The San Jose Mercury News reportedly obtained a letter showing that venture capitalist Gary Lauder shelled out a mere $4.8 million for the remnants of game streaming service OnLive. This payment indicates that creditors will only get back around 26 cents for every dollar invested into the company.
According to the paper, this letter was originally sent to OnLive creditors last month, reveling that the company had at least $18.7 million in outstanding debt – a number which didn't include money OnLive owed in the future such as leases and other contractual obligations. It was originally believed that OnLive owed around $30 million to $40 million, but the new company has since reached new agreements with creditors, reducing the outstanding balance.
Back in August, rumors surfaced that OnLive was shutting its doors because it owed more money than it was receiving through subscriptions, game sales and other partnerships with publishers and manufacturers. A representative said that all of OnLive's assets were acquired by a newly formed company on August 17th and it would continue to operate under the OnLive name. Gary Lauder actually created this new company, and then bought the assets of the older version to keep the OnLive service up and running, and to preserve the proprietary technologies.
It was OnLive Inc.'s board of directors, facing difficult financial decisions for the company, who determined that the best course of action was a restructuring under an "Assignment for the Benefit of Creditors" (ABC) filing. The Assignee of the company’s assets, Insolvency Services Group which is handing OnLive's ABC motion, then sold all of OnLive, Inc.'s assets (including its technology, intellectual property, etc.) to Lauder's new company.
Insolvency Services Group CEO Joel Weinberg said in the letter to creditors that OnLive was running out of cash and decided to liquidate its assets through the bankruptcy alternative. Lauder's offer reportedly arrived just days before the company went into liquidation mode, and he told OnLive's board that his was the best offer the company would ever get.
"Had the sale to the buyer not taken place, the assignee would have been left with inadequate capital to fund the significant costs to preserve and market OnLive's patents and other intellectual property, thus greatly reducing expected recoveries essentially to those of a forced piecemeal auction," he wrote.
Weinberg told the press back in August that OnLive "was a company that was in dire straits," and that it "only had days to live in terms of cash flow and the like." Something had to be done immediately, he said, or there would have been "a hard shutdown, which would have been a disaster."
The new OnLive reportedly said in a statement that its predecessor hadn't raised enough initial cash for the business to fully succeed in the long run – its failure had nothing to do with the actual business model.
"When planned financing didn't work out, the company was left with few options. Transitioning through this unexpected event has not been easy, but it has left the company much healthier," the company said.