Desks, PCs, patents up for grabs as more businesses close down
Throughout the spring, a date loomed in Gregg Favalora’s mind: April 24. Shutdown day. If his Bedford company, Actuality Medical Inc., couldn’t find a new investor willing to fund the continued development of its cutting-edge software to assist surgeons with cancer treatment, that Friday would be the last day of its existence.
In March, Actuality’s chief executive left voluntarily to save the company the cost of his salary. Favalora, who a dozen years ago had taken a leave from his doctoral studies at Harvard University to start the company, assumed the mantle.
“We were running around trying to get small software development deals done, looking for a few hundred thousand dollars from a strategic investor,’’ Favalora recalls. But nothing came together.
On April 24, Favalora laid himself off, along with the two remaining employees of what had once been a 23-person company. That was the day Favalora’s dream turned into a pile of assets - some of which might still have value.
It’s suddenly a buyer’s market for all kinds of assets belonging to once-promising companies, from office furniture to patents to laboratory equipment.
“We’re seeing anywhere from a doubling to a tripling in volume, compared to this time last year,’’ says Myron Kassaraba, a Belmont-based partner at Pluritas LLC, a firm that helps sell patents and other intellectual property. Barry Kallander, a Bolton consultant who helps wind down companies that have run out of cash, predicts: “We still may see the deluge.’’
When a company turns out the lights, it sometimes makes news, especially when there are dozens (or hundreds) of jobs lost. But what happens afterward is hardly ever discussed by founders, chief executives, and investors. “Entrepreneurs want to hide while they’re in this mode,’’ says Favalora.
Most venture capitalists I contacted refused to talk on the record, or didn’t return calls.
“I’ve wound down and sold companies that have raised close to $100 million in funding,’’ Kallander says. Venture capitalists “don’t want it to be a black eye publicly.’’
A first step for most companies, before they wave the white flag, is trying to find a buyer to acquire the business while it is still a going concern.
“We were working with an investment bank to try to sell our company to a big semiconductor maker,’’ says Tandhoni Rao, founder of Concord-based Radiospire Networks Inc.
But the company, which was developing wireless technology for transmitting high-definition video in homes, put up the for sale sign last September, and, Rao says, “the mergers-and-acquisitions teams at the major semiconductor companies were getting overwhelmed’’ by other companies also in search of deep-pocketed sugar daddies.
In mid-March, the company, which had raised about $25 million from investors including Highland Capital Partners of Lexington, ceased operations. “We had two or three liquidators come through to make bids on the office equipment,’’ Rao says. A Foxborough law firm is trying to sell the company’s intellectual property.
Favalora said he put about 20 percent of his company’s computers and high-end electronic test equipment on eBay, and hired a company called Clean Out Your Office in Acton to handle everything else. He is now trying to market the company’s 19 patents, mostly related to optics and 3-D imagery, on his own.
“We have investors who have supported us for 12 years, and I want to give them whatever return I can,’’ he says.
Kallander, the Bolton consultant, says that when he wraps up his work, a company’s creditors are happy to get any money back. “We’ve had nice distributions where we’ve gotten 60 or 70 cents on the dollar, but creditors are even thrilled when they get 20 or 30 cents back,’’ he says.
But selling intangibles, whether patents or software or drug formulations, is exceptionally tough now.
“People who do have money are becoming more selective,’’ says Kassaraba, whose company helps sell patents and other intellectual property. Kallander adds, “There’s no intellectual property from a troubled company that doesn’t need more investment. You may buy it for $1 million, but it could cost $5 million to develop something marketable from it. The question is, do you want the distraction?’’
Sometimes, investors who have shut down a company continue to invest to keep assets alive. If they believe in the technology a company has developed, they may continue to pay annual maintenance fees for the company’s patents, or fund the process of getting patents issued - in the hopes of one day coming across an interested buyer.
And they sometimes build new businesses around the intellectual property developed by a company that has foundered.
Flagship Ventures of Cambridge and Highland Capital Partners, for instance, are constructing a new company around the assets of Codon Devices, a manufacturer of custom DNA strands that closed in April, though neither venture firm was willing to share details. (Codon, in its original incarnation, had raised about $44 million in venture capital from the two firms and others.)
For entrepreneurs, putting a failed business behind them can be a relief. “You can now start to think about what comes next,’’ says Rao, founder of the Concord business that was developing wireless technology. He is now participating in a New England Clean Energy Council program that retrains executives for jobs in the renewable energy sector.
Closing down can also lead to new opportunities. In 2003, Kallander sold the assets of the start-up he was running, a networking company in Acton called Paceline Systems Corp., to Motorola Inc. The investors didn’t make a profit, Kallander says, but by contrast many of Paceline’s rivals “didn’t get a nickel for their intellectual property, while we were the first to exit our particular market.’’
Before long, investors started asking Kallander to look at the troubled companies in their portfolios. Kallander didn’t realize at first that he could make a living at it, but now he’s one of Boston’s premier wind-down specialists, doing well in most economic conditions - and doing better than that when things get bad.
Scott Kirsner can be reached at email@example.com.