(Startup failure is not the end. A legal analysis of the market exit of startups)

(Startup failure is not the end. A legal analysis of the market exit of startups)

Abstract:

The aim of this paper is to determine the most efficient legal exit strategy for startups when they fail.

Since startups are generally financed through equity, failure is not only
insolvency but, more generally, the failure to achieve there turns expected by the founders and/or investors.

Given the sources of startup funding, the intangible nature of startup assets, and their connection to the founders and the team, the use of insolvency law is not efficient, except in cases of insolvency without assets or the sale of the business unit
(“prepack”).

In general, the sale of the business unit (“acqui-hiring”) or ordinary liquidation is
preferable, but the very common contractual agreements regarding preferential rights in liquidation must be taken into account.

Keywords: startup, failure, legal analysis, market exit, efficiency.