I'm disappointed that this article is more about job loss in tech at large, rather than a look at what Sherwood Partners actually does.
How does one wind down or sell off the assets of a technology company? What percentage of tech companies even have assets in the traditional sense? I can see the value of selling off inventory, machinery, owned facilities, and IP, but I'm guessing that a small percentage of Silicon Valley companies have any of these things in meaningful quantities.
Does Sherwood Partners buyout the company for cheap and then make a profit by selling individual pieces? I'm very curious. If anyone knows some of the answers, I'd love to hear!
I was a Sherwood Partners client in 2010. Oracle bought our startup, DataScaler. However, they bought the core assets of the company, not the corporate entity. That's a fairly common strategy for acquiring early-stage companies. The buyer gets the parts they want (in our case: the team, code, and patents) without any of the hassle or liabilities of the corporate entity or any assets that they don't want or need.
That left us needing to wind down the DataScaler corporate entity. This is a fairly technical process and not something you do casually. We hired Sherwood Partners to do the wind down. They filed the appropriate paperwork with Delaware and California, since we were a Delaware C corp based in Cupertino. They stored our corporate files (lots of paper back then) in their warehouse for 7 years in case of any litigation, tax disputes, etc. The offered to connect us with a liquidator to sell off our desks, chairs, phones, etc. They don't actually do the liquidation themselves. Perhaps most importantly, they were legally the "Stockholder Representative" and ensured that the stockholders were properly taken care of, etc.
We used Sherwood exclusively for the corporate wind-down part, as we already had a buyer. They also can help companies find buyers and they have lots of contacts in the valley.
It's interesting how his moniker is "Undertaker of Silicon Valley", and the process you describe really does have the calm, comforting, and efficient feel of a funeral.
Did the entire team continue to work for Oracle? I suppose that people work for a startup for a reason, and once that reason is gone, it might make more sense to move on.
All the engineers went to work for Oracle and were given large incentives to stay for 2 years. Most stayed and got their incentive payouts, though they all eventually left later on. I think the longest tenure at Oracle there ~8 years.
No, typically there is nothing to sell. The "assets" are worthless (code, website, customer lists). Maybe furniture they sell to liquidators at 5% of price. The liquidators will then put that in storage and will sell the assets at 40-50% of price.
Unwinding a company is quite complex and he works with a skeleton accounting staff to close the corporation, pay state, federal, sales taxes (you can never escape that), closing the DE corp and all foreign companies as well.
Lot of admin work.
This is a shot in the dark and maybe a little insensitive because people are losing their job (I lost mine recently) so I apologize for that. Does anyone know of any of these liquidators for office furniture? I've been trying to get a Herman Miller desk chair for a reasonable price for about a year now.
There are about 4 in the Bay Area I know of. Look for office supply warehouse in the suburbs. They also will frequently post to craigslist. Expect 70% of list though. It’s hard to find lower.
> "Expect 70% of list though. It’s hard to find lower."
I'd advise the original poster to wait for a few months. The recession hasn't really hit yet and there are plenty of business closures yet to come. At that point, liquidated office equipment will be a whole lot cheaper because of the glut.
That's really cool; does anyone know of a similar business in Seattle? I could use a height adjustable table at home while I'm stuck working here in our currently-indefinite quarantine.
Also, naive question, what happens if you don't do these things? If the company has no assets, it's not like you can get sued? I'm not arguing that this should be done, I'm just curious what the specific reason is that it happens.
The equipment and furniture are either auctioned or liquidated.
If there's a corporation or formal payroll involved, then it's important to wind those down carefully for various legal reasons. So either the remaining assets or owners will have to pay for the paperwork wind down.
Typically with a small company of 50-60 employees, the office manager and 1-2 accountants wll stay on for a few months to wrap all that up.
I was the last eng. employee to leave Novafora/Transmeta, and attended the auction and bought some of the computer equipment.
The most expensive hardware items were the almost new espresso machine, the 3 Ghz scope and the bed of nails tester.
Intel bought most of the IP for a little more than peanuts.
But the biggest benefit to the last remaining employees and board members (particularly those who are Directors or Officers) is reduction in liability around the details of shutting down a business. It's not about the thousands of dollars you get for the office furniture. By the point a company does an ABC, payroll obligations are likely the only category of liabilities to impact any employee still involved.
A firm like Sherwood will in fact readily offload that stuff to the most reputable firm who can haul it away, whatever is most efficient.
It's the forgotten obligation that Sherwood helps protects you from (e.g., rent payment, tons of small bills). When that bill shows up after you have had the hard conversations with stakeholders, that's yet another reminder to your investors that things went south. (Sherwood gets the missed bill and pays it out from a carefully planned escrow and based on a wind-down agreement that your investors signed off on). Much preferable to all of your investors notifying _you_ of an outstanding obligation. Firms like Sherwood play an important role in allowing all of us to move on with life.
