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?
Obviously, getting some people off of obligation lists is one of them. There could be others?
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
https://apnews.com/article/publishers-clearing-house-bankrup...
The company that I’ve forgotten was selling some kind of software offering.
https://kddk.com/2015/07/30/successor-liability-in-the-purch...
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.
There are non-financial liabilities, as well.
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.
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.
Do you know which investor isn’t cruising over?
And should those idiots be avoided, as well?
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;)
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.
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.
Old investors are welcome to put new money into the new venture, of course.