Media Coverage

Venture Capital and Bankruptcies in The Deal

Lawrence Flick, partner in Blank Rome’s financial services practice group, discussed with The Deal how the lack of venture-backed initial public offerings has driven some private companies to bankruptcy.

Most start-ups avoid the bankruptcy route, instead going out of business or slowly fading away, while those deemed viable are supported by existing backers or new financing sources. Mr. Flick said that filings are most common when investors and management differ on the future prospects of a start-up.

“We’re certainly starting to see venture-backed companies where venture capitalists aren’t willing to put more money in,” Mr. Flick said, adding that he is not yet convinced there will necessarily be VC-backed bankruptcies. Some are indeed restructuring, he adds, cutting costs, getting by on current revenue, going into hibernation.

Despite the unease, miserly exit markets do not necessarily mean more filings. Some companies that stalled the IPO gate, Mr. Flick said, were doing well, with cash on hand or the ability to draw down funds.

“Small-Craft Advisory” by Carolyn Murphy appeared in The Deal in August 2008.