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"Former Yahoo CEO Marissa Meyer is closing the doors on her consumer software startup Sunshine, and is selling the company’s assets to her new AI startup, Dazzl

"Former Yahoo CEO Marissa Meyer is closing the doors on her consumer software startup Sunshine, and is selling the company’s assets to her new AI startup, Dazzle" and "all of Sunshine’s employees will move to the new company". 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?

taeric 1y ago
Ostensibly, it is in what you left out of your question? If you can buy the assets, specifically, you can not buy the liabilities. Obviously, getting some people off of obligation lists is one of them. There could be others?
- eig 1y ago
  Is it not illegal in the US to break up a company to isolate liabilities?
  - taeric 1y ago
    This is why I said ostensibly. I think it should be assumed the financial parts were done on the up and up. Such that disclosures and such can waive a lot of the concerns that would make it illegal. There are non-financial liabilities, as well.
  - rtkwe 1y ago
    It's not illegal just (possibly) shady, but there are ways to link the former company's liabilities to the purchaser in some situations in some jurisdictions. That may apply here but that's for a whole court to decide. https://kddk.com/2015/07/30/successor-liability-in-the-purchase-of-a-business-part-4-of-8/ https://kddk.com/2015/07/30/successor-liability-in-the-purch...
  - mrandish 1y ago
    It's not specifically against a law but debtors who got shafted can choose to sue the "old" and "new" companies under a few broader laws, basically alleging "I had a valid contract with the old company but this sale is a sham transaction to get out of the contract and 'NewCo' is unjustly enriching themselves by screwing us 'OldCo' debtors." IANAL but my sense is such a case can be won but is far from a slam dunk and it will cost money and take time. Debtors will have to decide if they are out enough money to be worth sinking more money into recovering it. This kind of move might also be an aggressive escalation tactic in a hardball negotiation with debtors unwilling to renegotiate on acceptable terms. It's possible that the OldCo/NewCo people doing this may choose to leave certain assets in OldCo to make legal challenges less likely to prevail than if they'd completely emptied out OldCo. 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.
- xp84 1y ago
  Indeed; and when you don't want the brand it's even more ideal. We saw a few months ago an example of the "new company" buying the brand and the assets but not the liabilities, including some suckers who bought "lifetime" subscriptions[1] from the old owners that they allegedly didn't even disclose, and which legally speaking weren't the liability of this random unrelated company which just bought the assets and the brand of the defunct company who made the promises. 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
  - plorg 1y ago
    Publisher's Clearing House went through bankruptcy and stopped paying "lifetime" annuities from before reorganization. https://apnews.com/article/publishers-clearing-house-bankruptcy-forever-winners-e7db7f8806b82a5265f3eafabcd94cde https://apnews.com/article/publishers-clearing-house-bankrup...
    - xp84 1y ago
      That’s true, though I don’t think there’s going to even be a successor there to keep selling magazines under the PCH name. The company that I’ve forgotten was selling some kind of software offering.
prasadjoglekar 1y ago
Clean cap table is quite valuable.
- bix6 1y ago
  Valuable to new investors. Old investors get hosed. I really struggle with these sorts of situations. She’s presumably doing something similar with the new company so all the old investors who didn’t participate (presuming a pay to play) get hosed. Is that really fair?
  - LightBug1 1y ago
    Sometimes you do the hosing, sometimes you're the one getting hosed
  - orionsbelt 1y ago
    In my experience, the alternative to a pay to play or similar situation in which the old investors get hosed is the company dying, so they get hosed anyway. The fact is, a messed up cap table or zombie company is not attractive to new investors, so cleaning it up is an unfortunate necessity.
    - sleepybrett 1y ago
      IMO the investors deserve a fair price for her 'buying' her old trash. I assume they won't get it and she'll be able to buy her old trash for pennies, probably 100 of them.
      - orionsbelt 1y ago
        A typical startup would require the consent of a majority of the investor shares for a sale of all the assets, so there would be investor protection and consent to this type of a transaction. 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.
brudgers 1y ago
Liabilities don’t transfer, Corporate structure doesn’t transfer, and as you point out investors don’t either. 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.
caycep 1y ago
the old "burn down the restaurant to avoid taxes, build new restaurant under another name" play common here in the San Gabriel valley area...
freejazz 1y ago
Because you can get rid of liabilities...
deleted 1y ago
[deleted]
SMAAART 1y ago
When new capital is needed, the old investors (investors in the old company) are given the equivalent of cents on the dollar on the new company, while the new investors do the usual. Old investors are welcome to put new money into the new venture, of course.

