets. So I imagine that there are some types of assets that are very easy for anyone to sell, like a building or something. It's not very complicated. Offices, whatever. And then what is an esoteric asset for which if you're not a specialist in it, you might really not know how to get top value for it.

[D]

So I do a lot of work in the new economy. I've spent most of the past 20 years working with Silicon Valley firms who have tech startups, biopharma, clean energy, things that are very intellectual property heavy. It is sometimes the case that in selling a company's assets, we have machinery and equipment or inventory or something that could easily be auctioned. But if you have a patent portfolio for a specific technology, or if you've got a drug in development, or you've got a special software that does something unique, there's no benchmark for that. There's no open outcry auction system that you can conduct for that. You've really got to find the right buyers, narrowly tailored, and conduct an effort to monetize those assets.

[C]

Okay, I want to talk about the losers because I am a firm believer. You always read all those business books that are like, here's this massive company that was a huge success story. No one ever writes about the ones that didn't make it, as you mentioned at the beginning, Joe. So one thing I'm wondering, in your many, many years of doing this, have you observed like a commonality among companies that fail? Is there something that is, I guess, endemic to all the failures?

[D]

I wouldn't say so. The people that are doing the investing in those companies have a lot more information and probably are a lot more intelligent than I am. There was a recent book out a year or so ago called the Venture Mindset. And it makes the point that Silicon Valley venture firms don't really mind losing money. They don't mind investing in something that won't succeed. They're much more concerned about missing the ones that do succeed. They know that 8 out of 10, perhaps more, but my number is 8 out of 10 investments will either break even or fail completely. It's the other two or the other one out of that 10 that will carry the fund for the year. So they cast a wide net. They do their best to pick intelligently, of course, but they cast a wide net and most of them need to be shut down.

[C]

Well, what's the trigger or the catalyst from going to losing money for years and years and years to an actual bankruptcy and failure?

[D]

Good question. That's when they come to me. Companies come to me when they're perhaps pre revenue. They're almost always pre profitability. They are relying probably on the next tranche of venture funding to come in. Their plan says we're Going to burn a certain amount of money and the venture partners are going to continue to fund us. Eventually the venture fund runs out of patience. The fund is full or old, or they simply don't believe in the idea anymore. That's the first thing. If that money doesn't come in, you can't make payroll, you can't operate. Or perhaps they've got a secured lender like Silicon Valley Bank. I do work with them. They do a lot of venture investing. The bank may run out of patience. The bank may have to write down the loan. The bank may want to recover their debt and they'll cut off their line of credit, perhaps, or simply fail to advance them any more money. Or perhaps the venture firm has tried to sell the company, tried to sell the technology. They've run an investment banking process and no buyer has emerged. So what do you do when you come to the end of the road? There's no more cash to pay payroll. You can't continue funding your company. What do you do?

[B]

All right, so they come to you and as you said, there are going to be these esoteric assets in at least some cases for which a typical court appointed liquidator does not have the specialty to get the max dollar for them. Incidentally, I imagine there are situations in which you don't have the specialty, but you have to learn it or you have to focus on that. So let's say I'm doing something novel and I don't drug discovery or whatever it is. You can give us the example. Some new type of asset comes to you, your job is to get MacDeller. You haven't really dealt. You don't know this specific thing yet. Maybe because it's novel. Give us an example of some esoteric asset in how you sought out to find the buyer who was able to pay max dollar.

[D]

You know, Paul McCartney once said that he was fortunate because in his line of work he did not need to know how to read music. Yeah, I deal in broad based technology. I'm as I said, clean tech and biopharma and software and AI, all of which I know nothing about. I don't need to be a specialist in the technology. I need to know how to find the people that know it. So I want to put those assets in front of the right people. I run what I call a mini investment banking process. We have to do it quickly. We don't have much money. The people that are at the company are going to be gone very, very soon. So I don't do it for six months. I do it for eight weeks. I sum up the technology, I put it into a little package and I put it in front of the 50 to 100 companies in that very narrowly targeted space, whatever that space happens to be. Okay, I want to make sure that everybody in that respective industry has a chance to look at it and opine. I don't have to learn it, I have to know enough to talk about it a little bit. But I'm there to bring people to the table. I want to put them in front of the people who invented the technology, the people who can tell everybody why it's the greatest thing and let the market tell me what it is.

