
Ask HN: What happens when a startup shuts down? - KennyFromIT
What happens to the customers?
Their data?
Their undelivered purchases?
What happens to the founders?
The employees?
The board members?
What happens to the intellectual property?
Social media accounts?
Domain names?
Leftover inventory?
Outstanding debt (long-term and short-term)?
What happens to the office furniture? Rubber bands?<p>What happens?
======
nostrademons
Assuming a non-graceful shutdown, i.e. the company runs out of money with no
acquisition offer and enters bankruptcy liquidation. Also assumes everything's
legal and on the up-and-up, which can be a rarity for startups with more than
one interested party.

Customers: they get a shutdown notice and the service stops working for them,
and have to find competitors that do the same thing.

Founders & employees: laid off and go look for jobs.

Board members: move on with their lives.

Data, IP, office furniture, leftover inventory, rubber bands: sold at auction
to pay creditors.

Social media accounts & domain names: technically this is property of the
corporation and is also sold at auction, but in a sale that assumes no
acquisition offer for team/brand/IP, they're often worthless. They become
zombies and eventually revert to the public under whatever inactivity policy
the host has (eg. domain names often get snapped up by speculators).

Debt: There's a pecking order for debts and other capital claims, and whatever
money left in the company checking account + the liquidation sale mentioned
beforehand goes to it. IIUC, unpaid wages come first, then unpaid suppliers.
Then senior debt with liquidation rights negotiated into the contract (eg. my
wife invests with philanthropic debt, which often has these clauses). Then
regular debt, bondholders, then preferred stock, then common stock. Founders &
employees usually hold common, which is the last to get paid out.

All the startups I've personally shut down did so with no drama, but there is
a big tendency to fight over the carcass, particularly when you have people
with bigger egos involved. One that I worked at, for example, involved an IP
auction where the founder stealth-bid (through an employee friend) against the
VCs, the auction house accidentally told both parties they had won, the
lawsuits went flying, and the founder moved to China with the IP to start the
exact same company and run it into the ground again.

~~~
cimmanom
My recollection from ending up on the losing end of a client’s bankruptcy when
freelancing was that suppliers are often the last in line to collect on any
debts. But it may also depend on jurisdiction.

~~~
nostrademons
I think you're right. A little bit of Wikipedia research suggested that the
top tier is unpaid wages, taxes, tort claims, and environmental cleanups.
Suppliers, unless they've specifically negotiated for a lien on the company's
assets, fall into the "general unsecured creditor" category, which means they
get paid alongside lines of credit and unsecured bonds, after collateralized
debt but before stockholders.

------
Guest10928391
In the case of NCIX (electronics retailer like Newegg but in Canada), they
recently went bankrupt and sold off their servers without wiping their data.
The servers contained 15 years worth of personal information for their
customers (4 million orders, 250,000 plain text payment cards, passwords,
email addresses, etc). The person who received the servers then started
selling them on Craigslist, and allowed people to simply buy the data and make
a copy.

That's one example of a worst case scenario.