taeric 1y ago

Ostensibly, it is in what you left out of your question? If you can buy the assets, specifically, you can not buy the liabilities. Obviously, getting some people off of obligation lists is one of them. There could be others?

eig 1y ago
Is it not illegal in the US to break up a company to isolate liabilities?
- taeric 1y ago
  This is why I said ostensibly. I think it should be assumed the financial parts were done on the up and up. Such that disclosures and such can waive a lot of the concerns that would make it illegal. There are non-financial liabilities, as well.
- rtkwe 1y ago
  It's not illegal just (possibly) shady, but there are ways to link the former company's liabilities to the purchaser in some situations in some jurisdictions. That may apply here but that's for a whole court to decide. https://kddk.com/2015/07/30/successor-liability-in-the-purchase-of-a-business-part-4-of-8/ https://kddk.com/2015/07/30/successor-liability-in-the-purch...
- mrandish 1y ago
  It's not specifically against a law but debtors who got shafted can choose to sue the "old" and "new" companies under a few broader laws, basically alleging "I had a valid contract with the old company but this sale is a sham transaction to get out of the contract and 'NewCo' is unjustly enriching themselves by screwing us 'OldCo' debtors." IANAL but my sense is such a case can be won but is far from a slam dunk and it will cost money and take time. Debtors will have to decide if they are out enough money to be worth sinking more money into recovering it. This kind of move might also be an aggressive escalation tactic in a hardball negotiation with debtors unwilling to renegotiate on acceptable terms. It's possible that the OldCo/NewCo people doing this may choose to leave certain assets in OldCo to make legal challenges less likely to prevail than if they'd completely emptied out OldCo. 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.
xp84 1y ago
Indeed; and when you don't want the brand it's even more ideal. We saw a few months ago an example of the "new company" buying the brand and the assets but not the liabilities, including some suckers who bought "lifetime" subscriptions[1] from the old owners that they allegedly didn't even disclose, and which legally speaking weren't the liability of this random unrelated company which just bought the assets and the brand of the defunct company who made the promises. 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
- plorg 1y ago
  Publisher's Clearing House went through bankruptcy and stopped paying "lifetime" annuities from before reorganization. https://apnews.com/article/publishers-clearing-house-bankruptcy-forever-winners-e7db7f8806b82a5265f3eafabcd94cde https://apnews.com/article/publishers-clearing-house-bankrup...
  - xp84 1y ago
    That’s true, though I don’t think there’s going to even be a successor there to keep selling magazines under the PCH name. The company that I’ve forgotten was selling some kind of software offering.

prasadjoglekar 1y ago

Clean cap table is quite valuable.

bix6 1y ago
Valuable to new investors. Old investors get hosed. I really struggle with these sorts of situations. She’s presumably doing something similar with the new company so all the old investors who didn’t participate (presuming a pay to play) get hosed. Is that really fair?
- LightBug1 1y ago
  Sometimes you do the hosing, sometimes you're the one getting hosed
- orionsbelt 1y ago
  In my experience, the alternative to a pay to play or similar situation in which the old investors get hosed is the company dying, so they get hosed anyway. The fact is, a messed up cap table or zombie company is not attractive to new investors, so cleaning it up is an unfortunate necessity.
  - sleepybrett 1y ago
    IMO the investors deserve a fair price for her 'buying' her old trash. I assume they won't get it and she'll be able to buy her old trash for pennies, probably 100 of them.
    - orionsbelt 1y ago
      A typical startup would require the consent of a majority of the investor shares for a sale of all the assets, so there would be investor protection and consent to this type of a transaction. 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.

brudgers 1y ago

Liabilities don’t transfer, Corporate structure doesn’t transfer, and as you point out investors don’t either. 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.

caycep 1y ago

the old "burn down the restaurant to avoid taxes, build new restaurant under another name" play common here in the San Gabriel valley area...

freejazz 1y ago

Because you can get rid of liabilities...

deleted 1y ago

[deleted]

SMAAART 1y ago

When new capital is needed, the old investors (investors in the old company) are given the equivalent of cents on the dollar on the new company, while the new investors do the usual. Old investors are welcome to put new money into the new venture, of course.