[B]

So give us an example of ad technology or give us a story about where you had to do that.

[D]

Long time ago, I worked on a company called Proteogenics. It was more than 10 years ago, so I feel comfortable releasing the name. They were doing research in neonatal disease. They had collected, oh, I don't know how many pints of vaginal fluid, all in deep freeze in the basement of their laboratory, didn't have the ability.

[C]

Is there a secondary market for vaginal fluid?

[D]

Well, that was my job to find out.

[C]

Oh my.

[D]

That's exactly right. Now, there were patents and there were research and there were medical tests and there were patient records, all analyzing for disease, for whatever disease they were looking for. We ultimately did sell that technology to a large, I think, Boston based pharmaceutical company. I don't know whatever happened to it from there, but I had to manage that process. The company closed overnight. The facility was locked with the vaginal fluid in the deep freezers. And I had a landlord who wasn't very happy about that. So my job was to two things. My job is always two things. Number one, monetize the assets, do it quickly before the ice cube melts. I had to find a buyer.

[B]

You're being very literal here. Like melting ice cube. And this is sometimes a cliche in the world, but you're talking about literal melting, refrigeration. Keep going.

[D]

It got a little dicey because the landlord locked me out and the landlords aren't supposed to be able to do that in California. But I wound up having to negotiate something and keeping the lights on until such time as I could run the sale process, get people interested, back up the technical data and move those freezers out on refrigerated trucks all while the clock was ticking, while I had a very limited budget to pay the rent and to keep the electricity on. Now that was a good outcome again because we sold the Technology. I'm thinking, if I remember correctly, maybe $2 million, which is a great outcome in my business, that was probably enough to repay the secured lender. There was often a bank that's first in line to get paid and then there are unsecured creditors who come second, trade creditors, landlords, things like that. So we're going to try to get as much. Now, there was probably $50 million invested in that company from various funds, lenders, equity investors. And so we're not going to get those guys repaid, but we want to source as much value as we can. Somebody will say to me, how much is the technology worth? My answer is always, I have no idea. But I'm going to find out. How am I going to find out? As I said before, we're going to talk to everybody in the industry, everybody who knows this technology, everybody who is in a position to say, this might be useful to me, and we'll let them speak. Sometimes the answer is no one.

[C]

Who was the buyer for the fluid and the fridges?

[D]

I don't recall the name of the buyer, but it was, I remember, a large Boston based biotech company with a well known name. I just remember that as the buyer. And then the day. The other thing I remember was the day we moved out. We had the technology backed up on an external hard drive. Again, they had paid $2 million for it and when they went to leave, they couldn't find it. We found it in the trash can.

[B]

Oh my God.

[D]

So things are a little bit Wild West, a little bit touch and go, but that's the kind of work we.

[A]

Hi, I'm Lisa Mateo introducing you to the new Stock Movers report from Bloomberg. These are short audio reports, five minutes or less, delivered right to your podcast feed. Throughout the day, Stock Movers fills you in on the day's winners and lose losers on Wall street and tells you about the news and data that's driving those gains and losses. If you want to stay plugged into the stock market but don't want to spend all day watching tickers scroll across your screen, then Stock Movers is a place for you to get informed. Listen a couple times throughout the day to find out what's moving equities and why. Search for stock movers on Apple, Podcasts, Spotify or anywhere else you listen. Get the latest stock news and data backed by reporting from Bloomberg's 3,000 journalists and analysts across the globe. Subscribe to Stock Movers wherever you get your podcasts.

[C]

I'm just going to get very voyeuristic about corporate failures, I guess, and just ask for a bunch of specific examples. But have you ever gone into a company and just, you know, shook your head in disgust or surprise at what's been going on? Like, how could this company actually have been running this way for, I don't know, however long?

[D]

It is often surprising to me that the destruction of value is so great. If you told me 50 to $100 million was invested in X and there's nothing to show for it, or maybe the technology has a buyer for a million or $2 million, where does the money go? That's a very good question. And I've been doing this a long time and I don't really have a good answer for that.

[B]

You know, something I'm curious about is when a company is on its deathbed. If I were a founder or if I were a board member or whatever, like I would be pretty checked out. Like, I'm kind of not surprised in some instances that like, you know what, some important bit of technology, it's on a hard drive, et cetera, gets thrown in the trash, or no one really cares about getting keeping the refrigeration bill going. But you know, if you're whatever involved in this, like you might be thinking about your next thing, this is dead. This is a waste of time. I see no future upside. Talk about like those late stages and who actually is incentivized to till the very end, till the keys are handed over, till the sale is made. Like, how do you get them focused on extracting that less value when most people, I would imagine, want to move on at that point.

