Comment by Schnitz
1 day ago
This is super common with startups and is usually called an orderly shutdown. You don’t want to wait until you are insolvent, but stop when there is enough money left to pay all outstanding liabilities as well as the people that will shut down the business entity, do a final tax return and so on. Then whatever is left eventually gets paid back to investors, who usually have a liquidation preference requiring this as well. The alternative, running truly out of money, no one shutting down anything, a ghost entity that continues to accumulate taxes and penalties, creditors chasing whoever they can get a hold of, is much worse. Just because everyone quits doesn’t mean the entity ceases to exist.
Worse and also most likely illegal too (sometimes jail or ban on running companies). Depends on where you do it.
> This is super common with startups and is usually called an orderly shutdown
Perhaps now, but during the Zero Interest Rate era, the received wisdom was founders ought to keep going until there bank account was empty, in the hope that they may salvage returns for investors. Vendors, partners, clients and employees would be screwed, naturally, but it didn't matter because VC preferred it because losing all the money in a desperate gamble was preferable to lending money to startups at 0%
> the received wisdom was founders ought to keep going until there bank account was empty, in the hope that they may salvage returns for investors.
Amusing that they managed to create a business strategy that depends on the sunk cost fallacy being wrong.