This Week in Startups

Navigating Challenges in Distressed Companies with Becki DeGraw | Wilson Sonsini Startup Legal Basics

Sep 19, 2024

21:11

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Becki DeGraw, a partner at Wilson Sonsini, shares her expertise on the hurdles faced by distressed companies. She delves into the intricacies of leadership during financial turmoil and the implications of board member departures. The conversation highlights crucial 'pay-to-play' scenarios in down rounds and emphasizes the need for thorough market checks in fundraising. DeGraw also discusses the ethical dilemmas board members encounter and the importance of documenting decision-making to mitigate legal risks.

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Quick takeaways

Key investors withdrawing from board involvement often indicates a distressed company's need for leadership and capital restructuring.

Implementing a market check and thorough documentation of board processes is essential for mitigating legal risks during financing crises.

Deep dives

Challenges of Distressed Companies

Distressed companies often face a critical moment when key investors decide to withdraw from board involvement, signaling a lack of confidence in the company's future. This can occur when financial difficulties are evident, requiring a change in leadership approach while maintaining legal and fiduciary responsibilities. In many instances, companies resort to insider-led funding rounds as a last-ditch effort to raise capital, which tends to involve more aggressive and punitive terms, increasing the financial strain on the business. Legal complexities also rise during this period, leading to escalated legal fees with frequent board meetings to ensure compliance and accountability, making management even more challenging.

Document the Rejections to Strengthen Your Case

01:43

Intro

3min

Navigating Financial Distress

7min

The Critical Role of Market Checks in Fundraising

3min

Navigating Board Responsibilities in Distress

7min

Navigating Legal Complexities in Distressed Crypto Companies

3min

Todays show: Wilson Sonsini Partner Becki DeGraw joins Jason on the latest edition of Startup Legal Basics! In this episode, they break down challenges in distressed companies(1:04), pay-to-play scenarios (2:31), the importance of a market check in financing (9:25), and high-profile legal and ethical issues (18:03).

Timestamps:

(00:00) Wilson Sonsini partner Becki DeGraw joins Jason

(1:04) Distressed companies and VCs leaving the board; Challenges in distressed companies

(2:31) Insider-led down rounds and pay-to-play scenarios

(7:07) Legal actions and stockholder lawsuits in successful turnarounds

(9:25) The importance of a market check in financing; Voting against board decisions

(18:03) Character and incentives in the startup ecosystem; High-profile legal and ethical issues

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