[D]

That's an excellent segue, Joe. So how do we get hired? Why do people bring us in? It's exactly right. If I'm on the board of a company, I'm probably residing at a venture capital firm or a private equity firm or maybe a venture lender. And once I see that there's not going to be any recovery or minor recovery, why would you want to spend.

[B]

Another second on it or another dollar?

[D]

That's exactly right. So I'd rather go focus on my things with upside. So they want to as quickly as possible hand it off to me. So under the rubric of my business, we very often, not always, but very often engage in a formal kind of insolvency process known as an assignment for the benefit of creditors, or ABC for short. It's a form of insolvency that's well recognized in many states. It's not under federal bankruptcy law, it's under State law in California, state law in Delaware has a long storied history. It's nothing new. Goes back to English common law. Under an abc, a company says, we have assets, we have debts, we can't continue to operate the business. So we're going to take all of our assets and assign them to a third party trustee. That's me. And again, I have two jobs. One, turn those assets into cash, try to collect as much money and put it in a trust account for creditors. And my second function is to do the administrative wind down of the company, get the final tax returns prepared, store the books and records, make sure the W2s go out to the employees at the end of the year, wind down the 401 under ERISA law properly. All the administrative things that board of members really do care about and should care about, but don't have the expertise or the interest to do themselves. Therefore, when the transaction happens, when the company signs over these assets to me, the board generally resigns that same day. In a Delaware dissolution, if the company is just going to file paperwork to close the company without a formal insolvency process, Delaware requires at least one director. Stay on the hook as a director for three years, which means you've got to keep insurance in place. You've got to continue to bother the directors with items he may be at risk. In this case, they don't have to. They put all of the work on the shoulders of me and my partners. And we have a legal fiduciary duty to do the things we've talked about, to monetize the assets and wind it down. And very often we never talk to those directors again.

[C]

I'm thinking how to frame this question, but does anyone ever try to influence your decisions as a trustee who is, you know, supposed to be independent, following the law? Does anyone ever try to kick themselves up the waterfall or something like that?

[D]

That's a good question. I've had very few experiences like that. We handle the insolvency process very strictly. We adhere to a lot of the same rules that occur in Chapter 11 in federal bankruptcy. The veneer of having the formal ABC insolvency process is itself powerful. We tell our companies, if you just walk away and you owe the bank money, and you owe unsecured creditors money, people are going to be angry. People are going to look for somebody to sue. People are going to perhaps push for an involuntary bankruptcy. You guys don't want any of that. You want to walk away. Instead, make resolution the target. Give somebody a place to file a Claim, give them someone to yell at, let them know there's a process, and give them the assurance that you're acting independently. And if there's any money to distribute, you'll get your fair share.

[C]

Are you paid to be yelled at? Is that basically it?

[D]

I am paid to be yelled at.

[C]

Okay. Well, the other thing I wanted to ask is I mentioned at the beginning the Lehman Brothers bankruptcy, which, you know, took more than a decade to resolve and was perhaps an extreme example. But you do often hear about bankruptcy proceedings that go on for years and years and years. And in your business, it sounds like you're trying to be pretty fast with the wind down, right? You're trying to get as much money as possible, and maybe that means you have to move really, really quickly. So I'm curious how you kind of balance the need for speed with the financial and legal complexities of actually winding down a company.

[D]

Bankruptcies that go on for a long time do so because there are material assets that have to get sold or divvied up, and you often have a huge constituency of creditors. Those creditors can form their own committee, they can hire their own counsel, their own financial advisors. There's many competing interests. You're right. Lehman would be an extreme example. That was my old boss, Brian Marcel, who spent years doing that one. In these cases, you don't have that. In my case, it's because you have a single asset or you have assets that have unknown value and likely several million dollars at most. We're not talking about a billion dollars. In most cases, they go through my process, so there's less to manage. You don't have some of the legal benefits of bankruptcy, but nor do you have the restrictions. You don't have to ask a judge for permission to do all sorts of things. You don't have to usually have a large staff of financial advisors managing the cash. It is true that sometimes in my processes, we continue to run the operations of the company, but on a skeleton crew and maybe for a few months at most. So they're not nearly as complicated. The outcome is not nearly as fraught for so many creditors. But I will give you one example of when we had hoped to do an ABC but wound up doing a chapter 11 instead.

