🚀New Chapter 11 Bankruptcy - Vector Launch Inc.🚀

Vector Launch Inc.

December 13, 2019

🚀Another Example of the Tech Hype Machine Getting a Fast and Furious Reality Check (Short “Founder Friendly?”; Long #BustedTech)🚀

We’ve been rather bored with energy and retail distress these days and so we looked on with great interest when Arizona-based Vector Launch Inc. and its subsidiary, Garvey Spacecraft Corporation, filed for bankruptcy in the District of Delaware. Sure, sure, it’s not a big name like McDermott International ($MDR) — the excitement there awaits us in ‘20 — but it’s meaningful nonetheless. Why? Because Sand Hill Road is known for its moonshots. And they often come crashing down to earth. Just not usually in bankruptcy court.

Yet this one did. Vector, a space technology company that was producing rockets and satellite computing technology, has an interesting history. Founded in 2016 by two of the original team members behind Elon Musk’s SpaceX, the company shared Mr. Musk’s vision and penchant for exaggeration. The company launched in 2016 and, in retrospect, the laudatory coverage of the ambition is laughable. Here’s Techcrunch:

With small rockets carrying single 20-40 kg payloads launching weekly or even every few days, the company can be flexible with both prices and timetables. Such small satellites are a growing business: 175 were launched in 2015 alone, and there’s plenty of room to grow. It’ll still be expensive, of course, and you won’t be able to just buy a Thursday afternoon express ticket to low earth orbit — yet.

Customers will, however, reap other benefits. There are less restrictions on space: no more having to package your satellite or craft into a launch container so it fits into a slot inside a crowded space bus. Less of a wait between build and launch means hardware can be finalized weeks, not years, in advance — and expensive satellites aren’t sitting in warehouses waiting for their turn to go live and get that sweet return on investment.

Sounds dope AF, we admit. Even more exciting, Techcrunch reported that Vector hoped to make its first real flights in 2017. At the time, it had raised government grant money (DOD and NASA) and a small amount of angel money. Straight out of the Musk playbook: fund your company and get rich off of the government teat. Brilliant.

But you don’t get government money without pedigreed founders and highfalutin promises to change the world (literally via rockets). Just imagine how that package looks to the outside investment community.

Investors are knocking down the front door looking to get in, he said, though he declined to name any. Perhaps they smell profitability: Vector’s business plan has it cash positive after just a few launches.

Oof. That bit looks REALLLLLLY REALLLLLY bad now, huh? It gets worse.

Here are some of the things that subsequently transpired:

• The company finalized an agreement to conduct 21 launches for Finland-based Iceye’s commercial Synthetic Aperture Radar satellite constellation. 👍

• Quartz published a flattering piece about the shift to smaller rockets, giving heavy prominence to Vector. 👍

• The company won $2.5mm worth of contracts from the Defense Advanced Research Projects Agency (DARPA) and NASA. 👍

• The company announced a Tucson headquarters and manufacturing plant, celebrating the potential creation of 200 jobs with the hope of reaching as many as 500; the “direct economic impact of the facility could be $290 million over five years” (citing $2.5mm in contracts and revenue in ‘16 and $160mm-worth of signed contracts for launches “once the plant starts producing rockets…”). 👍

• Vector announced “an agreement with York Space Systems, an aerospace company specializing in small and medium class spacecraft, to conduct six satellite launches from 2019 through 2022 with the option for 14 additional launches”; the contract was reportedly worth a staggering $60mm. 👍

These guys were rockin’ and rollin'.

But, wait, there’s more!

• After several more government grants and a number of angel infusions, the company finally raised a $21mm Series A round in June 2017 — which included money from vaunted Silicon Valley venture capital firm, Sequoia Capital (as well as Shasta Ventures and Lightspeed).

• By August of 2017, the hype machine was in full effect. Here is a CNBC piece championing the company’s first completed “mission.” Around the same time, Techcrunch, The Los Angeles Times and Ars Technica all wrote about the promise of small rockets. Size doesn’t matter, they said!!

• By October 2018, the company was back fundraising; it secured a $70mm Series B raise from Kodem Growth Partners, Morgan Stanley Alternative Investment Partners and participation from its existing trio of VC firms. Now nothing and nobody could get in these guys’ way!!!!!

Well, except Sequoia Capital.

Per the company’s CHAPTER 11 BANKRUPTCY PAPERS(!!!!):

“In early August 2019, a member of Vector’s board of directors…appointed by Sequoia…abruptly resigned and informed Vector that Sequoia had decided to no longer support Vector via funding for future operations. Almost immediately after the…resignation, the Debtors’ CEO resigned. The fallout from Sequoia’s decision and the CEO’s resignation spooked the investor community and doomed the Debtors’ efforts to raise additional capital.”

There’s more:

These events could not have been timed more poorly for the Debtors. In addition to preventing the Debtors from attracting new capital, they occurred when the debtors had almost expended all of the capital from their prior capital raises. Indeed, the Debtors’ cash balances barely exceeded their secured debt, which principal amount totaled $11.5 million.

HOLD ON. So, the company lit $70mm of new funding on fire in less than a year and didn’t have enough money to clear its secured debt. And SECURED DEBT? Where was the press release for that?!?!

