What an absolute debacle. This doesn't bode well for the entire Twitter platform.
I went through an acquisition of an unsuccessful company. My employer created a shell which is what was acquired. The old corporation wasn't acquired and existed as an independent entity to wind down contracts / deal with the acquisition hold-back, etc.
If eg smyte was out of money, this is plausible. And all of a sudden no-one was there to run the old corp.
crunchbase says they raised a $4m A in Mar 2017, but linkedin says they had 23 employees. They could burn that in 1.25 years with 23 employees and have hit a cash crunch.
I have no knowledge, just speculation.
$4m over 1.25 years (and don't forget comp costs the company 1.3) == $2.5m comp to employees per year. That is not much for 22 employees.
math: (4/1.25)/1.3
Otherwise it would be a good way of making debts disappear.
Also, it's quite plausible that Smyte had negative value before the acquisition - that it's going to be an "empty sack" not because valuable assets were transferred elsewhere (which can be reversed in courts) but because its debts already exceeded any value it had, that it was an empty sack in the first place and no debts can be paid in full in any case.
* If the assets were bought, they'd be the property of the original company, and the money would go to the company, which would therefore have money to be sued for.
* If the directors took that money out of the company, full in the knowledge that they had legal liabilities as the result of terminating service, at least in the case the UK (and I can't speak for US law), they'd be guilty of a number of crimes, as they are responsible for acting in the best interests of the business.
There are startup acquisitions which result in lots of money being paid to investors, and there are acqui-hires which amount to a pre-bankruptcy firesale to get part of the money back, but resulting in unpaid debt and bankruptcy anyway. I don't know about Smyte's financials, but it may well be that their situation is like the latter case.
I don't see any reason to suppose that there some big bag of money (even post-acquisition) that's somehow illegally taken out of the company. It may well also be that the money paid to the company itself for acquisition is insignificant, and the rest is in form of some "hiring bonus" to make the transfer of employees work, so not something that the debtors can claim.
Any side payment to the directors and staff outside of the acquisition - such as a "hiring bonus" as you suggest, which lead to the sale of assets at a lower price than would otherwise be the case - I'm pretty certain (again, in UK law, and I'm certainly not a lawyer), that this would be seen by the courts as a bribe, ie. money paid to perform their duty to the company improperly.
See item 1.2 from the Bribery Act 2010: https://www.legislation.gov.uk/ukpga/2010/23/crossheading/ge...
Obviously not exactly relevant in this case, but I'm guessing there's a US analogue.
In my failing startup that was acquired, all eng got a carve out. It was basically a bonus to get us to remain employees after it became obvious the company was failing and was going to be sold.
I'd imagine the legality goes like this: without that bonus, I certainly would have left. And there would have been nothing to be sold. So it was long-term better for investors.
So you will see payouts and bonuses to executives to get them to stay with the sinking ship in hopes of eeking out more money before the collapse, but if you were to just pay a bonus to an executive on their way out, you would have a very hard time justifying that and could be sued for breach of your fiduciary duty.
This type of uncertainty does lead to a situation where potential customers are wary of using a startup service — I can’t build a business off your service if I don’t have confidence your company will want me as a customer in 3 years.
Ultimately I think we’re witnessing the final consolidation of the software industry. I expect the cloud/software industry of the next 30 years to start to look much like telecom over the last 30 years.
Probably worse for consumers short term, but ultimately the plumbing isn’t all that interesting and it will hopefully enable the next round of innovation.
> Because the reverse triangular merger retains the seller entity and its business contracts, the reverse triangular merger is used more often than the triangular merger.
I was going to say "I wish that I could do that!" But then realized that bankruptcy comes pretty close.
But if it is all within the states, it could be just that.
> If eg smyte was out of money, this is plausible. And all of a sudden no-one was there to run the old corp.
Sound more like a tech/knowledge acquisition to me.
4M$ for 23 employees only works if you have proper financial management though.
The problem, it seems, Twitter got the timing __all wrong.__
Twitter is large enough to plan these details. I think it's fair to assume they are at fault until shown otherwise.
If you buy the assets of the company then usually you do not buy the contracts unless they are specified as sold.
In both cases if there are change-of-control clauses those could trigger with various penalties or rights becoming unlocked.
And if you're thinking "well they could just personally reach out to their customers if they're fired because it's the right thing to do" -- if the last-minute nature of everything is any indication, current/former employees were probably ordered not to say anything.