[C]

Hmm.

[D]

There's a company a few years ago that was in the sports business. They had a website that accumulated or curated sports writing. We had one sports writer who only wrote about the Florida Marlins and one sports writer that only wrote about this team in San Francisco. Sorry, I'm not much of a sports Buff. So they had a collection of people, all of whom were contracted with this company. And the company had the website and was a well known brand. We had hoped to do an assignment for the benefit of creditors because we had $10 million of debt. We had a buyer who wanted to pay $10 million for the assets. Sounded like a great match. Unfortunately, there are special rules in bankruptcy that come in handy here that we can't take advantage of in the outside of the bankruptcy process. Specifically, in bankruptcy, if you have contractors like that, if you have executory contracts, you can drag those contracts along and put them in a sale to a buyer. And those contractors have to go along with that along with the bankruptcy court in an abc. I don't have that power. So I would have had to negotiate with 100 or 200 sports writers to get them to go along with the sale to the buyer. And that was not tenable. Therefore, we filed a chapter 11. We processed the sale with the buyer through a Chapter 11, 363 sale process and the sale was completed. Now here's the downside. We had a $10 million loan. We had a $10 million buyer. By the time the bankruptcy process was paid, bankruptcy counsel and my firm and the creditors committee and their counsel and their financial advisors and the delays and the special insurance and the funds that had to be set aside. The buyer did pay $10 million. The lender only walked away with seven.

[C]

The lawyers always win, huh?

[D]

There are a lot of people who take a toll on the way through bankruptcy.

[B]

Yes, that sounds like a good way to put it. Tell us about another weird, esoteric asset for which you had to find a buyer.

[D]

I have a cute little story from a while back. Company called CO APT C O A P T was developing some new technology for cosmetic surgery. We did operate that company for a few weeks. We did run a sale process and we did find a buyer. Now, a couple funny things about this company. First, when we go into a company like this, we have to remember, sell the assets. But we also have to wrap everything up. People get up from their desks and walk away. They leave things almost as if they were taken by aliens in some cases. So we do everything. Remember, the board put us in charge. We've got to monetize the assets, but we've got to report to the landlord. We've got to get rid of the furniture. Perhaps back in the vaginal fluid company, I forgot to mention there was E. Coli in their laboratory.

[B]

Lovely, lovely.

[D]

So we very often contract with hazardous materials firms to make sure, we clean those things up. That's part of the deal. Remember, we're putting a bow on these things for the directors and they expect to not have, they don't want to hear about any blowback, any, anything later on. So we have a full service process here. So at coapt, though, remember this was cosmetic surgery. They had a technology for a special device with hooks that they would drill into your skull and then they would pull the skin up over those hooks.

[B]

I've seen pictures of that.

[D]

That was, that was the technology that was being developed.

[B]

I've seen these images so disturbing, I can't even believe that's real. Anyway, keep going.

[D]

It's real. And we did sell it to somebody. Somebody found value in that. Enough to get the bank rep almost in that case. But the real trick to the story here was that to practice this, to experiment on this, to develop this technology, you actually need real human heads to do it, apparently.

[B]

Lovely, lovely.

[D]

So as we were moving out, we found four or five human heads in the freezer. So if you're a director of a company, if you're in Silicon Valley and you're deciding where to allocate your investments and you find out that this one's gone down, do you want to be the one making the decision or trying to figure out how to get rid of things like that? I have lots of stories about things that just nobody would want to deal with. Now you might ask yourself, what do you do with human heads?

[B]

Yep.

[D]

You'll be surprised to learn that there are actually people that specialize in this industry. A van rolled up. These are people that look like they might have worked for the circus. This is not an industry where you attract everyday run of the mill people. I suppose so I deal with things like that. I had nuclear waste in one of my teams.

[C]

Wait, wait, what do they do do with the heads?

[D]

I wasn't going to ask that question.

[C]

Oh, okay.

[D]

I'm sorry I don't have more to the story, but we, we found somebody to take them off.

[B]

Our job was to get the human heads off and then move on with.

[C]

Your job is done.

