Failed Investment in a Company? Here’s How Fund Managers Shut Down Failed Companies

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Hey, welcome to another episode of Making Billions, I'm your host, Ryan Miller, and today I have my dear friend Dori Yona. 

Dori is the founder of SimpleClosure, a company that provides value to private equity, venture capital and other founders who successfully wind down their failing companies so that they can move their energy and their capital to the next deal. 

So what does that mean? Well, it just means that Dori and his team at simple closure help hundreds of other companies and business owners and fund managers to shut down their companies faster and cheaper while realizing a peace of mind to move forward. 

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[THE GUEST]: Dori Yona is the founder of SimpleClosure.

[THE HOST]: Ryan is an Angel investor in technology and energy.

Transcript

Ryan Miller  

My name is Ryan Miller and for the past 15 years, I've helped hundreds of people to raise millions of dollars for their funds and for their startups. If you're serious about raising money, launching your business or taking your life to the next level, this show will give you the answers so that you too can enjoy your pursuit of Making Billions. Let's get into it. 

Ryan Miller  

My company's failing and I need to wind it down, that is never words that someone in private equity or venture capital ever likes to hear, but it does happen. Join me in my next guest as we talk about his company and how he helps founders and fund managers to wind down failing companies so that they can put their energy and capital into the next deal and ultimately have a peace of mind, all this and more coming right now. Here we go. 

Ryan Miller  

Hey, welcome to another episode of Making Billions, I'm your host, Ryan Miller, and today I have my dear friend Dori Yona. Dori is the founder of SimpleClosure, a company that provides value to private equity, venture capital and other founders who successfully wind down their failing companies so that they can move their energy and their capital to the next deal. So what does that mean? Well, it just means that Dori and his team at simple closure help hundreds of other companies and business owners and fund managers to shut down their companies faster and cheaper while realizing a peace of mind to move forward. So Dori, welcome to the show man.

Dori Yona  

Thanks for having me, Ryan, really excited to be here. Love what you're doing. 

Ryan Miller  

Yeah, it's great to have you, too man, so let's, let's jump right into it, man, so we all know we don't love it. It's really an interesting topic and, and I can't really find a lot of information on this, and, and so I was trying to figure out, like, how do you wind down a company? How does that work, asking for a friend of course, right, no one admits they we all talk about the the big winners, the 10x. 

Dori Yona  

No one ever shuts down, I don't know anyone that shuts down. 

Ryan Miller  

Yeah, no, it never happens at all, you never need it. But let's just say, a new, odd chance that a VC or a founder or private equity says, hey, this is a failing company in my portfolio, or one that I started, I thought it was gonna be great. Turns out I was the only one that thought that either way, they're in a tough spot, and it's not fun. It's it's hard on the business, it's hard on the employees, it's hard on the founders, it's just tough. And so given you can't find anything, I'm just curious. Like, how did you find this, how did you even get into this? 

Dori Yona  

Yeah, great question. I, that's probably one of the most common questions I get, and maybe I usually get in a more direct form of like, why would you start a company that comes company that helps companies shut down, that's usually the direct question I get. And the honest truth is, because I've been through it, and I've gone through that pain. I'm a bit of background about myself, I'm a third time founder. I've had the privilege of selling a company, I've had the privilege of shutting one down, and the process I went through to prepare a company for a shutdown was one of the most painful moments in probably my career, in my company. You know, you're stressed out of your mind, you're at the lowest points of your career. You know, no one wants to work with you or help you, not your investors they've kind of written off and moved on. Your lawyer doesn't want to help you, your accountant doesn't want to help you, and you're kind of left alone dealing with this shutdown. So that was what I went through, actually and it was really, really, really painful. And I said to myself, while going through this process, there has to be a better solution, like this can't be like, the only way to shut down a company. And I also said to myself, I actually remember  this I asked myself multiple times through that process, like, am I the first founder in America shutting down. Like, that's literally what it felt like, because, to your point, there's no resources or anything out there. And so when I, when I went through that process, and I kind of like, okay, I want to help other entrepreneurs and VCs and private equity firms that are dealing with the situation, I did two I did two things. I started speak, speaking to 10s, if not hundreds of other entrepreneurs and accountants and lawyers and VCs about their experience. And the second thing I did is I researched the market to see how big is the market, how often does a company actually shut down? And so on the market side, in terms of, like, how big it is, by the way, there's something that I love asking, but like, if you had to guess, how many companies do you think shut down every year in the US?

