Monday, November 10, 2008

Trialstat: When Start-ups Go Into Receivership

In what has to be the oddest piece of reporting on the high-tech scene I've seen in a while, this morning's Ottawa Business Journal breathlessly reported details of the receivership of Celtic House portfolio company Trialstat. The piece - and again, I remind you this is on the front page of the on-line edition - sets out amounts owing line by line to insurance brokers,lawyers and accountants. Is there really so little to report on the Ottawa scene that a summary of a court filing appointing a receiver merits front page coverage?

If you are going to write about a receivership like this, here are some points to consider mentioning:

1. A receiver is appointed to take possession of the assets of a business on behalf of secured creditors, pay out priority claims (employee wages) and distribute the remainder to the secured creditors. Privately-appointed receivership effectively places the assets and the business in the hands of its secured creditors, and out of the hands of management.

2. If, however, a receiver is appointed by the courts, this can signal potential conflicts among creditors. It also (in theory) reduces the lenders' ability to control the sale of assets of the business, since these steps are now subject to court scrutiny.

3. With many start-ups there are often not enough receivables or commercializable IP to bother with the expense of a receiver, court-appointed or not. Here, the story might be different. One could speculate that Celtic House, with its track record for incubating its own companies, might be seizing the ip for its own for future re-development. An alternate thought: conventional wisdom has it that SAAS model businesses are unlikely to be completely shut down - if there's service revenue with margin, the saying goes, there's probably a buyer for the service. Receivership may be a way to complete a sale of the business with maximum returns to the lenders (BDC and Celtic House) - unsecured creditors and shareholders are cut out of the process.

4. Jonathan Barker, a prince of a guy, was one of the first Ottawa-area entrepreneurs to build a business based on a SAAS delivery model. It will be interesting to see where he and his team go next.