How can you manage exit risks for a company in distress?

It’s important to approach it with a clear mind. Be honest with what the state is and what your options are. Understand the 20% where the effort can be applied to get 80% of the results. Figure out if it’s worth the effort in the first place and if you genuinely can turn things around.

Stakeholder Engagement: Involve key stakeholders (employees, creditors, investors) in the assessment process to gather diverse perspectives and build consensus. Independent Experts: Employ external consultants or advisors with specialized industry knowledge and turnaround expertise. Data Analytics: Leverage data analytics tools to uncover hidden patterns, forecast trends, and model potential outcomes of different strategies. Scenario Planning: Develop multiple scenarios to anticipate potential challenges and opportunities, preparing for a range of contingencies Lack of Timeline: It's crucial to consider the timeframe for assessment and decision-making, as delayed action can further exacerbate distress.

Company in a distressed situation could be sold for several types of assets: (i) pure cash, (ii) technology and IP, (iii) client base, (iv) people (which is mostly part of ii though). It is crucial to estimate which option (or a compbination of) has the most of value and the highest prob of being accepted by the acquirer, and then join forces of all stakeholders to execute the strategy. Stakeholders may consider hiring an advisor to streamline the process, but it is crucial to keep FOMO, you must have plan A and plan B being equally ready to extract max value from a distressed sale, and also have all stakeholders alligned - founders, investors, and team. In case you don't have anyting else but cash, it is still better to sell than close.

It’s important to approach it with a clear mind. Be honest with what the state is and what your options are. Understand the 20% where the effort can be applied to get 80% of the results. Figure out if it’s worth the effort in the first place and if you genuinely can turn things around.

Managing exit risks for a company in distress requires a strategic approach focused on minimizing losses and stabilizing operations. Start by conducting a thorough analysis of the company's financial situation, identifying key areas of risk and potential liabilities. Engage in open communication with stakeholders, including creditors, investors, and employees, to build trust and negotiate feasible solutions. Consider restructuring debts, selling non-core assets, or downsizing operations to improve liquidity. Develop a comprehensive exit or turnaround plan that outlines clear, achievable goals, timelines, and responsibilities. Seek advice from financial and legal experts to navigate complex situations and ensure compliances.

If a company is in distress some stakeholders may want to exit before things get worse But if you can help the founders roadmap a path to stability you can likely convince stakeholders not to exit at a time that wouldn’t be prudent for the founder or the investor stakeholder If you absolutely cannot convince the investor stakeholder to stay then buyout options may be the way to keep the company from forced liquidation of shares during a time that would be less than ideal #vc #venturecapital

Tailored Communication: Adapt communication strategies to the specific needs and concerns of each stakeholder group. Two-Way Dialogue: Facilitate continuous feedback loops to gauge stakeholder sentiment and address issues promptly. Crisis Communication Expertise: Consider engaging experts in crisis communication to manage sensitive information and media inquiries effectively. Employee Wellbeing: Prioritize employee mental health and wellbeing during periods of uncertainty, providing support resources and addressing concerns. Ethical Considerations: It's important to balance transparency with confidentiality obligations and ethical considerations, such as protecting sensitive information or avoiding premature disclosure of plans.

When i was involved in sale of Airlndia, the following happened: Sale to a Strategic Buyer: Initial negotiations with a larger airline fell through due to concerns about airline's debt levels and aging fleet. Merger: A potential merger with a competitor was considered but ultimately rejected due to incompatible corporate cultures and regulatory hurdles. Restructuring: Agreements with creditors and labor unions were reached for debt restructuring and wage concessions, but these measures proved insufficient to restore profitability. Liquidation: The company eventually opted for Chapter 11 bankruptcy and liquidation, selling its assets to various buyers to minimize losses for creditors.

Another thing to keep in mind is that it doesn't have to be all or nothing. If there are multiple lines of business/ products, partial sale or selective activities may sometimes bring in the liquidity and stability to recover

Exploring exit alternatives can be very crucial from shareholders, debt holders or convertibles perspective. Of course, not everyone will have the right to convert their debt to equity & even after conversion, equity holders being the residual claimants might get nothing. Liquidation at an exit or VC multiple can help to pay off capital providers. Merger or acquisition by another company can help sustain operations. Reconstructing it operating, financially & divisionally can help. Asset striping by market corporate raiders, who can buy the company, sell of discarded or useful units, subsequent deployments of capital in good divisions & sustain. Last resort is seeking help from Tribunal.

Exploring exit alternatives can be very crucial from shareholders, debt holders or convertibles perspective. Of course, not everyone will have the right to convert their debt to equity & even after conversion, equity holders being the residual claimants might get nothing. Liquidation at an exit or VC multiple can help to pay off capital providers. Merger or acquisition by another company can help sustain operations. Reconstructing it operating, financially & divisionally can help. Asset striping by market corporate raiders, who can buy the company, sell of discarded or useful units, subsequent deployments of capital in good divisions & sustain. Last resort is seeking help from Tribunal.

Contingency Planning: Prepare for unexpected challenges or delays by developing contingency plans to address potential risks. Communication Plan: Maintain clear and consistent communication with stakeholders throughout the process to manage expectations and build trust. Employee Transitions: Implement measures to support employees during the transition, including severance packages, outplacement services, or rehiring opportunities. Post-Exit Obligations: Fulfill any outstanding legal, financial, or contractual obligations after the exit to avoid future liabilities.

Formal Debriefing: Conduct structured debriefing sessions with key stakeholders to capture diverse perspectives and insights. Knowledge Management: Document lessons learned in a centralized repository for future reference and organizational learning. Mentorship: Share experiences with other entrepreneurs or investors to foster collective learning and support within the business community. Psychological Resilience: Acknowledge the emotional impact of exiting a distressed company and provide support for those involved. Evolution of Failure Culture: A growing acceptance of failure as a learning opportunity has encouraged more open discussions about exits and setbacks in the business world.

The first thing to do here is to speak to the founder and understand what went wrong and how that could be fixed? If some additional capital can help, it's always worth putting that money. Also, clear communication on the situation to LPs is important. Investments can go bad but communication should be transparent. Lastly, look for M&A options. Best way to make sure jobs aren't affected while some capital is recovered.