Cram Down – Now Playing In Silicon Valley – Featuring BitTorrent December 16, 2008Posted by John in Technology.
Mike Arrington has a great post on the recent Extraordinary event happening in Silicon Valley. The latest is Bittorrent. It has been common knowledge that Bittorent has been hurting or better yet imploding. I would hate to see Bittorent go under because they have pioneered p2p.
Here is some detail from Mike Arrington (ex Wilson Sonsini lawyer) “what happened at BitTorrent wasn’t a standard recapitalization. Nothing about the BitTorrent reorganization was standard, in fact. The company, which laid off more than 2/3 of staff (65 to 19 employees), had over $20 million in the bank before this transaction, says a source close to the company. They weren’t generating much revenue from toolbar and device installations – just $5 million or so annually – but at least the company had plenty of runway left. In other words, the fiduciary duty of the board of directors to the stockholders of BitTorrent was almost certainly disregarded.”
What we have here is VC magic being displayed in prime time during a downturn. Mike points out that DAG is taking the heat for Accel. Everyone knows that DAG jacks up valuation for the big firms. Well that strategy didn’t work in this previous cycle because the liquidity never showed up. So the result is to do a “Cram Down.” – Folks this isn’t a good sign. If you work in a VC funded company that has done two or more rounds you better be in good revenue shape or I suggest that you start looking for a new job. Better yet start a new startup.
I’d love to know how the board meetings played out. I’m sure there were many ‘guns to heads’ in the process. I hope the employees didn’t get screwed. It’s one thing to lay people off and kick them on the street, but to take away all the equity is another.
The VC model is changing and I have yet to see any VC fund that is consistently innovating, creating job, and creating wealth at scale. It’s clear that in this downturn or depression a new VC model will emerge. One that takes advantage of the global intellectual resources out there.