Ryan Miller  

Geez, I mean, I don't know, maybe 5-10,000?

Dori Yona  

Not, not even close, let's put it that way. The numbers in the US are have been, on average, between 700,000 to a million companies a year and that's.

Ryan Miller  

Wow. 

Dori Yona  

Yeah, and that's been pretty consistent for kind of the last 10 to 20 years, if you look at the data that the SBA, the Small Business Association in the United States, puts out, it turns out that every year in the US, there's, you know, between 700,000, a million companies that shut down. There's actually about 800,000 or so per year that incorporate. So you have almost an equal amount of companies in this life cycle of like, businesses being started and businesses shutting down. So you have about 800,000 incorporating, you have between 700,000 to a million are shutting down. If you look at the overall SMB market in the US, it's been pretty much flat, around 30 something million companies. It goes up a few basis points, down a few basis points, but for the most part, it's been pretty flat for the last 20 years. So I saw that trend. I'm like, holy shit. Like a million companies shut down every year, I thought I was alone, I thought it was I literally thought it was the first person going through this. And I'm like, there's another million other people that are going through this every year, like, this makes no sense. And then the other thing I did is I just started spending time with entrepreneurs and founders and VCs, and I started interviewing, like, what did you go through, like, tell me about it. Like, people that were either, you know, shut down in the past, or in the process shutting down or thinking about shutting down, I kind of said, like, hey, you know, what's been your experience? What have you gone through, tell me more about it and literally, every call I had was, like, more painful than the other hearing, the frustration, the depression, the pain that founders and entrepreneurs and investors were going through when it had, when it came down to shutting down their business, it just came it just became very, very evident that there's, like, this really big market, there's this really clear pain point, and if you combine the two, you can actually build a really big business. So that's that's kind of like, what let me down the path to where we are today. And you know why, you know why we shut down companies?

Ryan Miller  

Okay? So you guys deal with a lot of funds, right? Or a lot of companies, whether it's a fund or otherwise, are you guys able to help, say private equity, venture capital or, like, how does that work? Are you pure founder, or do you also work in the asset management or can you work in the asset management space as well? 

Dori Yona  

Yeah, so great question. We can help almost any company in the US that's a corporation or LLC shutdown. So we're not shutting down necessarily a venture, a VC, a venture firm, because they're typically set up as a partnership, or there's, you know, a limited partnership, or kinds of agreements like that. But if they're if their portfolio company either a VCs portfolio company or private equities portfolio company, which in almost every case is a corporation or an LLC, if they need to shut down then, then we're able to help their company shut down. Where VCs and private equities gain a lot of benefit from using, you know, like something like simple closure to probably shut down the company. It's not that they're, you know, they're shutting down their company, they're shutting down other portfolio companies. And in the process of shutting down a portfolio company, there are actually quite a few things that, as investors, you want to pay attention to. And so what a lot of people don't realize is there's actually a lot of liability on the company that falls on directors of the company. So if you know you're a VCR director and a business board member, or if you're the private equity and you have, you know, holdings in the company. There's certain things that, if they're not done properly, they actually pierce the corporate veil. And then the investor, the board, can be personally liable for those things. So that could be, for example, payroll and wages as an example. So that's where investors, you know, think a lot about, or that's what they think a lot about, that's where they should care. And then it also has to do with, you know, if, if a VC or private equity firm has a majority stake or invested in the company and the company's shutting down. So, you know, there are other things that they need to pay attention to. For example, assets, what do we do with assets, the IP? What happens to any proceeds that are left over in the company, any cash proceeds, how is that distributed? What is the waterfall, who has priority to that capital? And then all the way to the one of the final steps, which is like, okay, the company shut down, and I invested a million dollars, and I'm getting back $10,000 so I'm getting, you know, you know, a penny on the dollar. I need to, I want to be able to write off that loss for the fund or the firm, and so being able to collect those paper that that paperwork, or those tax write off documents. So that's another example of where we help VCs and private equities make sure they get everything they need to properly wind down the business.

