[newfocogi]

"Former Yahoo CEO Marissa Meyer is closing the doors on her consumer software startup Sunshine, and is selling the company’s assets to her new AI startup, Dazzle" and "all of Sunshine’s employees will move to the new company".

Under what conditions is it better to buy the assets and hire the employees instead of just change the name and product offering of the company? Is it just to get the investors off the cap table?

[taeric]

Ostensibly, it is in what you left out of your question? If you can buy the assets, specifically, you can not buy the liabilities.

Obviously, getting some people off of obligation lists is one of them. There could be others?

[xp84]

Indeed; and when you don't want the brand it's even more ideal. We saw a few months ago an example of the "new company" buying the brand and the assets but not the liabilities, including some suckers who bought "lifetime" subscriptions[1] from the old owners that they allegedly didn't even disclose, and which legally speaking weren't the liability of this random unrelated company which just bought the assets and the brand of the defunct company who made the promises.

In this case though with a new name and product that won't be an issue.

[1] someone else will remember the name of that company - it escapes me

[plorg]

Publisher's Clearing House went through bankruptcy and stopped paying "lifetime" annuities from before reorganization.

https://apnews.com/article/publishers-clearing-house-bankrup...

[xp84]

That’s true, though I don’t think there’s going to even be a successor there to keep selling magazines under the PCH name.

The company that I’ve forgotten was selling some kind of software offering.

[eig]

Is it not illegal in the US to break up a company to isolate liabilities?

[rtkwe]

It's not illegal just (possibly) shady, but there are ways to link the former company's liabilities to the purchaser in some situations in some jurisdictions. That may apply here but that's for a whole court to decide.

https://kddk.com/2015/07/30/successor-liability-in-the-purch...

[mrandish]

It's not specifically against a law but debtors who got shafted can choose to sue the "old" and "new" companies under a few broader laws, basically alleging "I had a valid contract with the old company but this sale is a sham transaction to get out of the contract and 'NewCo' is unjustly enriching themselves by screwing us 'OldCo' debtors." IANAL but my sense is such a case can be won but is far from a slam dunk and it will cost money and take time. Debtors will have to decide if they are out enough money to be worth sinking more money into recovering it. This kind of move might also be an aggressive escalation tactic in a hardball negotiation with debtors unwilling to renegotiate on acceptable terms. It's possible that the OldCo/NewCo people doing this may choose to leave certain assets in OldCo to make legal challenges less likely to prevail than if they'd completely emptied out OldCo.

Other impacts can include future potential NewCo lenders being pretty leery about getting involved with the same people. It's also not a great look for the founder(s)/senior execs in terms of future resume - unless there are extenuating circumstances which justify doing it. An example can be something like a fundamental disagreement between co-founders who are major shareholders. In that scenario this may not be to shaft debtors but rather for the majority co-founders, investors and key employees to 'dump' a minority non-cooperating co-founder who's no longer involved with the company, has a "change of control" veto and won't sell their shares but can't stop an asset sale. Basically the board approves the sale and the key execs/employees all vote with their feet. The original OldCo shareholders still own those shares, they're just worthless without the people, IP, assets, etc. In such a case, the non-cooperating shareholder might have grounds to sue but one defense can be a solid paper trail showing the company treated them fairly, offered to buy out their shares at fair market value and was basically forced into this as the only alternative.

[taeric]

This is why I said ostensibly. I think it should be assumed the financial parts were done on the up and up. Such that disclosures and such can waive a lot of the concerns that would make it illegal.

There are non-financial liabilities, as well.

[prasadjoglekar]

Clean cap table is quite valuable.

[bix6]

Valuable to new investors. Old investors get hosed. I really struggle with these sorts of situations. She’s presumably doing something similar with the new company so all the old investors who didn’t participate (presuming a pay to play) get hosed. Is that really fair?

[orionsbelt]

In my experience, the alternative to a pay to play or similar situation in which the old investors get hosed is the company dying, so they get hosed anyway. The fact is, a messed up cap table or zombie company is not attractive to new investors, so cleaning it up is an unfortunate necessity.

