This Is What Happens When a Startup Dies
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Why do most startups fail and what happens when they die?
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Hello and welcome to another episode of the Oddlots podcast. I'm Joe Wisenthal.
And I'm Tracy Alloway.
Tracy, we always hear about big startup exits, you know, people becoming billionaires, companies getting acquired going IPO, etc. But I don't think that's most of them is not that. That's just the ones we talk about. You never hear about the scores of other ones that always fail.
No, this is called survival bias, right? So you only ever hear about the winners because all the losers are basically gone and can no longer uh communicate.
That's right. And then the other thing is that most startups fail. And, you know, VCs talk about, oh, I need one winner for every, you know, whatever, hundred, maybe twenty losers or whatever. There are probably a few in the middle. They get two or three X returns, but that's not what delivers the big money. But yeah, it it's funny because it the losers, that's the norm. That's the expectation going in with any series of investments. And yeah, we really should talk about losers. More often.
Yeah, I'm into it. Let's talk about losers.
Another thing too, which is that when we talk about uh a lot of startup investing, particularly in technology, you know, you don't really think of them as having assets or a lot of assets that can be sold, right? So when a sort of cardboard box manufacturer goes bankrupt or whatever, well, there's probably some equipment that can be sold. There's land, maybe there's a bu building that could be reproposed, some intellectual property. Maybe. I don't know. for some of these with a lot of tech companies, it seems like there's nothing there if they don't succeed. And then there's like, all right, you just pull the plug and everybody moves on. But I don't really know if that's the case. Like I don't actually know what happens at that moment of death.
Well, from what I remember, bankruptcy tends to be uh pretty complicated in in various ways. And I'm thinking back, this is the ultimate extreme example, but the Lehman Brothers bank bankruptcy, yeah. That took fourteen years. And I remember covering it for like years and years and years and years, and they had all these counterparties, this big waterfall of creditors and things like that. And I Wonder how it works for I guess smaller V C companies.
Totally. And it seems like that whole court experience is probably something you might want to avoid if you can. So anyway, we really do have the perfect guest to talk about what happens when a company fails, what happens when the startup fails. We are talking with David Johnson. He is a managing principal at Resolution Financial Advisors. They're a financial advisory firm based out of Los Angeles that focuses exclusively on the insolvency world. So We're gonna learn about all of this. David, thank you so much for coming on the podcast. Thank you,
Joe and Tracy. I'm delighted to be here.
This is gonna be a lot of fun. What do you start off? What do you do or what does resolution financial advisors do? What is your sort of typical client and what are they looking for?
for Resolution Financial Advisors is a financial advisory firm, it's true, but we don't do a lot of the work that other financial advisor firms do. I started my career at Alvarez and Marcel a long time ago. I think I was employee number twenty one of what is now a ten thousand person firm.
Wow.
And I did restructuring work and interim management work and forensic accounting work there. So I've done a lot of that in my career, but that's not what we do anymore. We focus like a laser beam on what I call the insolvency world.
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Chapters
8 chapters
1
Why do most startups fail and what happens when they die?
0:00–11:06
2
Who is David Johnson and what does Resolution Financial Advisors specialize in?
11:06–20:08
3
What are the main alternatives to formal bankruptcy for winding down a startup?
20:08–26:16
4
How do Chapter 11 and Chapter 7 bankruptcies differ for tech startups?
26:16–32:52
5
What are esoteric assets and how are they sold in a liquidation?
32:52–39:32
6
Can you share the story of the human skulls and the vaginal‑fluid biotech company?
39:32–43:47
7
What lessons should founders and boards learn about timing a shutdown?
43:47–47:48
8
How can AI and data help locate niche buyers for unusual assets?
47:48–48:59
Speakers
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