Ryan Miller  

That's awesome and there's different flavors. So, you know, there's things that an asset sale, or a fancy term. Would call this an asset carve out, I guess it would be an entire carve out, but not carving out one asset, but asset sales versus selling the whole corporate entity with the assets in it. Do you help on both of those or how does that work? 

Dori Yona  

Yeah. So great question. So I think one of the things that a lot of especially entrepreneurs, don't realize the amount of calls that I've been on with the founder, they're like, oh, I sold my company, I don't need your help to show help to shut down. And then I'm like, well, how did you sell? And they're like, asset sale, I'm like, oh, you need to shut down the shell entity. And they're like, what do you mean, but I sold the company. And then, you know, it's a process of explaining, well, you sold parts of the company, the company itself still exists, and it's actually your responsibility to wind it down. So I guess, like, if I, if I were to put it in simpler terms, when you sell your company, or when a company gets sold, typically, at a high level, there's two types of acquisitions. One is a stock purchase, and one is an asset purchase. A stock purchases were like, I don't know, Google just acquired ways, we just read about in the news. Google acquired ways for $32 billion that typically that type of sale is typically done as an all stock deal. Google is buying out all the stockholders and all the shareholders and all the liabilities and all the assets and everything, they're buying an entire company. 

Dori Yona  

So that's one type of acquisition that's usually like, there, it's a full on stock sale acquisition, and then the other side of it, or the other. The type that's very popular is an asset sale, what's an asset sale? The buyer comes and says, listen, I don't want to buy your company and all their shareholders and all the all the liabilities and all the baggage you're carrying with you. I just want these two or three or four things. I want your team, I want your customers, and I want your your app, your code base, your app, right? They're coming and saying, I want to kind of cherry pick, what are the things I want to buy? By the way, in most cases, acquisitions that are lower dollar amount acquisition so most of like the tech acquisitions that are in single million dollars, sometimes even 10s of million dollars, most of those are actually asset sales. Usually only when you get to a certain price is it actually worth it to do a stock purchase and a lot of times, you know, there's tax consideration. But a lot of times, it's advantageous for the buyer, from a liability perspective, to do an asset sale, because, in a sense, they're only buying your valuable items, and they're not buying your problems. And so in those cases, when it's an asset sale, the buyers buying the assets they want, and the founders and the companies still exists, and there's still liability on that. And so that's where it's actually really important to realize that you are on the hook for the company in the shell entity, and you still need to wind that, that that entity down. And I would say that probably a third of the companies on our platform are companies that have done an asset sale, and they need to shut down the shell entity. So I would say about a third of the companies we deal with are companies post asset sale.

Ryan Miller  

Oh, okay. Now so you've dealt with a lot of companies, and you can, kind of, you come in right at the very end, and you kind of do a post mortem review. So based on your experience, what have you seen that leads companies to that place where they need to wind down? 