[D]

I divide the world into two sections. Things that are my problem, things that are not my problem. And I find that I'm much happier that way. Yeah, but I did have nuclear waste one time. There was a nuclear medicine company. Not buckets of glowing rods, but, you know, something you could hold in your hand. But still it needed to be disposed of properly. Once again, these are things that people who signed up to be a director don't want to spend their time solving.

[C]

I was about to ask what's the weirdest thing you ever had to sell? But I'm assuming human heads would be up there along with nuclear waste. So maybe I'll ask instead. What's the most creative buyer solution that you have come up with?

[D]

Well, let me tell another story then. And I don't want to mention the name because it was a Fortune 500 company that was involved. But I'll tell you enough to be interesting. I got a call about a year and a half ago from an attorney who sends me a business here in New York. Actually. They said, my client has a disaster. They need to talk to you right away. I get on the phone with the board of directors. Oh, we just found out the CEO has been lying to us and we're out of cash and we can't make payroll and we've got to shut down right away. Okay. So we came in, took over it turns out the company, and again, I can't get too specific. I can tell you it was so new economy that it just screams peak dot com. Silliest concept that I'd heard in a long time. And I wish I could tell you what it was. Company was teed up to be sold for $50 million. And the CEO was running out of cash, but trying to extend his Runway to get to the sale. So he was going to hard money lenders, almost like check cashing shops, and borrowing $250,000 at a time again and again and again to try to pay for payroll and extend his Runway till he could get the sale done. He ran out of time. The board found out that he was doing this, they found out they didn't have any cash left over, and they shut the company down right away. Now, the buyer was still very interested in the company, but the company didn't really exist anymore. All of the employees were terminated, all the systems were shut down. But they still had the technology, they still had the patents, they still had the interface, they still had the customer base, they still had the business plan. So the buyer said, we'd still like to buy the technology, but we're not going to pay $50 million anymore. So we negotiated a little bit, we shopped the company around a little bit, but these guys were at the table and they were ready to buy. They bought the company for $15 million. 1 5. They got essentially the same technology. Now they had to put Humpty Dumpty back together again, but they got a great bargain buying the company through this ABC insolvency process didn't have to go through bankruptcy, didn't have to pay all those fees. It was done in a matter of weeks, not months, and they got what they were looking for. At the same time, I was able to collect enough money to repay the venture lender in full, which is rare. Now, there are unsecured creditors that weren't paid, and equity, of course, is completely out of the money. But the technology lives on. They hired some of the former employees. The senior lender got paid. That's a pretty good outcome in my world.

[B]

I don't know if you have experience with this, but to my mind, it strikes me that for finding the right buyers, it seems like this is where AI could be really useful. You come upon some asset that you've never experienced before, like human heads, etc. And then I go in and say, what is the type of buyer that would maybe be in the market to purchase human heads or whatever. I'm curious if you found that to be the case, because I imagine you know, your Rolodex, your intuition, the research you do, but have you found that technology, over time in your industry has made it easier to rapidly locate the ideal buyer of certain. Certain assets?

[D]

A bit. Now I'm 54. My partners are younger than I am, so they're more interested and savvy at doing that.

[C]

But.

[D]

But when I find a company who has an asset for sale, I say to the owners of the company or the inventor of the intellectual property or the president of the company, tell me, you know the top five companies that. That should buy this. Your competitors, your customers, your suppliers. Give me the top four or five people that you know off the top of your head, and then I'm going to use AI to develop a larger list.

[B]

Got it?

[D]

I can usually get that to 50 or up to 100 of people, really targeted. I've got thousands of people in my database. But I don't want to send this opportunity to everybody. I want the people in that industry to have a chance to look at it.

[C]

I just typed into perplexity the question. I have legally acquired some human heads that I need to sell who would be a potential buyer. And it's given me a list including specific names such as bone dealers, Skulls Unlimited, and the Bone Room. I don't know if that's a hallucination.

[B]

Those might be hallucinations, yeah, but Skulls Unlimited.

[D]

Skulls Unlimited, that's fantastic.

[C]

Maybe it exists.

[D]

We do a lot of work with New Economy, but Old Economy as well. For example, right now we're liquidating two retail furniture stores.

[B]

Wait, Skulls Unlimited, world leader in real and replica skulls. Oh, and they say, do you need a skull clean? So this is a. I don't know if they do human ones. It looks like it's mostly animals and stuff anyway. At least Perplexity came up with a company that is in the skull business. Anyway, keep going.

