This Week in Startups
Navigating Challenges in Distressed Companies with Becki DeGraw | Wilson Sonsini Startup Legal Basics
Sep 19, 2024
Becki DeGraw, a partner at Wilson Sonsini, specializes in legal counsel for startups and distressed companies. In this conversation, she outlines the challenges distressed companies face, including navigating complex legal landscapes and the implications of pay-to-play funding scenarios. Becki emphasizes the need for thorough market checks and transparent governance to protect stakeholders. The discussion also dives into ethical responsibilities within corporate governance and the risks associated with operating in the turbulent cryptocurrency sector.
21:11
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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.
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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.
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