There are several details here I'm skimming over that someone at Sherwood would correct me on, but hopefully this is helpful.
Sherwood=good guys who help startup people move on. Hopefully you have your business well-organized. Sherwood has the process down to a science.
[EDIT]: 'who pays for this?'
There's typically a negotiation between the remaining creditors with voting rights (your board members at time of wind-down), but the cost of a firm like Sherwood is small compared to the risk of you trying to shut down your startup in your spare time. (Don't do that.)
The directors have legal responsibilities that puts them at risk if the business is not wound up properly.
It is possible to just let it go bankrupt and leave to the appointed administrators to deal with it, but then you have someone with interests not aligned with yours going through all your papers looking for ways to extract value. That's a pretty good incentive for directors to try to ensure an orderly wind-down on their terms.
Agreed - the article does exceptionally little to describe what he actually does. Apparently the secrecy is why he is hired so I suppose that's why this article is so light on specifics.
I am tired of this pandemic being described as a “black swan”. Scenarios with decades of warning, billions spent on plans and agencies to react to them, and several real-world near-misses are not black swans!
Not sure this is the exact interview mentioned above, but this is an interview on Bloomberg with Taleb on 3/31/2020 that seems to line up with the description:
"Aug. 30, 2015 8:54 am ET - The recent market rout caught some star Wall Street traders by surprise. But not a hedge-fund firm affiliated with “The Black Swan” author Nassim Nicholas Taleb, which gained more than $1 billion on a strategy that seeks to profit from extreme events in financial markets."
The Universa figure is extremely misleading, and it's either some appalling marketing job or appalling journalism.
Universa is not a traditional fund, it is a so called "premium spend" structure. With a traditional fund, you give them money, and they try to make some profits. At a later time, you can retrieve the profits and original investment.
With Universa, you give them money as you would to an insurer, that is, you cannot back that original investment back, you only get the profits they make on it. It is literally insurance premium.
This is a very important distinction because when returns are traditionally quoted, they are not based on the premium the fund spent buying financial instrument, but the total capital invested. In the case of Universa, their assumption is that you'll spend 3% of your capital with them as insurance premium. It is therefore much more clear to quote the returns based on the capital insured, which results in a much more modest (although still great) 120%
he has made money off his hypothesis in '87 and most recently in purchasing underpriced tail hedges. the most recent fund he advised was underwater for many years before scoring a total 230% return over life-of-portfolio from the action in march '20. he never claimed to predict events that are surprising; he only claimed that the pricing of the bets for 3+ sigma events was wrong, and he has monetized this a few times in his career.
as a practical matter, it is hard to be a billionaire making such bets. the time decay of derivatives positions is working strongly against you and you have to structure your position very efficiently. you are not likely to have any LPs who are willing to take such huge drawdowns in the down periods right up until the blowup. so it is possible to make millions off such bets as his but not billions owing to the nature of option Greeks and the psychology of your typical LP.
He isn't great at predicting events that are surprising to the market. His hedge fund went under due to low returns. However, he did bring attention to the idea of black swan events, the possibility of which is too often ignored or overlooked. He is famous for bringing a particular school of thought to the forefront of our conversations about predictive models, not for specific predictions he himself made.
Relative to all the other stuff that happens, this is pretty close to a black swan. Most business contracts did not explicitly account for this risk, but rather mostly just covered it in a force majeure clause.
Currently a government contractor, can confirm everything is fine so far. I work at a mid sized company, and not a single person was furloughed or laid off. I'm sure it doesn't hurt that 90% of the company had the option to work from home, but AFAIK, everything has been business as usual for all the other contractors as well, minus the mandatory WFH part.
Work in the defense industry, no layoffs. If anything, we'll have to do more hiring due to the backlog which has been created by the physical preventive measures (i.e travel ban)
Working for a company that is tangentially related to consumer essentials--we make a self-checkout of sort--our customers have been hounding us to move faster. The crisis has been the catalyst for our slow moving customers to push their legal teams faster than normal.
I would actually think that Tesla would be less affected by this pandemic.
Why? Because their target market, are people that would be last to be laid off. Not entirely of course, but they are the programmers that can work from home, or the senior managers that can jump between companies if they’re laid off.
Of course, the lockdown is affecting everyone, but Tesla has always targeted the affluent and entrepreneurial, as their primary customers.
And let’s be realistic here, these people that can afford an $80k Tesla, are not concerned about the price of gasoline.
People on average (including the demographic you are talking about) do defer making big capital purchases in this type of environment - it’s the “conserve money in case the worst happens” attitude.