Dori Yona  

Yeah, so we just talked about the asset sale, which is like a bucket that leads people to wind down the shell entity. I would say that the other two scenarios that we typically see in like the venture and private equity market, are the scenarios where a company is completely out of cash. They try to raise more capital, they're running on fumes, they try to do a bridge round, they try to go to market, and they couldn't raise more capital, so they're shutting down. And the second one I'd say we see often is actually company with still a decent amount of capital in the bank. It could be hundreds of 1000s of dollars. It could be millions of dollars in the bank, but they've actually decided to proactively wind down the business and return capital back to investors, instead of trying to continue to run the business and kind of get to the last dollar in terms of capital. And then I think from what we've seen, that the reasons why companies, either, you know, get to that one of those scenarios, a lot of times it's founders, founder disputes that can be really toxic, and you know, create issues and misalignment on the founder level. I would say we've also seen examples where they just couldn't find product market fit. And they tried and they tried and they tried and they pivoted multiple times they can't find product market fit. I think what we've been seeing more recently are examples of companies that have raised at valuations that are very, very high, and they realize a year into that after raising that they will not be able to hit the targets or the goals or the revenue targets, to be able to raise additional capital at higher valuations. And in a sense, they're kind of stuck, and they just raise the valuations that were too high and so they kind of are proactively deciding to wind down and return whatever remaining capital to investors. And then also, a lot of times, I see also, companies that take venture debt. Venture debt is a great tool, but it is, it is non diluted from that perspective. But on the other hand, you have a bill which you need to pay every month to be able to return that debt and you know, if the financials are not in a good place, and you've not planned, you know, the right way, then it can, it can be detrimental to a company. And so venture debt is not always the best solution for every company.

Ryan Miller  

It can be the kiss of death can't it? 

Dori Yona  

Yes. 

Ryan Miller  

Yeah, yeah you gotta watch your fixed cost based on that. I know there's different kinds. There's different ways you can wind down a company. What have you seen? Say, there's a lot, but let's say the top three that you've seen, what are the three main types of wind downs that you see founders and investors do? 

Dori Yona  

Yeah, great question. Actually, I think it's one of those things that people don't know a ton about, it's like, oh, I'm like, a company that's just gonna shut down they're like, oh, I'm going through bankruptcy. And then you're like, no, this is not bankruptcy. Bankruptcy is a very different beast and very scary and so there are many different types of terms. You probably heard it, other people have heard it, like dissolution and wind down in bankruptcy in chapter seven and chapter 11 and chapter 9, and like all these different, types. If I were to try to explain it in the simplest terms possible, I would say, from what we see in the venture private equity space, there's three types of shutdowns, three main types of shutdowns. I'll start from the most extreme and go to the least extreme, probably the most extreme is a bankruptcy. Bankruptcy is a process that is overseen by the federal bankruptcy courts, so it's it's kind of government overseen. It is expensive, it is public, it is long, it's not a fun process to be in. From what we've seen and what we've researched, I think you could assume that about 1-2% of shutdowns per year are bankruptcies that go through a bankruptcy. So it's a very, very, very small portion of the market. And we think about bankruptcy think about like, the FTXs of the world, right? Think about the Bed Bath and Beyonds like, those are like, bankruptcies, by the way, I spoke to a bankruptcy attorney about this, and it's always stuck in my head. But I'm like, why go through bankruptcy and he's like, honestly, there's no good reason, the only people that make money in bankruptcies are lawyers. Like, there's no, you know, the company themselves never make money. But at a high level, the reason you go through a bankruptcy, just to kind of, you know, tie, tie the loose ends, is if you have significant amount of debt that is owed out to multiple people and multiple complexities, and there are assets that can be liquidated and distributed back to those debt holders. That's where typically a bankruptcy is relevant. But again, you know, if we're talking about a few 1000s or 10s of 1000s, or even single 100s of 1000s of dollars, it's not worth to go through the bankruptcy, no one will make money off of it. It's just going to cost legal fees and from my understanding, the bankruptcy courts can even dismiss cases because they're just too small, it's not worth their time and so that's a bankruptcy. 

