Business Strategy · Exit Strategy

How do you recoup money from a startup that has failed?

swati gupta ...

Last updated on January 27th, 2017

A company I advise spent 2 years building an online auction platform, got investors, applied for patents, ran ads, met with movers and shakers, etc but failed to gain enough momentum to keep things afloat.

The platform was quite interesting: an eBay/Skype/Craigslist cross - live video/audio/chat while browsing items for sale, similar to a live "trade show".

Any suggestions on how management could try recoup some of the costs? Are there companies that buy out such projects?

Leslie Wolfe Founder - ...

January 28th, 2017

Another method would be to "license" the concept to a qualified prospect. In other words, someone else who has experience similar to what you have would take it over. They get 80% and of course run everything and pay all expenses. Basically they own it and pay you a 20% royalty. For that fee you'll probably advise. Of course, these numbers can be changed.

Deepinder Singh Thinker

January 29th, 2017

Well there is value in the company, or, why would investors invest the money. There are three aspects which I could discover from your description:

1) The software - assuming most of it is built in house - look for companies who may be interested in this .. eCommerce, eAuctions ... even social media. You have build something for two years, there is some value in it. Think selling in components, frameworks or even to SAAS companies.

2) The IP - if approved - has great value. Both large and small companies will be interested

3) The team!! - Yes, some companies buy out other companies for their developers.

People for equity.

You have to find out which aspect is best, and base your strategy around it.

Good luck!

Katerina Muradyan PM at Newmanity, love to discover and learn

January 28th, 2017

I think you can always try to sell the company. Even a 0 balance company can be bought ( well thats my experience in russia). There is a whole business around it.

Still i think you can try to sell the platform, and you can try to suggest it to the auctions and other potentially interested parties .... This is not much concrete help, and there will e a lot of work to sell it ... Good luck to you

Dane Madsen Organizational and Operational Strategy Consultant

January 27th, 2017

There may be some value in the IP. I have seen this before, but in those cases, the amount they recouped is low. Search for similar companies or models and see if they have an interest in an equity for IP deal. This will likely be a startup you can accelerate, assuming your platform is better. Large companies will not likely find value unless the patents are solid. You can Also try to sell the patents to a group like Intelligent Ventures in Seattle.

Alan Petzold ECC / Evolving Coal Corp

January 28th, 2017

I think you can zsell off a Company with s negative cashflow. Finding thst Person or Cimpany is the difficulty. CPA can help here. This tyoe of Company needs writes in order to reduce their Tax Liabilities. Good Luck on this. Also You need to go after Alibaba. Look up the owners story and see if zyou can fit in Your story with his. He just might your Angle Investor to bring it to the NEXT level. But he woukd own a part of it. God luck. Alan Petzold

Jens Straten Entrepreneur with German Ingenuity

January 27th, 2017

Your best option might be the patents. However, you need to make an assessment to see if you should sell them right away or if there value might go up. That largely depends on what you have patented and how likely it is that some other company will want it.

Good luck!

Steve Owens Startup Expert

January 28th, 2017

Why did they fail?

Juan Zarco Managing Director, Silicon Valley Ventures Growth Partners llp

January 28th, 2017

Find a corporate buyer for the IP/Platform. I have been involved in that scenario for investors. And there are entities that are known as "patent trolls" which, like a consignment, can sell or license the technology. In 2008, I saw auctions for the furniture, etc., Great deals for furniture and the like.

Rupert Meghnot MBA CXO, Burnout Game Ventures, LLC

January 29th, 2017

If patents have been applied for, there should be some intellectual property that may be of value. This could either be sold or (preferably) licensed.

Alan Sack Founding member of SACK IP Law p.c., Intellectual Property Law and related Matters.

January 30th, 2017

A lot depends on the value of the concept and IP. We don't know why the venture failed. However the trademark/brand may have some value, especially if it has been registered, maintainedand marketed extensively.

The patent applications may have value and could be sold to a practicing or a non-practicing entity (NPE) in the business of licensing patented technology, as long as the applications are being prosecuted by competent patent counsel and have not been abandoned.

In addition, the platform and software may have value. The Copyright rights in the software can be registered in the US Copyright Office, if it has not been registered already. The Copyright to customer/user interface can also be registered as and sold, along with the platform.

The key is finding players or investors in the company's space who are interested in acquiring the rights and IP for the platform. The problem is, if a buyer is not found and the rights lapse or expire, the value of the venture quickly dissipates.

I hope that these ideas are helpful to you in advising your client.