Of course there is a demographic who are wealthy enough that a Tesla wouldn’t be a big capital purchase for them. But I don’t think that demographic alone is enough to sustain them as a business.
In addition, with governments likely to be looking for cost savings in the coming years, subsidies for electric cars aimed at or claimed by “rich people” (thinking about some European markets here) look like an easy target politically speaking.
What might offset that for Tesla is potential for them to grow in China but that’s a difficult one to predict.
In addition, while I suppose you could make a Tesla purchase and take delivery mostly virtually, people are still deferring significant purchases for reasons that go beyond money.
It's just one more unnecessary thing to deal with right now. Furthermore, for many purchases, you can't totally deal with things over the phone or over the computer. I should get a new refrigerator one of these days but it's just not something I'm going to do until this is all over.
For a lot of people with hour+ commutes, it makes sense to get a model 3, especially if they have the luxury of charging it for free. Gas really is quite expensive if you have to drive long distances daily.
Most of these people no longer have the long commutes.
1. Anything AI/ML-based that can be applied to COVID-19 will be. 90% will be useless, but some percentage will pivot to these applications as their new business model. There may be some others that see cutbacks, but most companies should get a boost from the good PR of the ones that work.
2. I've seen a couple different sources pointing to blockchain as a good solution to inventory management and tracing, both seemingly important given current events. Second wave infections will keep this at the forefront through the next few years at least.
3. Subscription boxes for foodstuffs (meal kits specifically) probably saw a HUGE boost when a few million people suddenly had a lot of free time, coupled with supply chain problems and shopping difficulty. Other periodic vendors may benefit as well if shopping remains inconvenient, and customers may get used to the convenience and stick with them after everything goes back to normal.
I was thinking about that some days ago; if a ransomware attack hits a medical / critical facility now, would the attackers now not be raised to terrorist status? It's bad normally, but now it has more opportunity to kill people.
Yesterday my team just received an email from IT department where another largest company was infected with Maze Ransonware
I would say current times is crucial for malware programmers, it's a lifetime opportunity to grab cash before everyone else learns the importance of security
Malware programmers also have a family to feed you know
RE: AI/ML, we've accelerated R&D, and it's not even stuff that's super direct to customers (though makes it to customers eventually). Absolutely business as usual for a growing startup.
I work in blockchain (exchange) and the business is fine. BTC is holding up, and we make our money on volatility. Not sure why crypto would fall when the stock market tanks? We exist in a parallel financial system, that’s the whole point. If we need money, we can print our own!
This guy just uses these puff pieces to get himself more limelight/business. As a self-professed former pop-music manager, he certainly knows how to market himself. I've seen articles with him as the subject before topping HN in years past, foreboding all sorts of doom and gloom which, of course, never happened.
> This guy just uses these puff pieces to get himself more limelight/business. As a self-professed former pop-music manager, he certainly knows how to market himself.
I used to work with this nurse who wasn't very good at his job and most people didn't like working with him. He hired a PR agency and suddenly was being highlighted in all these news articles as a medical expert/color commentary and getting listed on "Top Emergency Nurse" lists. He flew to various environmental disasters to help out but they were mainly just ego trips to get in the news. For example when there was an avalanche on Everest and many people died, he took a month off work and flew there to basically screw around "volunteering." He would come back and post the articles about himself on our bulletin board in the breakroom.
He got let go after having a third affair with a coworker and during a messy breakup she complained that he played porn on his computer during a work meeting.
Well, they're nurses in one of the highest COL, highest taxed locations in the US (based on the "Cupertino" in his username) where median one-bedroom rent is over $3,000 and the "poverty line" is drawn at $100k per year income.
Neither has a moment like the present one, at any time in living memory. Jokes about accurately predicting 200 of the last 2 recessions aside, it seems like it might legitimately be that dude's time to shine.
I think the initial "The Carver" mystique set up the comedy of introducing a kid, but that the character might've actually been a stealth critique of a much more common dotcom stereotype:
* Mechanically grinding out large amounts of formulaic code.
* Routinely abusing medication for performance enhancement.
* Smug, strutting, arrogant, and rude.
* Demands very high compensation.
* "Laidback".
* Secretly a massive fudge-up in their work, but there's mutual interest in not calling that out.
'Stealth'? Seemed pretty overt to me. Making the character everything you describe and also a spoiled brat of a teenager with an overinflated sense of his own importance doesn't seem like something that happens in that show by accident, you know?
I wasn't ready to say that it's genuine laidback, when combined with such aggressive other traits. It might be affectation or sociopathy. In any case, it seemed funny to me (and the show did some similar things with some other characters, like Keenan Feldspar).
The main repercussion of 9/11 was the US collectively going crazy, starting wars and taking away civil liberties. And western fiction getting so dark and dystopian ever since. But outside the US, Iraq and Afghanistan, nothing substantially changed for anyone.
