Start-up needs fresh money, or is there another way?

Board-level solution resolves shareholder conflict and secures financing 

Initial situation & problem definition: 

A SaaS start-up with globally patented technology and an established board of directors was financed in the seed phase mainly by two public investors in addition to the founders. 

When, due to the crisis, revenues did not grow fast enough and the company was "out of fresh cash" and a planned Series A round was not possible, neither the public investors nor new, external investors were willing to continue financing the company. The representatives of the public investors saw no other option than to liquidate the company. Fortunately, one of our AAA advisors sat on the board of directors. To him, this seemed clearly too short-sighted. He therefore devised an elegant solution *) and implemented it together with the founders.

Solution approach & implementation: 

With an independent analysis of the situation regarding the market (proof of concept and proof of market were positively established) and existing assets (worldwide patents), our AAA colleague worked out a mutually acceptable restructuring solution via NewCos in numerous interviews with the capital providers. 

In order to achieve buy-in from all conflicting stakeholders including the founders, the proposed solution was first presented separately to the individual shareholders, further fine-tuned in each case, and then finally presented and accepted in a shareholders' meeting. 

Results: 

The founders and the business angels were able to preserve the business they had built up so far via a (new) subsidiary, i.e. the founders' idea and their technology survived. In the new operating unit, the business reached break-even within 12 months without further financing, and the founders were able to further successfully develop the business in new verticals nationally and internationally. 

The public investors were able to prevent write-offs with the security of the underlying patents (in a new portfolio company) and recover their outstanding loans through royalties and a revenue share. 

*) As this is a very effective but complex and confidential solution, please feel free to discuss details in a personal conversation with our AAA Advisor Member Thomas Meyer. 

Image source: iacasadicomo on pixabay