After evaluating its options, the Board determined that if it did not immediately cease operations, the Debtors would be unable to pay their employees if their secured lenders declared a default and froze the Debtors’ cash (which is precisely what occurred). With no access to capital to fund ongoing business needs and to satisfy the Debtors’ outstanding secured debt, the Board voted to cease operations and to terminate most of the Debtors’ employees and pay all owed wages…

This ain’t exactly WeWork but still. Life comes at you fast: one moment you’re a media darling garnering all kinds of favorable coverage, raising millions upon million of dollars with investors “knocking down the door” and, the next, your pesky venture capitalists are pulling the plug and high-tailing for the exits!

Less than two weeks later, the Debtors’ secured lenders froze the approximately $12 million in cash deposited in the Debtors’ bank accounts as expected. The Debtors’ secured lenders subsequently swept the cash from Debtors’ bank accounts, leaving the Debtors with no cash, a single employee (the acting CEO), and, after assessing fees and other charges, approximately $500k in secured debt. The Debtors’ remaining assets essentially consisted of three leased facilities, transporter-erector launcher, launch vehicle parts (including rocket engines and ground support equipment), satellite computer technology, patents, and other intellectual property.

So much to unpack here.

First, what the hell is a “transporter-erector launcher” and where does Johnny get one?

Second, at what point did this thing sh*t the bed so badly that it needed to tap a credit facility? That it had to (maybe?) jettison its founder-CEO?? Tap bridge financing???

It turns out that TriplePoint Capital LLC committed to lend the company $15mm back in October 2018 alongside the company’s Series B raise (PETITION Note: this is not in and of itself crazy…many startups take on venture debt in conjunction with a fundraise generally as a safety net; usually they hope NOT to use it because they’ll just go on to their next equity raise). The loan was secured by basically all of the company’s collateral and was structured as two draws in equal $7.5mm installments. With the sweep, TriplePoint ensured that its claim would be minimized: at the time of filing, they are owed $500k.

To bridge to a filing, the company secured a $500k bridge loan from Lockheed Martin Corporation — now the proposed stalking horse purchaser. The company also issued $1.6mm in convertible notes in connection with what it thought would be a Series C raise prior to Sequoia backing out. Whoops.

The big question, then, is why did Sequoia so abruptly quit the board and split?* Why, then, did the CEO, James Cantrell, quit the next day? It sounds like there’s a lot more here to uncover:

Mr. Cantrell subsequently filed a lawsuit against Vector claiming that he was terminated. The Debtors dispute Mr. Cantrell’s claims regarding his departure. Moreover, the Debtors believe they hold claims against Mr. Cantrell that they intend to pursue for the benefit of the Debtors’ creditors.

Some shady-a$$ sh*t must’ve been discovered around August 5. Just as fervently as investors were, at one point, trying to invest in this company, parties in interest were now eager to save themselves. Silicon Valley Bank (over $4mm owed) and TriplePoint issued notices of default and swept the Debtors’ cash (PETITION Note: that’s why they say that possession is half the battle!).

Lockheed is the White Knight here salvaging what’s left of this hot mess. It provided the bridge loan; it will provide a $2.5mm DIP (yay bankruptcy pros getting paid!); and it will purchase the debtors’ GalacticSky assets for $4.25mm. The offer is cash and equity.

Interestingly, despite all of this, optimism abounds here. The debtors note that they hope to pursue the Lockheed sale followed by other sales of assets:

If consummated, the Debtors believe that the proceeds from Sales will provide for payment in full of the Debtors’ secured obligations, administrative expense claims, and priority claims. In addition, the debtors believe there will be sufficient funds for (i) a liquidation trust to pursue the Debtors’ claims against certain parties, including its former CEO and (ii) distributions to general unsecured creditors.

That claim against the former CEO ought to be interesting. Stay tuned.😬

*Axios’ Dan Primack wrote:

Per a source: Sequoia decided to stop investing due to a high burn rate and the company not meeting projections. That decision was followed by two lenders opting against giving Vector new debt lines — something Sequoia didn't instruct, but which Vector nonetheless blames on the VC firm.

Case Data:

• Jurisdiction: (Judge Dorsey)

• Capital Structure: $500k (TriplePoint Capital LLC), $500k (Lockheed Martin)

• Professionals:

  • Legal: Pillsbury Winthrop Shaw Pittman LLP (Hugh Ray III, Jason Sharp, William Hotze) & Sullivan Hazeltine Allinson LLC (Elihu Allinson Ill)

  • Financial Advisor: Winter Harbor LLC (Shaun Martin)

  • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on the link above for free docket access)

• Other Parties in Interest:

  • Prepetition Lender ($500k): TriplePoint Capital LLC

    • Legal: McDermott Will & Emery LLP (Darren Azman, Daniel Thomson) & Bayard PA (Justin Alberto)

  • Prepetition Lender ($500k) & Stalking Horse Purchaser ($2.5mm): Lockheed Martin Corporation

    • Legal: Hogan Lovells LLP (Christopher Donoho, John Beck, Jennifer Lee & Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Andrew Remming, Paige Topper)

  • Large Equityholders: Kodem Growth Partners, Sequoia Capital, Shasta Ventures V LP, Lightspeed Venture Partners XI LP, DNX Ventures

  • Official Committee of Unsecured Creditors: Valcor Engineering Corporation; (ii) Rincon Etal Investments, Inc.; (iii) Expanding TFO I, LP; (iv) M4 Engineering Inc., and (v) Gas Innovations

    • Brown Rudnick LLP (Bennett Silverberg, Kenneth Aulet) & Potter Anderson & Corroon (Christopher Samis, L. Katherine Good, D. Ryan Slaugh)

    • Financial Advisor: Dundon Advisors LLC (Matthew Dundon, Philip Preis)

💊New Chapter 11 Bankruptcy Filing - Sienna Pharmaceuticals Inc. ($SNNA)💊

Sienna Pharmaceuticals Inc.

