Vulture investors circling. The red flags may be followed by a dot-com's rapid downward financial spiral. A dot-com has few tangible assets, and its technology may depreciate rapidly should it run into financial troubles. If a dot-com loses its source of financing, it has few alternatives. Equally true, vendors holding delinquent accounts may have few alternatives when a dot-com runs out of cash.
Vendors acting collectively to deal with a financially struggling dot-com have little success.
Chapter 11 bankruptcy, often viewed as a second opportunity for survival for a financially struggling company, usually does not work for a dot-com. The dot-com's perishiable value, limited cash and short term operating history do not make it a good candidate for Chapter 11, unless a candidate purchases all of its assets is located. With a dot-com Chapter 11, a creditors' committee, in which vendors may act collectively, is usually not appointed given the short duration of the case. Chapter 7, the liquidation chapter of the Bankruptcy Code, usually results in an auction of the dot-com's assets, but usually does not result in meaningful assets for vendors after the cost of administration. The press has reported on scores of dot-coms that have obtained millions of dollars in financing only to be forced to liquidate their assets when the business model failed.