OLNS #6 – Leading Tech Companies through a Downturn

Downturns can be challenging for any company, but the current COVID-19 pandemic shows once more (as the financial crisis did in 2008 and 2009) that the effects of such a crisis on start-ups can be particularly severe. Collapsing investments and loss of sales can quickly become a threat to their existence, and founders must react quickly and effectively to the multiple challenges they are facing such as: What obligations of the start-ups must its managing directors monitor in a downturn? Which personal liability risks are involved? What happens to the employees and how do you deal with a potential loss of workflow, disrupted supply chains, unpaid invoices and the looming threat of insolvency?

These are only some of the questions that founders have to deal with in the current, and in any other economic crisis. Therefore, following OLNS#5, that focuses on the challenges of raising venture financing in the wake of the COVID-19 pandemic, OLNS#6 gives a comprehensive overview of some of the most important topics that start-ups and founders may need to deal with during a downturn and, of course, especially in the current COVID-19 pandemic. It remains to be seen what damage this crisis will actually leave behind, but one thing is clear: as with every economic crisis, once we are through this, there will be a new era with new opportunities. With this Guide, we therefore want to demonstrate how start-ups and founders can get prepared for after the crisis and thus invest in their future.

In Chapter I, we will first give an overview of the obligations and liability risks of founder-managing directors and members of the advisory board, which they have to consider in times of economic crises, before we outline in Chapter II the possibilities for employee cost savings options, increased workforce flexibility and amended employee incentive systems and rules that should be followed when employees return to their offices. Chapter III then deals with IP and IT related matters in times of crisis and for the time thereafter, and Chapter IV discusses data protection requirements. Chapter V focuses on the commercial sector and contractual and restructuring issues. Chapter VI presents what needs to be considered with regards to effective dispute resolution in times of crisis and afterwards, and finally Chapter VII sets out an overview of how to restructure loans and the associated tax consequences.

In preparing OLNS#6, our international and cross-functional Orrick team again drew on experience representing more than 2,700 tech companies globally, leading venture and private equity investors as well as many of the world’s leading technology companies. Founded in the Bay Area, Orrick is one of the world’s leading technology law firms and ranks #1 for European venture capital transactions (PitchBook, Q1 2020 – 17 consecutive quarters).