[D]

There are niche industries. Yeah, yeah. So old economy as well. I've done a lot of brick and mortar work, especially down here in the Los Angeles area versus Silicon Valley. As I say, we're doing some furniture companies. At one point I was serving as a receiver for a chain of pawn shops. Now, a receivership is a little bit different than a bankruptcy. It's different than the ABC we talked about. It is the case that a lender or even investors don't have faith in management and they want a babysitter. They want someone to take control of the cash, look over management's shoulders. Perhaps hire and fire management, ultimately perhaps sell the company. But this is not. When you want to shut a company down or destroy something. You just want some adult supervision. So I served as a receiver for this chain of pawn shops, which was really check cashing stores, but they dealt in gold. They had a big vault in their headquarters where they would store some of the gold. If you go into a check cashing store and you have a gold necklace and you want to borrow $50, they'll keep your gold necklace. It got very interesting though, when people were depositing their gold teeth into the vault and you know, if they don't come back and repay the loan, the gold teeth stay in the vault. So we had a lot of interesting things to deal with there. And again, in a check cashing store, all cash business, you see a lot of $100 bills, buckets and buckets of those things floating around. So new economy, those are easy to value. At least they're easy to value. But new economy, old economy, there's a lot of management and judgment calls and what do I do about this situation? In my line of work, we were.

[B]

Talking earlier, before we started, you did a scooter company. And I've wondered about those scooter because, you know, some of the. They're still going. All the companies in that business seem terrible. The ones that have gone public have done awful.

[C]

Joe, you were.

[B]

Yes, I was very bullish as scooters. Yes, I knew you were going to say that. I was very bullish on the scooters. I still actually like them when I'm in a city it's not a bad way to get around medium length distances. Nonetheless, my understanding is that they have not been particularly, at least in the U.S. particularly profitable companies. What happens when they have like a bunch of old branded scooters laying around?

[D]

That's an interesting question. It isn't an interesting business. I think it was probably over invested in. I have a story with both a good outcome and a bad outcome. Okay, so a company called Super Pedestrian, which is not one I was familiar with, but it's up there with Lime and Bird and does the exact same thing, has a very large presence in Europe. The company ran out of cash. The venture lender, not a bank, but the venture lender and contacted us and said we need somebody to figure out what to do. How do we get our money back? There's gotta be value here. We invested X gazillion dollars. We've got a lot of scooters all over the United States, all over Europe. What do you do? So we started out in Europe. Turns out there was a lot of interest from European investors. And so we had scooters in Spain, we had scooters in the uk, we had scooters in France, we had scooters in Germany, we had scooters in Switzerland. And I don't do a lot of work in Europe. I don't know European insolvency law, I don't know all the very different ones. I sometimes do work over there but I rely on local specialists sometimes. But I had a lot of attention on that business. Fortunately we were able to get counsel in the UK who did a fantastic job of corralling all of these buyers and selling. We didn't have to take apart the companies this time. We sold the German entity and this French entity and the Spanish entity all to a company, I think from Norway who was well funded and believed in scooters. And so we were able to flip that almost in a matter of a month or two. And that business is still going. I still see them in the news. On the other hand, we didn't have so much luck in the United States. We didn't find anybody interested enough in the local business here. And after a lot of searching and a lot of bill paying and a lot of landlords locking up the scooters. To my knowledge those scooters are still sitting on the corners of Los Angeles and Washington D.C. and maybe at the.

[B]

Bottom of the river. And unusable.

[D]

And unusable because once the technology gets turned off they're like bricks.

[C]

Wow.

[D]

So good outcome in Europe I wish them well.

[B]

I like the scooters, but I do think that there is this element of, like, sort of weird public vandalism about it at some point where, like, a company just thinks it can deposit its products all around the city, all over the neighborhood. It's like, what? Like, where did these come from? I was like, then you see them in ditches. Anyway, Tracy, keep going.

[C]

I was gonna ask, so the scooters that are left over, would the company be liable for anything that, like, happened to those or if they, I don't know, caused an accident of some sort? If I'm cycling down the sidewalk and I accidentally run into a defunct scooter, could I sue the failed company?

[D]

Who would you sue?

[C]

The company. But it doesn't exist anymore.

[D]

It doesn't exist anymore.

[C]

So I can. So there's no.

