Troubled New York startup Archetypes, Inc. voluntarily filed for chapter 11 bankruptcy protection on Friday in Wilmington, Delaware. The company, which had reportedly raised $19 million in funding, describes its business in court filings as follows:
The Debtor operates a website-based business that is hosted at www.archetypes.com (“Archetypes”). Archetypes is designed to enable users/customers to identify their primary “archetypes” or personality types and to filter community, content and commerce according to their “archetypes” or personality types, based on Carl Jung’s personality defining philosophy of archetypes. A user/customer who visits Archetypes completes a short, multiple choice, personality quiz. The website then reveals the user’s personality “archetypes” and provides content, community and commerce based on the characteristics of their archetype. Additionally, Archetypes allows individuals who join the site to build and develop their own online persona and identity: a unique and dynamic brand for every individual through their own content “network”, created through community development.
The Debtor has created its own content and has partnered with retail vendors to populate content and commerce that is relevant to each Archetype category and is delivered to users/customers according to their “archetypes.” The Debtor also has partnered with approximately 200 companies in an affiliate program so that product from these companies is identified according to the “archetype” category, and any user’s purchase of such identified product will produce a commission fee payable to Archetypes by the vendor. The ultimate goal of Archetypes is to develop, maintain and enrich a growing global community of users/customers around a universal language, who experience a unique and unparalleled personalization of search for content, community and commerce according to the users’ “archetypes.”
Until early October 2013 when the Debtor’s deteriorating financial position required the Debtor to reduce its workforce to eight (8) employees, the Debtor employed approximately forty (40) individuals including writers, editors and designers who generated daily content for each of the Archetype names or categories. The Debtor’s publishing and video production operations supplement Archetypes by contributing additional content to the website. The Debtor provides users/customers with the ability to share and post content from Archetypes to other websites, such as, for example, Facebook and LinkedIn.
The Debtor was incorporated as a Delaware corporation on July 14, 2011. The original iteration of the website development was discarded in whole in July 2012, and a completely new development for the online vision of the company was commenced under Mr. Mendenhall’s direction. This new initiative resulted in the current website that was officially launched in mid-September 2013. Ms. Carlino and her affiliates contributed her substantial
“archetypes”-related intellectual property portfolio to the Debtor as a capital investment, for a 50% original founder’s equity stake in the company. The remaining founders’ equity was issued to Revolate (45%) and the initial and now former Chief Executive Officer Lisa Sun (5%), in consideration of certain in-kind contributions and/or services to the company.
The video embedded below provides more color on the company’s website and product aspirations.
In early October, industry publication PandoDaily reported on the company’s struggles, describing it as “biggest New York startup you’ve never heard of.” In court filings, the company describes the events which precipitated Friday’s bankruptcy filing:
The Debtor is a pre-revenue company whose operations have been primarily funded through several rounds of debt financings, the terms of which required the Debtor to raise subsequent equity financing into which the debt would be converted. During 2013, the Debtor has extensively marketed a potential $20 million stock equity raise to investors through the offering of Series A preferred stock. The Debtor’s failure to gain traction for such an offering, among other setbacks, has resulted in a liquidity crisis that has negatively impacted the Debtor’s operations.
In early 2013, CC Bridge Lender, LLC (the “Bridge Lender”), an affiliate of Ms. Carlino, agreed to provide the Debtor with secured bridge loan financing (the “Senior Bridge Loans”) that enabled the Debtor to maintain operations through the end of October while the Debtor’s management and board of directors explored strategic alternatives. To induce the Bridge Lender to provide this financing, the holders of the Debtor’s existing secured debt agreed to subordinate their liens and claims to those granted in connection with the Senior Bridge Loans. The Bridge Lender also provided additional, subordinated third-lien bridge financing, including $2.3 million in loans to the Debtor for it to satisfy its ongoing obligations in the ordinary course of business.
Throughout 2013, the Debtor has continued to seek, but has been unable to obtain, additional debt or equity financing. As a result, the Debtor lacks the funds to service its debt, satisfy its obligations to creditors or otherwise operate in the ordinary course of business, necessitating the commencement of this Chapter 11 proceeding.
In the same court filing, the company also describes its plan for the chapter 11 case, which includes a potential going-concern sale to an insider, or her affiliate:
In this Chapter 11 case, the Debtor plans to continue its operations so as to maintain its going concern value and maximize the value of its assets for the benefit of creditors. In that regard, the Debtor further intends to file motions to approve bidding procedures and for approval of a sale of substantially all of the Debtor’s assets. The Debtor anticipates that Ms. Carlino, or an affiliated entity, as the pre-petition, senior secured lender and proposed DIP lender, will bid to purchase the Debtor’s assets. As such, during this bankruptcy case, the Debtor plans to continue to market and then sell its assets either to Ms. Carlino (or her affiliate) or otherwise to the highest bidder in an auction under the Court’s supervision. To ensure that the sale process will be fair and at arm’s length and to maximize the potential for overbids with respect to any ultimate sale transaction, the Debtor’s Board of Directors has (a) voted to retain an investment banker [Odyssey Capital Group LLC] to, among other things, further market the Debtor’s assets, and (b) appointed a selected subcommittee of independent directors to oversee the sale process.