9/11 is nothing compared to this pandemic. It hit swiftly and brought the entire world to its knees. There's no hiding from repercussions for anyone, and we're not even through the worst of them.
"He hopes it catches the attention of companies like Google, Amazon and Facebook. Because while the startup world is being shaken, some tech giants are still hiring."
Can't help but think of the giant sequoia trees, that are much more fire-resistant than the underbrush beneath them, and whose seeds flourish in a recently-burned forest floor.
I’m looking forward to picking up some test equipment. The problem is hardware is no longer built here. Back in the 2000 dot-com bust, there was plenty of RF and optical equipment going for cheap. As another poster mentioned though, these companies have no assets.
> "Well, we used to do two, three to four a week,"
Uh, shit. I expected the rate before COVID to be way less. No wonder COVID is causing so much havoc. COVID has simply been the pin that popped the bubble.
4 startups a week that just this one firm are shutting down due to no revenue or investment? And not just 4 companies closing a week, but 4 that have enough assets that need a law firm to clean up the mess. What a disaster the start-up economy has turned out to be.
I would imagine a not insignificant fraction of those startups were between 2 and 5 employees renting the corner of a larger office living off of angel fund money for 9-18 months before evaporating. That's just a guess though.
Isn't that just part of the game? Most businesses fail. Many are just attempts to validate an idea/product. Sometimes it works; sometimes it don't. Trial and error is good.
> What a disaster the start-up economy has turned out to be.
It's not going anywhere for very long, if the Fed's rates remain so low and money remains so cheap. Thinking otherwise is nothing more than revenge fantasy style wishful thinking (people lusting for a comeuppance scenario because it makes them feel good).
In two years funding will be back in normal swing. In three to four years people will be back to speculating about the sustainability of bubble funding again and getting angry about the so called start-up economy.
The giant pile of capital sitting on the sidelines desperate for a return, is still there and will continue to probe for opportunities. It's not going anywhere short of the US collapsing rapidly near-term (which isn't going to happen). What you're going to witness is an immense surge in funding activity about two years out, as an economic recovery gets underway.
The only thing that would drain that sideline money, is a true financial collapse, taking down all banks, all short-term treasuries, and the stock market seeing a total wipeout (a minimum of ~%50-65% further down from here). None of that is going to happen. To accomplish that you'd have to hit the Federal Reserve with a nuclear bomb (they're all over the economy now, directly funding it, good luck fighting that) or keep the US economy locked down for years.
Check out the Bloomberg billionaire list. You'll notice something interesting.
Jeff Bezos, +$28 billion in 2020, $144 billion net worth.
Bill Gates, $104 billion.
Mark Zuckerberg, $68 billion.
Steve Ballmer, $63 billion.
Larry Page & Sergey Brin, ~$60 billion.
Larry Ellison $60 billion.
etc
The hyper rich (and the giant corporations in tech) aren't going to drown. The giant tech companies will emerge stronger, and will continue to deploy large sums of money into venture activity and acquisitions. The assets of the hyper rich will continue to be directly propped up by the Fed. It's the very wealthy that fund venture capitalists, providing much of the institutional money that feeds the VC firms. It isn't going anywhere and it will go right back to work, with a short break during this economic disaster. The sole reason there is a break at all, is they're pausing until the dust clears (wait & see, then pounce), they could largely afford to keep funding at close to the same old levels, the money is still there to do it. VC firms get better deals for their institutional investors by waiting until the unicorn blood is saturating the street, this presents an opportunity for them to squeeze the start-up ecosystem and reset valuations lower. Their investment dollars go a lot further if they wait a bit for the lower quality unicorn bodies to pile up.
> Silicon Valley has developed a reputation for building up companies at hyperspeed, propelled by mega-financed investment that can result in overnight fortunes or colossal failures.
> That zero-sum approach is now being reimagined as the coronavirus pandemic, which has spared no industry, rips across the technology sector.
Those are just nonsense words strung together. It doesn’t seem like author understands what “zero sum” means.
I think they mean the competition strategy in a zero-sum game, which focuses on speed as to acquire territory ahead of the competition rather than growth at risk-minimization pace without regard to competition.
Sherwood is not very good. But they are the only real choice you have if you're a tech startup. There is definitely a startup to be built in just helping businesses close properly.
How does one wind down or sell off the assets of a technology company? What percentage of tech companies even have assets in the traditional sense? I can see the value of selling off inventory, machinery, owned facilities, and IP, but I'm guessing that a small percentage of Silicon Valley companies have any of these things in meaningful quantities.
Does Sherwood Partners buyout the company for cheap and then make a profit by selling individual pieces? I'm very curious. If anyone knows some of the answers, I'd love to hear!