[bix6]

Maybe the company should just die? It failed and now they’re spinning out… why?

[collingreen]

It did die.

One way to look at it is do you want zero or do you want pennies on the dollar for it?

Is it crappy? Yeah. Doubly so if being abused by the founder. There is a version of this that is just the best of two bad options though.

It leaves a bad taste in my mouth when the founder doesn't share the same pain as the investors and the employees but such is life and it's hard to draw a line anyway, especially for someone super rich and with star power like her.

[bix6]

I want zero. Give the LPs a loss and move on.

[sleepybrett]

IMO the investors deserve a fair price for her 'buying' her old trash. I assume they won't get it and she'll be able to buy her old trash for pennies, probably 100 of them.

[orionsbelt]

A typical startup would require the consent of a majority of the investor shares for a sale of all the assets, so there would be investor protection and consent to this type of a transaction.

And indeed this article says “Almost all of Sunshine’s investors, who include Norwest Venture Partners, Felicis Partners, and SV Angel, have signed off on the deal, Wired cited the sources as saying.”

So the investors think whatever is happening is a fair deal.

[bix6]

51% of investors agreeing isn’t necessarily fair. That could be 1 or 2 large investors hosing everyone else.

Do you know which investor isn’t cruising over?

[pkaye]

The article says it was largely self funded so maybe she would lose the most.

[bookofjoe]

The chosen and the hosen

[bix6]

Lmao I’m stealing this

[bookofjoe]

Full disclosure: I stole it from a disgruntled anesthesiology resident c. 1990

[drivingmenuts]

Given that her old company basically pissed away $20 million, what kind of idiot would be willing to invest in her new company?

And should those idiots be avoided, as well?

[strangattractor]

According to Gemini:

Norwest Venture Partners: A venture capital firm that invested in Sunshine.

Felicis Partners: A venture capital firm that also backed Sunshine.

Ron Conway's SV Angel: An early-stage venture fund that invested in Sunshine.

Archetype Agency: A public relations firm that was a Sunshine shareholder.

This time it will different;)

[LightBug1]

Sometimes you do the hosing, sometimes you're the one getting hosed

[ajross]

It's "valuable" to the company and to new investors. It's quite the opposite to old investors. In the world of public companies, a "liquidate a shell company" trick like this is presumptively fraud. If you want to liquidate the company you have to buy back the stock at market price, not whatever your purchaser is offering.

It's legitimate only if the existing investors are getting enough liquidity back from the sale to make it worth the transaction. The article says that "almost" all the investors are on board, so... maybe.

[mbesto]

Clean cap table and she probably provided a decent amount of the funding for the first startup. It's also more than likely a tax thing here. I don't think people ought to get too obsessed with the contractual details on this one.

[adastra22]

If she has any investors with preferences, she probably isn’t seeing a dime.

[collingreen]

There are lots of ways to see dimes in these scenarios like signing bonuses or bonuses for closing the funding or selling shares into the new funding. Also she already has more dimes than this failed attempt can bring so it isn't as big of an impact as it would be to someone with nothing.

[adastra22]

What does a "a tax thing" mean then?

[vessenes]

She has a lot of dimes already

[brudgers]

Liabilities don’t transfer, Corporate structure doesn’t transfer, and as you point out investors don’t either.

Soft liabilities may be significant. For example here we are talking about the move. The headline “Sunshine launches Dazzle” is about a failing company and we wouldn’t be talking about it on the HN front page.

And if you are adequately capitalized (you probably are not), starting a new company is an easy business decision. And if you are a serial entrepreneur, starting new companies is what you do.

[caycep]

the old "burn down the restaurant to avoid taxes, build new restaurant under another name" play common here in the San Gabriel valley area...

[SMAAART]

When new capital is needed, the old investors (investors in the old company) are given the equivalent of cents on the dollar on the new company, while the new investors do the usual.

Old investors are welcome to put new money into the new venture, of course.

[freejazz]

Because you can get rid of liabilities...