The Latest Craze In Silicon Valley: Bankruptcy

When Avaya Corp. filed for Chapter 11 bankruptcy on Jan. 19 it represented a sad end to the $8.2 billion buyout of the Santa Clara, Calif. But it was hardly unique in Silicon Valley. Venture capitalists who once considered an unthinkable breach of decorum to put a company in bankruptcy now see it as a way to salvage what they can from their would-be unicorns. While most tech startups consist of little more than leased office space, some yoga balls and a bunch of promising ideas, their intellectual property can generate hard cash in an auction. As old-line photography company Kodak demonstrated in 2012 when it sold a portfolio of patents to groups led by Intellectual Ventures for $525 million, even a dead company might have valuable assets hiding in its files. "It really exploded after the Kodak bankruptcy," said Jeffrey Cohen, a partner with Lowenstein Sandler who as a Cooley LLC partner handled the two-year-long bankruptcy of Quirky, a crowdsourcing site for inventors that consumed $175 million in VC money before it failed.