September 16, 2019

If you’re tired of distressed retail and oil & gas companies, the good news is that the biopharma space has been mixing things up. Sienna Pharmaceuticals ($SNNA), a California-based clinical-stage biopharma and medical device company filed for bankruptcy in the District of Delaware. It develops multiple products aimed at chronic inflammatory skin diseases (e.g., psoriasis) and aesthetic conditions (e.g., unwanted hair and acne). The company is at the stage that those in the tech world would designate “pre-revenue.”

And that is precisely the problem. Much like distressed oil and gas companies, distressed biopharma companies are capital intensive (a $184.1mm accumulated deficit) and tend to succumb to the weight of their long-duration development cycle. In this case, the company “has relied on equity issuances, debt offerings, and term loans” to fund development and operations. It has also leveraged its equity as a currency, engaging in strategic acquisitions that enhance its product portfolio; it, for instance, entered into a share purchase agreement in late ‘16 with Creabilis plc. This added one more product that, at this juncture, the company cannot advance due to liquidity issues. Womp womp.

The company has, over the course of time, been indebted to its pre-petition secured lender, Silicon Valley Bank, in the range of $10-30mm. On September 15th, for instance, the company owed SVB over $30mm. In exchange, however, for the use consensual use of cash collateral, the company made a $21.3mm payment to SVB on September 16th, the day before the bankruptcy filing. That’s what you call leverage, folks. SVB’s loan is secured by a laundry list of debtor assets though it is technically not secured by the company’s extensive trove of intellectual property (~250 patents). That IP, however, is subject to what’s called a “negative pledge,” a provision that prevents the company from pledging the IP on account of the fact that SVB’s security interest includes “rights to payment and proceeds from the sale, licensing, or disposition of all or any part of the Intellectual Property.” It’s a wee bit hard to enforce a security interest in IP if someone else has a right to the payments streams emanating therefrom (not that this company has any revenue streams, but you get the idea).

Why bankruptcy? For starters, the company is subject to a “minimum cash covenant” under its SVB facility and liquidity dipped below the minimum. Due to the company’s declining stock price, the company lost access to the equity market. Finally, the company has lingering financial commitments from the Creabilis deal. For all of these reasons, the company simply doesn’t have the liquidity needed to fund the next stages of product development which, in turn, would get the company closer to revenue generation. Chicken. Meet egg.

As is the overwhelming norm these days, the company now seeks to use the bankruptcy process to pursue a sale. As of the filing, no stalking horse purchaser is teed up but the company is “confident” that its banker, Cowen & Co. ($COWN), will locate one that will enable the company to emerge from bankruptcy as a going concern. No pressure, Cowen.

• Jurisdiction: D. of Delaware (Judge TBD)

• Capital Structure: $10mm secured debt (SVB)

• Professionals:

  • Legal: Latham & Watkins LLP (Peter Gilhuly, Ted Dillman, Shawn Hansen) & Young Conaway Stargatt & Taylor LLP (Michael Nestor, Kara Hammond Coyle)

  • Financial Advisor: Force 10 Partners (Jeremy Rosenthal)

  • Investment Banker: Cowen and Company LLC (Lorie Beers)

  • Claims Agent: Epiq Corporate Restructuring LLC (*click on the link above for free docket access)

• Other Parties in Interest:

  • Prepetition Lender: Silicon Valley Bank

    • Legal: Sheppard Mullin Richter & Hampton LLP (Ori Katz, Michael Driscoll) and Benesch Friedlander Coplan & Aronoff LLP (Jennifer Hoover, Kevin Capuzzi)

  • Major shareholders: ARCH Venture Partners VIII LLC, Partner Fund Management LP, FMR LLC (aka Fidelity)

  • Official Committee of Unsecured Creditors (Therapeutics Inc., Johnson Matthey Inc., MedPharm Ltd.)

    • Legal: Foley & Lardner LLP (Richard Bernard, Alissa Nann) & Potter Anderson & Corroon LLP (Christopher Samis, L. Katherine Good, D. Ryan Slaugh)

    • Financial Advisor: Emerald Capital Advisors (John Madden)

Update: 10/25/19 #140

💩New Chapter 11 Filing - uBiome Inc.💩

uBiome Inc.

September 4, 2019

Back in our July 4th weekend edition, we wrote the following:

#BustedTech. One year you’re on the Forbes’ 2018 Next Billion-Dollar Startups list and the next year you’re getting raided by the FBI. This is the story of uBiome, a SF-based microbiome startup. Per Forbes:

The new interim CEO of troubled microbiome startup uBiome, Curtis Solsvig, is a longtime turnaround and restructuring expert at financial advisory firm Goldin Associates and the former chief restructuring officer of failed drone startup Lily Robotics.

One man’s billion-dollar valuation is another man’s clean-up job. 

And, now, another man’s bankruptcy.

Annnd another man’s sacrifice:

The Debtor filed this Chapter 11 Case to provide an innovative business with a fresh start under new management, and to preserve approximately 100 jobs through a court-supervised sale process that is intended to maximize the value of the Debtor’s assets for the benefit of all stakeholders.

