Who gets the money from a shutdown data sale? Creditors, investors and founders

Who gets paid first when a closing company licenses its data?#

When a closing company licenses or sells its data, the proceeds belong to the company and are paid out in a set order: secured creditors, then the costs of the wind-down, then priority and general unsecured creditors, then shareholders. The fact that the asset is data does not change that order.

The exact rules depend on how the company is closing. A bankruptcy follows federal priority rules and court orders; an assignment for the benefit of creditors follows state law and the assignment agreement; an out-of-court dissolution follows state corporate law, the charter and the company's contracts. This is general information, not legal advice, and the order for a particular company is confirmed with counsel.

The shutdown waterfall, level by level#

The shutdown waterfall pays each level before the next receives anything, though the details vary by proceeding and by contract. Creditors within the same level usually share proportionally, and secured lenders are paid from their collateral rather than from the general pool.

Why secured lenders often come first for data proceeds#

Secured lenders often come first for data proceeds because many loan agreements grant a lien on all assets, and that usually reaches general intangibles such as intellectual property, contract rights and data. A venture debt facility or bank line with an all-asset lien can therefore hold the first claim on a records license.

Read the security agreement, any separate intellectual property security agreement and the lender's public filings. The lender may need to consent to the license, release its lien on the licensed rights, or be paid from the proceeds at closing. Lenders often cooperate when a license adds recovery they would not otherwise see.

How liquidation preferences decide what investors and founders get#

Liquidation preferences decide how any value left after creditors is split between preferred investors and common holders. A typical venture preference entitles preferred shareholders to their investment back, or a multiple of it, before common shareholders receive anything, and participating preferred can also share in what is left.

When the amount left after creditors is smaller than the total preferences, common shareholders, founders included, receive nothing as shareholders. That follows from the charter, not from any judgment about the founders' work, and founders should model it before assuming a data deal changes their position.

• 1Certificate of incorporation: preference amounts, seniority and participation rights.
• 2Stock purchase agreements and side letters with individual investors.
• 3Investor rights and voting agreements, including consents to asset sales or exclusive licenses.
• 4Loan and security agreements: liens, consent rights and events of default.
• 5Option plan terms for vested and unvested awards on dissolution or sale.
• 6Any management carve-out plan the board has approved.

Can founders be paid outside the waterfall?#

Founders can sometimes be paid outside the waterfall, but only through arrangements that are disclosed, approved and tied to work performed. Common forms are a management carve-out plan that sets aside part of sale proceeds for the team that completes the transaction, a consulting agreement for help with the wind-down, or employment by the buyer.

These arrangements draw scrutiny because they reduce what creditors and investors receive. Directors of an insolvent or nearly insolvent company generally must take creditors' interests into account, and how that duty works varies by state. Board approval with conflicted directors stepping aside, investor consent where required and, in formal proceedings, court approval protect everyone involved.

A founder who helps prepare and deliver a records license is doing real work: locating systems, explaining fields, supervising exports and answering buyer questions. Paying for that work on documented terms is different from routing proceeds to insiders.

How deal structure changes who gets paid and when#

Deal structure decides when money reaches the waterfall and who has to administer it. A license paid in full at signing is the simplest for a closing company, because the cash is distributed before dissolution. Payments spread over time need a recipient that will still exist, such as a liquidating trust, an assignee or a trustee.

Illustrative: a SaaS shutdown with a venture loan#

Illustrative: a fictional B2B software company is winding down after a failed funding round. It has a venture loan secured by all assets, unpaid vendor invoices, an office lease and two classes of preferred stock. Its Intercom, Jira and GitHub records describe years of customer issues and fixes, and a buyer is interested in a non-exclusive license.

The CFO maps the waterfall before negotiating. The lender's lien reaches the records, so the lender is approached early and agrees to release its lien on the licensed rights in exchange for payment from the proceeds at closing. The rest goes to wind-down costs, then to priority claims such as unpaid final wages, and then pro rata to general unsecured creditors; preferred holders and founders receive nothing as shareholders.

The board approves a documented consulting fee for the CTO, who supervises the export and answers the buyer's questions about the data. The license does not make the founders whole, but it narrows the shortfall to creditors and ends the company's obligations cleanly.

How SourceX approaches shutdown transactions#

SourceX approaches a shutdown records license as one transaction within a wider wind-down, using the SourceX five-step transaction: Supply, Rights, Preparation, Approval and Delivery. The Approval step includes whoever holds authority over the proceeds, such as the board, a lender, an assignee or a court.

The SourceX Evidence Packet records release authorization alongside provenance, licensing rights, permitted use and the privacy record, which helps the people distributing proceeds show what was licensed and on whose authority. SourceX does not advise on distribution; that stays with the company's counsel and the fiduciary running the process.