[D]

Oh, you can sue. Yes. You can sue all day long, but there's nothing to recover.

[C]

Okay.

[D]

That's both a blessing and a curse. I remember when the scooters first came to Los Angeles a few years ago, and people would just throw them in the river, throw them in the ocean. It was astounding to me that that business model could work. Somebody believed in it. There are a lot of those scooters still around Los Angeles. And again, they're not useful unless you have the technology active. So I don't know what happened. I wound up leaving that company before that was fully resolved. But that is the question. There were all sorts of government penalties, cities imposed fines, or wanted to make sure we had insurance, for example, if we were going to operate scooters. So we're a little bit hamstrung. We don't want to be operating a scooter company. I've got a small firm. I'm not staffed. I can certainly rely on some of the former employees if I can pay them, but I don't want to be operating a company like that.

[B]

I have just one last question, but one particularly complicated and interesting. Liquidation or sale or failure that's in the news for the last several months had been 23 in me, which raises all kinds of interesting things about, like, privacy. In particular, I'm curious if this is a story you followed and whether you have any insight to bear on how a situation like that will or should play out from a legal perspective.

[D]

I followed it just a bit, just enough to know that I would not want to be making the decisions as an assignee in an abc. In that case, that's a case that belongs in bankruptcy court, because you've got A judge who will make the decisions for you. I don't want to be responsible for selling personal identifiable information without someone telling me it's okay.

[B]

But actually I imagine that in a lot. I mean, 23andMe is an extreme example because it's so personal. But I have to imagine personal identifiable information, it's actually gotta be pretty common in a lot of Internet startups, et cetera, where people have to submit information to set up an account, et cetera. I imagine that there are a lot of maybe not quite as tricky, but still pretty tricky questions that are raised with some of these companies.

[D]

We do have to take care. I sold a business earlier last year in the ticketing. Actually I've done four or five deals in the ticketing business like a StubHub type competitor. And there are of course credit card information and personal information. We don't generally sell that. And so as long as I'm careful that it doesn't get disseminated out in the public, I don't have to worry about that too much. There is sometimes the case if I sell a company, I have to review their Internet privacy policy to make sure I'm able to sell the customer list. And we do take that seriously and we do work with council to make sure that we aren't going to be on the hook. Certainly don't want to make those decisions and have someone come back and say I did something illegal.

[C]

I could sit here and listen to corporate failure stories for hours.

[B]

Me too.

[C]

But we are running out of time. So I'm just going to ask one other question, which is for esoteric assets, how do you go about ensuring that you have that you're getting a reasonable price? So something like human heads? I imagine there is no secondary market for human heads. There's no. What I mean is there's no exchange showing you a price.

[B]

There's no benchmark.

[C]

That's right, there's no benchmark. Human head price. So someone could make you an offer. But I imagine without expertise in that particular market, you wouldn't necessarily know if it was a good price or not. So how do you go about making sure that you're getting the most money possible?

[D]

I get that question a lot. And the answer is there are no benchmarks. There's no liquid market for these type of assets that are very unique and very interesting technology. In some cases you have to ask the market something is worth what someone else is willing to pay for it. So it's important that I get the opportunity in front of everybody who might have an interest. That's why I said earlier, 50 to 100 people in that industry and if I shop it to all of the people who should know what it is and how to value it, and they say, sorry, I'm not interested, then I can be pretty sure it's got no market value today. If I get four or five people to say, hey, this is interesting, let me do some homework, let me talk to management, let me make an offer. And I get four or five offers and the offers are all centered around $3 million. Well, I've identified the market value of that technology. If I've got three offers at $500,000 and one offer at $5 million, I'm going to grab the $5 million offer. That's the value of the technology. So I know better than anybody else what that technology is worth. In fact, I had to go to court only one time, I think, in almost 20 years where it was this coapt case again, I'll tell you that, where I sold the technology for, let's call it $3 million, and I repaid the secured lender and there was no money for anybody else. There was a plaintiff's attorney who was representing some people who had said that they were injured not by this new technology we discussed, but something else. The company had done some kind of derma filler or something. And those patients had potential claims, contingent claims. They said they suffered injury. They weren't adjudicated. There were no judgments. But the plaintiff's attorney may have had a case, his patients may have suffered. Nevertheless, when we sold the technology, there was enough money to pay back the bank and nobody else. The plaintiff's attorney took us to court and they said, yes, you sold the company for $3 million, but if you knew what you were doing, Johnson, you would have sold it for $11 million and we all would have gotten paid. He says, I have an ivory tower economist right here at my desk and he says this company was worth 11 million. And I said, really? Because here's my binder. Here are the people that I reached out to to sell this technology. 50, 60, 70 of them. And here are the 10 that said they were interested in looking at it. And they signed non disclosure agreements. And after doing their diligence, four of them came to me with an offer to buy the company and I chose the one with the highest price. So if your ivory tower economist wanted to buy this company for $11 million, I sure wish I would have met it. I would have been happy to sell it to him. But I know in the real world, that something is worth what someone's willing to pay. And I asked everybody, and this is what they told me.