…certain business practices formulated and implemented by the Debtor’s original founders have resulted in cessation of certain aspects of the Debtor’s business, investigations by certain federal and state investigatory bodies (the “Investigations”), loss of revenue and significant potential contingent liabilities.

Godspeed founders. You just got napalmed. AGAIN.

And as they should. The debtor has been in triage for some time now.

The company empowers consumers to access analysis of their DNA/microbiomes via the use of at-home kits. Said another way, people poop in an $89.99 “explorer kit” and the company analyzes the sample through (a) a proprietary gene sequencing process and (b) a cloud-based database of microbiomes to determine what’s what in the customer’s GI system — a much less invasive discovery methodology than the gut-wrenching (pun intended) colonoscopy. The consumer receives results that provide suggestions for diet, weight control, gut inflammation, sleep disorders and non-dietary supplements. Frankly, this all sounds rather bada$$.

The company also had a clinical business. Doctors could prescribe the tests and bill the customers’ insurance. Similarly, the company launched a clinical product geared towards the analysis of vaginal swabs (i.e., STDs, HPV, gyno disorders). Together these clinical products were called “SmartX.”

Suffice it to say, this idea was big. The company’s founders leveraged the open-source results from the Human Microbiome Project (launched by the National Institutes of Health) and built something that could really make a lot of people’s lives easier. The venture capitalists saw the opportunity, and the tech media celebrated the company’s rapid capital raises and increasing valuation: $1.5mm seed in ‘14, $4.5mm in August ‘14 (led by a16z), $15.5mm Series B in October ‘16, and $83mm Series C in September ‘18. (PETITION Note: the company now says it raised $17mm in ‘16 and $59mm in ‘18, exclusive of $36.4mm of mostly-now-converted convertible notes, which means that the media appears to have been fed, or reported, wrong numbers).* Valuation? Approx $600mm.

Armed with gobs of money, the company established some valuable IP (including over 45 patents and your poop data, no joke) and commercial assets (its certified labs). On the other side of the ledger, there is $5.83mm of outstanding secured debt and $3.5mm of unsecured debt, ex-contingent liabilities including…wait for it…”[p]otential fines for civil and criminal penalties resulting from the Investigation….” Ruh roh.

The Founders implemented certain business strategies with respect to the SmartX products that were highly problematic, contained significant operational (but not scientific) flaws and, in some instances, were of questionable legality. These issues included improper insurance provider billing practices, improper use of a telemedicine physician network (known as the External Clinical Care Network), overly aggressive and potentially misleading marketing tactics, manipulation of customer upgrade testing, and improper use of customer inducements. Moreover, certain information presented to potential investors during the three rounds of capital raise my have been incorrect and/or misleading. Although uBiome believes the science and technology behind uBiome’s business model in this developing area is sound, these issues – among others – have resulted in significant legal exposure for the Debtor.

Score one for VC due diligence! The USA for the ND of California, the FBI, the DOJ and the SEC are all up in the company poop now. This investigation, much like the opioid crisis, also calls into question the ethical practices of doctors. Because we really ought not trust anybody these days.

Anyway, the company has since taken measures to right the ship. The board suspended and then sh*tcanned the founders and recruited new independents. They’ve verified that the company suffered from bad business practices rather than bad science or lab practices (Elizabeth Holmes, holla at us!!). And they’ve hired bankers to market the company’s assets (no stalking horse bidder at filing, though). The company received a commitment from early investor 8VC for a $13.83mm DIP of which $8mm in new money; it will take slightly more than 60 days to see if a buyer emerges. One selling point according to the company: it plans for its Explorer Kits to be in CVS Health Corp. ($CVS)! That’d be great if CVS planned for that too. Womp womp.

Anyway, the way bankruptcy is going these days chapter 11 probably ought to be renamed chapter 363.

*There are many reasons why d-bag startup founders hype their own raises. First, it promotes an aura of success which can help acquire new customers. Second, they love the adulation (see Elizabeth Holmes). Third, it helps with recruiting. And, fourth, the VCs must like it and use it for subsequent fundraising (given that they never correct the record).

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: $5.83mm credit facility (Silicon Valley Bank)

• Professionals:

  • Legal: Young Conaway Stargatt & Taylor LLP (Michael Nestor, Joseph Barry, Andrew Magaziner, Joseph Mulvihill, Jordan Sazant)

  • Board of Directors: Kimberly Scotti, L. Spencer Wells, D.J. (Jan) Baker

  • Financial Advisor/CRO: Goldin Associates LLC (Curtis

  • Investment Banker: GLC Advisors & Co LLC

  • Claims Agent: Donlin Recano & Co. Inc. (*click on the link above for free docket access)

• Other Parties in Interest:

  • DIP Agent: Silicon Valley Bank

    • Legal: Morrison & Foerster LLP (Alexander Rheaume, Todd Goren, Benjamin Butterfield) & Ashby & Geddes PA (Gregory Taylor, Katharina Earle)

  • DIP Participants: 8VC Fund I LP, 8VC Entrepreneurs Fund I LP

    • Legal: Gibson Dunn & Crutcher LLP (Matthew Williams, Eric Wise, Jason Zachary Goldstein) & Cole Schotz PC (Norman Pernick, Patrick Reilley)

New Chapter 11 Bankruptcy Filing - Achaogen Inc.

Achaogen Inc.

April 15, 2019

Biopharma is where it’s at!!

