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Investors will only get 5 to 10 percent of what they paid back from the negotiated purchase/debt absolution

Joel Weinberg, CEO of Insolvency Services Group, shed some light on cloud gaming service provider OnLive's recent financial plight.  He commented to the Silicon Valley Mercury News, "It was a company that was in dire straits. It only had days to live in terms of cash flow and the like.  Something had to be done immediately or there would have been a hard shutdown, which would have been a disaster."

OnLive has received some criticism for moving some of its IT employees at its five data centers -- located in California, Georgia, Illinois, Texas, and Virginia -- to lower-paid contractor positions, and laying off a handful of other employees.  Still, based on Mr. Weinberg's accounting, it was lucky all of the employees weren't released and the business fully liquidated.

According to him, OnLive owed creditors between $30M USD and $40M USD in debt that was about to mature, and it had no means of paying that bill.

But instead of liquidation, his firm negotiated a purchase by venture capital investors Lauder Partners, who previously had held a small stake in OnLive.  Under the "Assignment for the Benefit of Creditors" (ABC) -- an alternative to bankruptcy -- the creditors and institutional investors (who included AT&T, Inc. (T), HTC Corp. (TPE:2498), and Autodesk, Inc. (ADSK)) received a fractional return on their respective stakes in exchange for forgiving the insolvent firm's debt.  Mr. Weinberg says the expected payment to the debtors is approximately 5 to 10 cents per dollar earned.

OnLive
OnLive narrowly avoided liquidation. [Image Source: Engadget]

That's the risk of venture capital, particularly pricey cloud-computing schemes, it seems.

The good news for OnLive subscribers is that the firm retains all its intellectual property so it is at no legal risk, and it expects to have no down-time from the transfer of assets to the new Lauder Partners-owned subsidiary.

In his interview, Mr. Weinberg declined to discuss how much Lauder Partners paid or whether their were alternative bids.

Source: Silicon Valley Mercury News





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