Shulman Bastian LLP

Invention startup files for Chapter 11 bankruptcy protection

As much as the tech industry drives innovation, and therefore, successful products and companies, there is a downside to the industry. Essentially not every company that successfully raises money can survive competition and an ever-changing marketplace. Because of this, bankruptcy may be a likely scenario for a company that can’t stay ahead of changing dynamics.

Such was likely the case of Quirky, Inc. The startup company best known for its “quirky” (no pun intended) inventions, filed for Chapter 11 bankruptcy protection last month. Founded in 2009, the company showed great promise, with financial backing from Norwest Venture Partners, GE Ventures LLC, and a host of other venture capital funds. 

The company started with a novel idea. A crowdsource platform would enable inventors to pitch their ideas. Quirky would help take on development for the ideas it thought would be winners and pay royalties to the original inventor. However, the costs of the misses were significantly more than the hits, and Quirky began to lose traction in the marketplace.

The company listed $53.9 million in assets compared to $136.8 million in liabilities.  The reorganization plan may not yield benefits to equity holders.  This means that they are likely going to lose portions of their investments. It remains to be seen whether litigation will be necessary to protect creditors’ interests. Nevertheless, the story is a prime example of why it is important to have a skilled bankruptcy law attorney to ensure that your interests are protected if you invest in a startup.

The preceding is not legal advice.


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