San Francisco-based Achaogen Inc. ($AKAO) is the latest in a slate of biopharma debtors who have found their way into bankruptcy court — here, the District of Delaware. Achaogen is focused on “the development and commercialization of innovative antibiotic treatments against multi-drug resistant gram-negative infections.” To date, its operations have been centered around the discovery, development and commercialization of products, making it as far as clinical trials in certain instances. As if inspired by the fact that its filing came on the heels of the much-anticipated Game of Thrones (final) Season 8 premiere, the company colorfully notes its primary purpose:

Achaogen designed its lead product, ZEMDRI® (plazomicin), to fight what the Center for Disease Control (“CDC”) calls a “nightmare bacteria” and has listed as the highest category threat of “urgent.” ZEMDRI can be used to treat patients who have limited or no alternative treatment options from infections with these nightmare bacteria. Even with its current financial situation, Achaogen continues to commercialize ZEMDRI, in part because Achaogen believes that ZEMDRI can save lives for patients who may literally have no alternative.

Nightmare bacteria!! Sheesh that’s chilling.

Even more chilling is the company’s discussion of gram-negative bacteria — found “everywhere, in virtually all environments on Earth that support life.” These bacteria are becoming increasingly resistant to common antibiotics. Achaogen calls this “a global crisis…we take for granted.” The company’s core (patented) product, ZEMDRI, is designed to “retain its effectiveness in killing these more resistant bacteria.” While ZEMDRI received FDA approval for IV-treatment of patients with complicated urinary tract infections in July 2018, the FDA rejected ZEMDRI for treatment of patients with bloodstream infections, citing a lack of substantial evidence of effectiveness.

What does the company have going for it? Again, as of July 2018, it has a commercially viable product in the United States. It also has global commercialization rights. And patent protect in the US through approximately 2031 or 2032. It sells to either specialty distributors or physician-owned infusion centers. It has agreements with Hovione Limited and Pfizer for the manufacturing of its product. Finally, it has another product in development, C-Scape, which is an oral antibiotic for treatment of patients suffering from urinary tract infections caused by a particular bacteria.

So, what’s the issue? As PETITION readers have come to learn, the development and manufacture of biopharma products is a time and capital intensive process. Indeed, the company has an accumulated deficit of $559.4mm as of December 31, 2018. This bit is especially puzzling given the company’s position that the world confronts a “global crisis”:

In the past year, there has been a dramatic downturn in the availability of financing from both the debt and equity markets for companies in the anti-infective field, based in part on the withdrawal from the space by certain large pharmaceutical companies. For example, Novartis recently announced that it is shutting down its antibacterial and antiviral research, which was followed by similar moves from Eli Lilly, Bristol-Myers Squibb and AstraZeneca.3 Allergan has also recently announced its intention to divest its anti-infective business, consisting of three commercialized products. This “big pharma flight” from antiinfective research, development and commercialization has created significant challenges for early-stage biotech companies seeking to develop and commercialize novel and much needed drugs in this sector, as opportunities for partnerships, joint R&D relationships, and merger/acquisition transactions have diminished. This sector-wide trend has negatively affected not just Achaogen but many of its competitors. Achaogen, however, has been especially impacted because it has reached the point in its life cycle where it needs substantial capital infusion to drive commercialization of its recently FDA approved drug, ZEMDRI.

Look: we don’t take everything debtors say as gospel. After all, first day pleadings are an opportunity to frame the story and set the tone of a case. But if the company is right about what it’s saying and nobody appears to give two sh*ts, well, color us a wee bit concerned. Why isn’t anybody talking about this?

Anyway, in February 2018, the company entered into a loan and security agreement with Silicon Valley Bank for $50mm. The original agreement provided SVB with a security interest in virtually all of the company’s assets — including proceeds of intellectual property — but not a security interest in the IP itself. $15mm remains outstanding under the loan. In November 2018, the company retained Evercore Group LLP to run a strategic sale process but no viable purchaser emerged. It’s not worth saving the world unless you can make some dinero, we suppose.

After engaging in various liquidity maximization efforts (including job cuts), fundraising initiatives (including an insufficient equity raise), and licensing discussions with entities abroad, the company ultimately decided that nothing would generate enough liquidity for the company to avoid chapter 11. The company notes, “although Achaogen’s out-of-court sale process did not yield any acceptable bids, many parties had expressed interest in bidding at any potential 363 auction sale, where it could pursue the Assets free and clear of existing liabilities.” The company, therefore, filed for chapter 11 to pursue a new sale process; it has no stalking horse bidder teed up. To market its assets, the company has replaced Evercore with Cassel Salpeter & Co. LLC.

In support of the bankruptcy case, SVB committed to provide the company with a $25mm DIP credit facility of which $10mm is new money and $15mm is a roll-up of the aforementioned pre-petition debt. In exchange, SVB now gets a security interest in the company’s IP.

The company’s unsecured debt is comprised of lease obligations, minimum purchase requirements under its manufacturing contract, a success fee tied to the company’s FDA approval, and $18.7mm of trade debt. New Enterprise Associates Inc., a reputed Silicon Valley venture capital firm, is the company’s largest equity holder with approximately 10.76% of the company’s shares. Prior to its 2014 IPO, the company had raised $152.1mm starting with its Series A round in August 2004: it IPO’d at a valuation of $200.4mm, having issued 6.9mm shares at $12/share to the public. It’s equity is likely worth f*ck all. Well, not exactly: we suppose this isn’t ENTIRELY “f*ck all”:

But it’s pretty darn close. Now the issue is what price the IP will fetch in a bankruptcy sale process. It will have to be tens of millions of dollars for NEA to have any sort of recovery.