[C]

I'm going to ask one more question. I can't resist. But is there a lesson about corporate mortality that you wish more executives or entrepreneurs would learn and internalize? If you could give a piece of advice to executives of failing companies or companies that are managing to survive, but there's always a risk of failure, what would it be?

[D]

I won the court case, by the way. I'll give you the same advice that that everybody says coming to us earlier rather than later is always wise. You only have as long as your cash Runway allows you to be there. So if you have six months worth of cash instead of six weeks worth of cash, I can do a more thorough search. I can come up with potentially other buyers, create more value. I can keep more people around for a longer period of time. I can make better preparations for the preservation of the technology. So earlier is always better. And I do a lot of contingency planning. People come to me and say, I've got an offer on the table, but I don't know if it's going to close. So how do I prepare for the downside? Or we think we're going to get that next round of venture funding, but just in case it doesn't come in, what do I do? So I do a lot of that kind of planning, and the more time we have, the better. On the other hand, I have gotten the phone call before. I can't make payroll on Friday. Can you help me?

[B]

Should have called me earlier. David Jonson. I think if I were on the board of a company and you showed up and said, you know what, tough situation, but we're going to get you the max dollar, I think I'd feel really good. I feel like you do a good job for us. Really appreciate you coming on odd lots and telling us about this niche that I knew nothing about.

[D]

This has been fun. Thank you, Joe. Thank you, T.R.

[B]

Tracy. That was a lot of fun. I didn't know anything about any of this topic. And he was the perfect guest for that.

[C]

Yes, a very niche topic for someone who specializes sometimes in very niche sales. That was so interesting. I'm trying to think what my big takeaway is here. I mean, I guess the emphasis on how comfortable a lot of Silicon Valley actually is with losing money for years and years and years, and then how suddenly that tap can be turned off.

[B]

Well, so I thought your last question and his last answer about, like, sooner the Better was really interesting and really important. And I just feel like if I were a founder of a company, I would never do sooner. I would hold out till the very last second, the last dollar in my account in order to make payroll. I would never call David up until I was absolutely forced out of the room. Even though, you know, you get into, what are they called, principal agent problems here, right. Because you're suddenly operating for yourself as someone who's trying to keep your equity in the money in the hopes that it can going on. Meanwhile, you're burning through credit or cash and probably, you know, diminishing their recovery value by the day. A lot of interesting incentive disalignment potential at the end of life there.

[C]

Yeah. And I imagine that the founders of startups that might eventually fail, they're probably optimistic by nature, and so they're probably sat there thinking they might get a Hail Mary at the very last minute. And then it doesn't materialize and it's too late and they're scrambling to make payroll.

[B]

I guess this is what the board, right? The board is supposed to solve some of these incentive alignment problems. And it's like, bro, come on, you gotta give up. You gotta, you gotta begin the liquidation phase. Which I guess is why the founder in one of his stories was taking, you know, personal check cashing loans to keep it going. Precisely because the board maybe wouldn't have let it keep going had they been aware of the true financial state of the company. Although, anyway, very interesting conversation.

[C]

Bro, you gotta give up. Signed the chairman.

[B]

Yeah, exactly.

[C]

All right, shall we leave it there?

[B]

Let's leave it there.

[C]

This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

[B]

And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our producers, Kerman Rodriguez at kermanarmondashellbennett at dashbot and Kalebrooks Alebrooks. For more Odd Lots content, go to bloomberg.com oddlots where we have a daily newsletter and all of our episodes and you can chat about all of these topics 24. 7 in our Discord Discord, GGODLOT lots.

[C]

And if you enjoy Odd Lots, if you like it when we talk about how companies die, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

[B]

Sa.