In the world of venture-funded companies, not much surprises industry observers. Yet a new strategy employed by one privately held company might have founders and venture investors wondering if it’s a maneuver worth replicating.
What happened: The U.S. subsidiary of a venture-backed Berlin-based search optimization company called Searchmetrics just filed for Chapter 11 bankruptcy protection in Delaware.
Stephen Lubben, an expert on bankruptcy who teaches corporate governance and business ethics at Seton Hall Law School, meanwhile observes that yes, bankruptcy filings by venture capital-backed companies are rare, particularly in California, where the strong preference is to do an “assignment for the benefit of creditors” that allows backers more say in how to save their investments.
But also speaking generally and not specifically about these two companies, Lubben says that bankruptcy filings solely to address a single piece of litigation are “dicey. The court might dismiss the filing as being in bad faith. The company will have to show some other reason for needing to reorganize, and that it’s not just trying to stiff a single creditor.”