• Jurisdiction: D. of Delaware (Judge Shannon)

• Capital Structure: $15mm secured debt (Silicon Valley Bank)

• Professionals:

  • Legal: Hogan Lovells US LLP (Erin Brady, Richard Wynne, Christopher Bryant, John Beck) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Andrew Remming, Matthew Talmo, Paige Topper)

  • Financial Advisor: Meru LLC

  • Investment Banker: Cassel Salpeter & Co., LLC

  • Claims Agent: KCC (*click on the link above for free docket access)

• Other Professionals:

  • Prepetition & DIP Lender ($25mm): Silicon Valley Bank

    • Legal: Morrison & Foerster LLP ( Alexander Rheaume, Todd Goren, Benjamin Butterfield, David Ephraim) & (local) Ashby & Geddes PA (Gregory Taylor, Stacy Newman)

  • Official Committee of Unsecured Creditors (Hovione Limited, EsteveQuimica SA, Solar Capital Ltd.,. Crystal BioScience, World Courier)
    
    

New Chapter 11 Filing - Tintri Inc.

Tintri Inc.

7/10/18

On June 23 in "#BustedTech (Short Busted IPOs…cough…DOMO), we wrote the following: 

Tintri Inc., a publicly-traded ($TNTR) Delaware-incorporated and Mountain View California based provider of enterprise cloud and all-flash and hybrid storage systems appears to be on the brink of bankruptcy. There's no way any strategic buyer agrees to buy this thing without a 363 comfort order. 

In an SEC filing filed on Friday, the company noted:

"The company is currently in breach of certain covenants under its credit facilities and likely does not have sufficient liquidity to continue its operations beyond June 30, 2018."

Furthermore, 

"Based on the company’s current cash projections, and regardless of whether its lenders were to choose to accelerate the repayment of the company’s indebtedness under its credit facilities, the company likely does not have sufficient liquidity to continue its operations beyond June 30, 2018. The company continues to evaluate its strategic options, including a sale of the company. Even if the company is able to secure a strategic transaction, there is a significant possibility that the company may file for bankruptcy protection, which could result in a complete loss of shareholders’ investment."

And yesterday the company's CEO resigned from the company. All of this an ignominious end for a company that IPO'd almost exactly a year ago. Check out this chart:

Source: Yahoo! Finance

Nothing like a $7 launch, a slight post-IPO uptick, and then a crash and burn. This should be a warning sign for anyone taking a look at Domo — another company that looks like it is exploring an IPO for liquidity to stay afloat. But we digress. 

The company's capital structure consists of a $15.4mm '19 revolving credit facility with Silicon Valley Bank, a $50mm '19 facility with TriplePoint Capital LLC, and $25mm of 8% convertible notes. Revenues increased YOY from $86mm in fiscal 2016 to $125.1mm in fiscal 2017 to $125.9mm in fiscal 2018. The net loss, however, also moved up and right: from $101mm to $105.8mm to $157.7mm. The company clearly has a liquidity ("net cash") covenant issue (remember those?). Accordingly, the company fired 20% of its global workforce (~90 people) in March (a follow-on to a 10% reduction in Q3 '17). The venture capital firms that funded the company — Lightspeed Venture Partners among them — appear to be long gone. Silver Lake Group LLC and NEA Management Company LLC, unfortunately, are not; they still own a good amount of the company.

"Isn't cloud storage supposed to be all the rage," you ask? Yeah, sure, but these guys seem to generate product revenue largely from sales of all-flash and hybrid storage systems (and stand-alone software licenses). They're mainly in the "intensely competitive IT infrastructure market," sparring with the likes of Dell EMC, IBM and VMware. So, yeah, good luck with that.

*****

Alas, the company has filed for bankruptcy. This bit about the company's financial position offers up an explanation why -- in turn serving as a cautionary tale for investors in IPOs of companies that have massive burn rates:

"The company's revenue increased from $86 million in fisca1 2016 to $125.1 million in fiscal 2017, and to $125.9 million in fiscal 2018, representing year-over-year growth of 45% and 1 %, respectively. The company's net loss was $101.0 million, $105.8 million, and $157.7 million in fiscal 2016, 2017, and 2018, respectively. Total assets decreased from $158.1 million as of the end of fiscal 2016 to $104.9 million as of the end of fiscal 2017, and to $76.2 million as of the end of fiscal 2018, representing year-over-year change of 34% and 27%, respectively. The company attributed flat revenue growth in fiscal 2018 in part due to delayed and reduced purchases of products as a result of customer concerns about Tintri's financial condition, as well as a shift in its product mix toward lower-priced products, offset somewhat by increased support and maintenance revenue from its growing installed customer base. Ultimately, the company's sales levels have not experienced a level of growth sufficient to address its cash burn rate and sustain its business."

With trends like those, it's no surprise that the IPO generated less capital than the company expected. More from the company:

"Tintri's orders for new products declined, it lost a few key customers and, consequently, its declining revenues led to the company's difficulties in meeting day-to-day expenses, as well as long-term debt obligations. A few months after its IPO, in December 2017, Tintri announced that it was in the process of considering strategic options and had retained investment bank advisors to assist it in this process."