Dori Yona  

And then if you take it maybe a step down, you have something called an ABC. So it stands for Assignment for the Benefit of Creditors and an ABC is a lighter version of a bankruptcy I would call it. It's not overseen by the federal courts or the federal bankruptcy courts, but it's costly you know, starting price of an ABC is like 100,000 plus dollars minimum, it goes up from there just in fees. You have to hand over the keys of your company to a third party, and they kind of come in and manage the shutdown process of the company. It typically takes, it doesn't take years, like a bankruptcy, but it probably takes a year or two to go through an ABC. So that's kind of like a step down. And I would probably say another two to 3% of companies per year that shut down, of the companies that shut down go through an ABC. So if you look at like bankruptcy, and ABC is probably like 5% of companies in total. 

Dori Yona  

And then you probably have the remainder going through something called a managed wind down, and that's just like your traditional shutdown, meaning we're going to handle this ourselves. We're going to wrap up everything, we're going to do it in house. We might use a lawyer, we might use an accountant, we will do a lot of the work ourselves, but we're going to kind of prepare the company for shutdown. There's no, you know, no one's taking over the company, we're just kind of doing an orderly wind down. And that process, if you do it yourself, it typically takes 9-12 months and can cost you 10s of 1000s of dollars in legal and accounting fees. And most likely, you'll end up doing it wrong and getting fine and fines and penalties months and years later. And so that's at least exactly what we're focused on in simple closure where we're able to do it faster, better, cheaper and but that's what we focus on managed wind downs, because the majority of companies, you know, a managed wind down is what they need, and that's the bulk of the market. 

Ryan Miller  

Brilliant. This has been absolutely phenomenal, and thank goodness. I know it's like nobody likes to talk about winding down their company or anything, but that's precisely why you need it to exist. And so winding down these companies and however you do it, a managed wind down, sounds a lot easier on your stomach, but you know, however you wind it down, whether you have a failing company or about to fail, it's needed, right? You don't know what you don't know, like you said, so what, maybe you have one or two competitive advantages, just, you've seen a lot, you've done a lot, you're three time founder. You helped a lot of founders, kind of, you know, get dust them off and get them back on their feet and try again. So based on all of your experience, brother, what, a piece of advice or competitive advantages can you give to founders or fund managers who may need to wind down some of their portcos, what would you say?

Dori Yona  

Yeah, great question. I have so much advice to give, and it's based on war stories I've heard from founders and firsthand and seen I think that the bottom line, I think you should be asking yourself as an investor, as a founder, is like, do I really want to spend the next year of my life shutting down a company, like, that's what it takes, if you do it by yourself. And so I think it starts off with, you know, is this the best use of your time? Like you're, you're a fucking entrepreneur, go build the next billion dollar company like you're a VC, like, go, you know, fund the next unicorn. Should you really be spending your time now on, on shutting down a company? But if you do go through it, and you do decide that, unfortunately, have to go through a shutdown and one of your portfolio companies needs to shut down. I think the two pieces of advice I give any operator or founder that's thinking about it or going through this process is, first of all, don't do it alone like that is my number one piece of advice. And I say that from war scars and wounds that I've seen founders have, and, and, like difficult conversations that I've heard and so shutting down is one of those things that hopefully you'll only do once in your life, you'll never need to do it again. And it's one of those things that you don't have an expertise in, and you don't know what you don't know. I think you said that, and that's exactly true like and by the time you learn what needs to be done and you do it.  You'll end up getting fines and penalties months or years later because you didn't do something properly. 