As we previously noted, "[t]here's no way any strategic buyer agrees to buy this thing without a 363 comfort order." And that is precisely the path that the company seeks to take. In its filing, the company indicated that it plans to file a motion seeking approval of the sale of its assets and bid procedures shortly. The filing is meant to provide the company with a chance to continue its efforts to sell the company as a going concern. Alternatively, it will look to sell its IP and liquidate. Triplepoint has agreed to provide a $5.4mm DIP credit facility to fund the process.  Savage.  

Meanwhile, today's chart (at time of publication):

View fullsize

Source: Yahoo! Finance

• Jurisdiction: D. of Delaware (Judge Carey)
• Capital Structure: $4.7mm RCF (Silicon Valley Bank), $56mm term loan (TriplePoint Capital LLC), $25mm '19 convertible notes.     
• Company Professionals:
  • Legal: Pachulski Stang Ziehl & Jones LLP (Henry Kevane, John Fiero, John Lucas, Colin Robinson)
  • Financial Advisor: Berkeley Research Group LLC (Robert Duffy)
  • Claims Agent: KCC (*click on company name above for free docket access)
• Other Parties in Interest:
  • First Lien Lender: Silicon Valley Bank
    • Legal: Riemer & Brownstein LLP (Donald Rothman, Paul Samson, Alexander Rheaume, Steven Fox) & (local) Ashby & Geddes PA (Gregory Taylor)
  • Second Lien Lender: TriplePoint Capital LLC
    • Legal: McDermott Will & Emery LLP (TImothy Walsh, Riley Orloff, Gary Rosenbaum) & (local) Polsinelli PC (Christopher Ward, Jeremy Johnson, Stephen Astringer)
  • Proposed Purchaser: DataDirect Networks Inc.
    • Legal: Manatt Phelps & Phillips LLP (Blase Dillingham, Alan Noskow) & (local) Richards Layton & Finger PA (John Knight)

Updated 7/12/18 at 2:09 CT

New Chapter 11 Filing - TerraVia Holdings Inc.

TerraVia Holdings Inc.

• 8/1/17 Recap: TerraVia, a publicly-traded (Nasdaq: $TVIA) "next-generation" algae-based food company based out of San Francisco filed for bankruptcy. The company has a stalking horse bidder lined up to buy it for $20mm plus certain assumed liabilities and seeks to jam this case through bankruptcy in about 6 weeks lest it run out liquidity in the process (even with a proposed $10mm DIP); it claims that more time is unnecessary given that it ran a robust marketing process pre-filing that included outreach to over 100 parties. We'll let the company economics do the rest of the talking (see below).
• Jurisdiction: (Judge Sontchi)
• Capital Structure: $144.2mm 5% '19 convertible senior subordinated notes (GLAS Trust Company LLC) & $33.475mm 6% '18 convertible senior subordinated notes (Wilmington Trust)   
• Company Professionals:
  • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Steven Szanzer, Adam Shpeen, Benjamin Kaminetzky) & (local) Richards Layton & Finger P.A. (Mark Collins, Amanda Steele)
  • Financial Advisor: 
  • Investment Banker: Rothschild & Co. (Tero Janne)
  • Claims Agent: KCC (*click on company name above for free docket access)
• Other Parties in Interest:
  • DIP Agent: Wilmington Savings Fund Society FSB & Ad Hoc Consortium of Holders of Convertible Senior Subordinated Debt (Gilead Capital LP, Higher Ground SICAV PLC Core Wealth Fund, Lazard Asset Management LLC, Passport Capital LLC, Wolverine Asset Management LLC, Zazove Associates LLC)
    • Legal: Brown Rudnick LLP (Robert Stark, Steven Levine, Brian Rice, Kellie Fisher) & (local) Ashby & Geddes P.A. (William Bowden, Gregory Taylor, Katharina Earle)
    • Financial Advisor: GLC Advisors & Co. LLC
  • Passport Capital
    • Legal: Shearman & Sterling LLP (Joel Moss) & (local) Drinker Biddle & Reath LLP (Patrick Jackson)
  • 6% Notes Successor Trustee: Wilmington Trust NA
    • Legal: Katten Muchin Rosenman LLP (Craig Barbarosh, Karen Dine, Jerry Hall) & (local) Morris James LLP (Eric Monzo)
  • JV Partner: Bunge Global Innovation LLC
    • Legal: Jones Day (Joshua Morse)
  • Silicon Valley Bank
    • Legal: Troutman Sanders LLP (Harris Winsberg, Stephen Roach) & (local) Chipman Brown Cicero & Cole LLP (William Chipman Jr., Mark Olivere)
  • Corbion NV
    • Legal: Baker & McKenzie LLP (Debra Dandeneau, Frank Grese) & (local) Whiteford Taylor & Preston LLC (L. Katherine Good, Aaron Stulman)

Updated 8/26/17

First Day Declaration.

New Chapter 11 Filing - Answers Holdings Inc.

Answers Holdings Inc.

•  3/3/17 Recap: Apax Partners' backed website operator has filed for bankruptcy because it never evolved from Internet 1.0, has too much debt, its main site, Answers.com, is the red-headed step-child of Quora, and, quite frankly, not a single person receiving the PETITION newsletter has visited the site(s) since 2006. Yahoo, Facebook, Amazon (AWS), Amex and Silicon Valley Bank are among the top 10 creditors. The debtors solicited a prepackaged plan and so all of the above will be unimpaired - somewhat ironic given that algorithmic changes by Google and Facebook - in addition to a mountain of debt - are the real root causes of the company's decline.
• Jurisdiction: SD of New York
• Capital Structure: $40mm revolver, $325mm '21 first lien TL, $180mm '22 second lien TL.   
• Company Professionals:
  • Legal: Kirkland & Ellis LLP (James Sprayragen, Jonathan Henes, Christopher Greco, Melissa Koss, John Weber, Anthony Grossi)
  • Financial Advisor: Alvarez & Marsal LLC (Justin Schmaltz, Erin McKeighan)
  • Investment Banker: Rothschild (Steven Antinelli)
  • Claims Agent: Rust Bankruptcy/Omni Consulting (*click on company name for docket)
• Other Parties in Interest:
  • Ad Hoc Group of Consenting First Lien Lenders
    • Legal: Jones Day LLP (Scott Greenberg, Michael Cohen, Bryan Kotliar)
    • Financial Advisor: Houlihan Lokey
  • First Lien Agent: Credit Suisse AG
    • Legal: Gibson Dunn & Crutcher LLP (David Feldman, J. Eric Wise)
  • Ad Hoc Group of Consenting Second Lien Lenders (Deerpath Capital Management LP, North Haven Credit Partners LP, Summit Partners Credit Advisors LP)
    • Legal: Akin Gump Strauss Haur & Feld LLP (David Botter, David Simonds)
      • Financial Advisor: FTI Consulting Inc.
  • Second Lien Agent: Wilmington Trust NA
    • Legal: Alston & Bird LLP (Jason Solomon, David Wender)
  • Sponsor Entities: Apax Partners LP, Clarity Holdco LP, Clarity GP LLC
    • Legal: Simpson Thacher & Bartlett LLP (Elisha Graff, Edward Linden)
  • Proposed Board of Directors of the Reorganized Entity: William Ruckelshaus, Eric Ball, Peter Daffern, Eugene Davis, John Federman, Lonne Jaffe, Brian Mulligan.

Updated 4/2/17

New Chapter 11 Filing - Lily Robotics Inc.

Lily Robotics Inc.

• 2/27/17 Recap: High-flying (ugh) drone startup that put together kick-a$$ production videos and crowdfunded tens of millions of dollars ($34.8mm to be exact) from tens of thousands of generous suckers (61.450 to be exact) filed for bankruptcy to implement an IP sale, a liquidating plan and avoid investigation and litigation. They'll probably throw in extensive releases for Spark Capital for good measure because, well, why the hell not? And next thing you know, the "revolutionary" and "disruptive" founders will end up fundraising for their next hair-brained scheme and convince yield-starved investors to back them again a la Fab.com's Jason Goldberg. No bubble to see here. Just the dumpster fire that is $13.8mm of Spark Capital's equity capital. 
• Jurisdiction: D. of Delaware
• Capital Structure: ~$4mm TL (Spark Capital, VC, successor to SVB Financial Group)   
• Company Professionals:
  • Legal: Orrick Herrington & Sutcliffe LLP (Laura Metzger, Jennifer Asher, Douglas Mintz) & (local) Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Andrew Remming, Marcy McLaughlin)
  • Financial Advisor: Goldin & Associates (Curtis Solsvig III)
  • Independent Board Member: Drivetrain Advisors (Spencer Wells) 
  • Claims Agent: Prime Clerk LLC (*click on company name for docket)
• Other Parties in Interest:
  • Spark Capital (VC equity & successor term lender)
    • Legal: Nutter McClennen & Fish LLP (John Loughnane) & (local) Gellert Scali Busenkill & Brown LLC (Ronald Gellert)
• Silicon Valley Bank (DIP Lender)
  • Legal: Riemer & Braunstein LLP (Alexander Rheaume) & (local) Ashby & Geddes PA (Gregory Taylor)
• Official Committee of Unsecured Creditors
  • Legal: Lowenstein Sandler LLP (Kenneth Rosen, Bruce Buechler, Wojciech Jung, Philip Gross, Michael Papandrea) & (local) Richards Layton & Finger PA (Mark Collins, Amanda Steele, Brett Haywood)
  • Financial Advisor: The DAK Group Ltd. (Sheon Karol, Ari Fuchs, Alan Miller, Claudia Levine)

Update 5/31/17

New Chapter 11 Filing - AtopTech Inc.

AtopTech Inc.

• 1/13/17 Recap: Tech company in the midst of infringement lawsuit files for bankruptcy to, among other things, effectuate a 363 sale.
• Jurisdiction: D. of Delaware 
• Capital Structure: $472k secured debt (Silicon Valley Bank)    
• Company Professionals:
  • Legal: Dorsey & Whitney LLP (Eric Lopez Schnabel, Janet Weiss, Stephen O'Neill, Jessica McKinley, Alessandra Glorioso, Robert Mallard, Robert Franklin, Thomas Hwang)
  • Investment Banker: Cowan & Company (Randy Lederman, Thomas Stierwalt, Patrick Fraley, Charles Tudor, Vance Tuminelli)
  • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name for docket)
  • Other Parties in Interest:
    • Synopsys Inc.
      • Legal: Jones Day LLP (Krista Schwartz, Richard Wynne, Patrick Michael, Joshua Morse, Stacey Corr-Irvine, Peter Saba, Monika Weiner) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott)
    • Draper Athena Management Co., Ltd.
      • Legal: Shearman & Sterling LLP (Fredric Sosnick, Foteini Teloni)

Updated 4/2/17