Dori Yona  

So the advice I always give people is like, you know, whether you want to use simple closure or not, go speak to a professional. Go have, get help from a professional, don't do this yourself, really. It gives you the peace of mind, it gets you moving forward, gets you on your next startup a lot sooner, and it's just something that you're not experienced in so that's the first thing, I think. The second piece of advice I always give people in this position is shutting down costs money and I'm not referring to like, our fee, or, you know, your lawyers fee. A lot of people think that they can continue to operate the business and say, like, yes, they're like, we're doing everything we can to sell it. We're doing everything we can to raise money, and we'll keep going until there is $0 in the bank account, and then we'll call it quits because we're done. What a lot of people don't realize is that actually costs money to shut down and I'm not talking about again, our fee. I'm talking about payroll taxes and wages and salaries and vendor obligations and dissolution filings and fees that are owed to the state. And so what we always do is we really recommend to keep that in mind that you can't run it to zero. You can't run the company to zero, because you'll end up either going back to your VCs and begging them for more money, which, which, you know is a horrible feeling, because they're literally investing money to cover the shutdown costs, or you'll end up paying out of pocket. We've seen so many founders that have paid out of pocket, and it's so painful to see, you know, they put the last, you know, 5-10 years of their life in this company, and now they have to, like, go into their savings and pay for things, yeah, and so, you know, I'll give you the best example, you know let's say, you know, you want to shut down like you're running the company. You want to shut it down on the last day of the month, you have to remember, employees get paid in arrears. So they just worked for you for two weeks from the 15th of the month until the 30th of the month, and you're like, I'll pay them on the 30th, but you have $0 in capital in your bank account on the 30th, you have no way to pay them for the work they just did and that actually opens up you to opens you up to a lot of liability. So I would say those are the two biggest things, like, don't do it yourself and, you know, plan ahead and know that it costs money. 

Ryan Miller  

Okay, so before we wrap things up, is there any, anything you'd like to say ways people can reach out to you? Anything at all?

Dori Yona  

Yeah, look, I think that the main thing that is important to us is we're very mission driven, team and company, and we like, we talk about this all time. We don't get excited to wake up in the morning saying, oh, we're shutting down companies, like that doesn't excite, like that doesn't excite us. What excites us is helping drive the economy, the ecosystem, the entrepreneurship life cycle, the kind of circle of life. And we want to give founders, operators, investors, the peace of mind to move on to what's next. You should not be worried about this past company and getting, you know, dealing with bureaucratic paperwork and manual things, you should be focusing on, building your next business, finding your next job, investing in that next company and so ultimately, we're very, very mission driven. From that perspective, we want to help founders and operators move on. We're always happy to chat with anyone that has a question, like, it's always great to, you know, we love to meet founders as early as, like, you know, they're 6-2 months out of runway, and they just want to understand, how they should think about this and how what they should plan for. As early as that, you know, and as late as like, we had a board meeting yesterday, we decided to shut down, I need your help, right, so we're there to help. We're always available, you can reach out to us on via personally on LinkedIn, it's Dori Yona, I'm on X as well and on our website, simpleclosure.com we have a bunch of resources for founders. We have a calculator that can calculate, for example, how much money you need to put aside to properly shut down. And so, you know, we want to be a resource to help founders get off their feet, and we've actually launched a lot of cool programs to help founders. So for example, if you're looking to sell your IP, if you're looking to get a job after you shut down, we understand that there's all these things that you're in this moment of time in your life. We're going through a lot of changes, and if you ,we can help you, you know, get on your feet faster. We want to be there to help you. 

Ryan Miller  

Brilliant. So just to summarize everything that Dori and I spoke about, don't do it alone. You don't know what you don't know man. So, but here's what I know, this can be hard. Get it over with as fast as possible, so you can go on and invest your energy and capital onto the next one. The other thing is shutting down still costs money, so don't wait until your cash is at zero. In fact, go to simpleclosure.com/calculator to figure out what that cost is. You do these things, and you too will be well in your way, in your pursuit of Making Billions.

Ryan Miller  

Wow, what a show, I hope you enjoyed this episode as much as I did. Now, if you haven't done so already, be sure to leave a comment and review on new ideas and guests you want me to bring on for future episodes. Plus, why don't you head over to YouTube and see extra takes while you get to know our guests even better. And make sure to come back for our next episode, where we dive even deeper into the people, the process and the perspectives of both investors and founders. Until then, my friends, stay hungry, focus on your goals and keep grinding towards your dream of Making Billions.