Drama in Copenhagen: Danish AppHarbor declares bankruptcy, US AppHarbor lives



The Danish startup scene is up in arms about AppHarbor. AppHarbor is a Danish startup that made it to Y Combinator and secured 1,4 million $ in funding. Things looked rosy, until the point where the company needed more financing that it couldn’t find fast enough. What happened next is explained on their own blog post (edited for length):

We’ve been hard at work trying to raise more money for our startup, but so far without any luck. When it became clear that we were not going to raise money in time it was too late to simply lay off the employees.

Danish employees are by law entitled to a three month notice period (or corresponding pay), and AppHarbor couldn’t pay this. The Danish employees apparently offered to work for stock options, but the founders decided against this – according to them because it would not be in the best interest of the employees.

In the end, the company decided to declare bankruptcy for its Danish branch – while the US branch lives on. The reasoning was that the Danish Employees’ Guarantee Fund (Lønmodtagernes Garantifond) would pay the employees their salary and severance pay. The company explains on its blog:

The end result is that the employees will likely not be suffering loss as a result of this situation. [...] And all of them have found new jobs since the September layoffs.

This is of course no excuse and it is very obviously not the situation we hoped for. But we’ve tried to handle it as responsibly as possible and pay back our Danish creditors to the extend that we were able to.

So far, it seems that the bankruptcy of the Danish branch will allow the company to survive, if the post by founder Rune Sorensen is to be believed: “with your support we’re actually on track to make it through this storm.”

Is AppHarbor a symptom of a problem called ‘startup chic’?

According to a few other Danish entrepreneurs, like @steffentchr and @nickbruun, that kind of move gives entrepreneurship a bad name. As Steffen writes on his blog:

what has happened at AppHarbor — [...] it’s a symptom of a problem, a symptom of startup chic infecting us. There is honor and character in how we succeed and how we fail, and AppHarbor reflects poorly on the Danish startup community. It is another case where web startup becomes about opportunism and gamesmanship, rather than about building something and about changing something.

And here’s the take from Nick Bruun in his post ‘It’s okay, we’re an American company now’:

Alright, so, the company is closing down their Danish legal entity but continuing in the US, where they’ve gotten a reported $ 1.4 million investment. It’s not all bad then, is it? Well, yes, in fact, it’s much, much worse. According to version2, the bankruptcy filing states that the company has not payed salaries to their employees in Denmark for some time. Filing a limited liability corporation for bankruptcy basically removes all responsibility for ever paying this money from the company despite it still existing in the US. In other more concise words; AppHarbor is running out on the bill.

There’s three sides to a story

All the finger pointing by fellow entrepreneurs and startup founders incited Christian Lang of Tradeshift to write a long blog post/rant to his Danish fellow entrepreneurs, essentially saying: this is part of doing business. And also: get over your jealousy.

When I built my first startup Human Zoo, everything went well until 2001 — at which point we [...] were out of options, we couldn’t extend credit or raise new funding and so there was only one option: bankruptcy.

Well that’s part of startup life, right? Just go out and try again?

Not quite. See I lived in Denmark and in Denmark you don’t just go bankrupt. It haunted me for 10 years, not just financially, but also mentally. People I knew would avoid me, my parents would avoid talking about it at parties, I was branded a failure. Even 10 years later, running Tradeshift, I would still get skeptical questions that referred to those early days.

[This] is about something fundamentally wrong with Danish startup culture. We don’t celebrate success; we just see it as a failure waiting to happen and when people fail, we can’t wait to kick them when they’re down.

[...]

It’s interesting that it’s not outsiders, or even journalists ripping AppHarbor apart.

[The AppHarbor founders] went to San Francisco without any money, shared a crappy apartment for 6 months without visas and coded like mad. They got into YC! because they were good and willing to take a HUGE risk personally. They bet everything on their dream.

I wonder how many of the armchair founders that are now calling them startup-chic (or expected them to fail) have ever have taken a similar personal risk? Or if they have, how come they suddenly forgot how it was…

In my opinion Nick & Steffen and the others ripping at AppHarbor don’t get it. Yes, it was not a good move, it was not a nice move, it was not the ethically cleanest move — it was the ONLY fucking move they had and they took it. There is no honor in failing. It’s always brutal, messy and dirty and everyone who thinks differently has never tried it.

[...]

I don’t expect journalists to understand this, or anybody in a normal job, but I’m sad that fellow founders don’t get it. This will never be a real community if we turn on each other at the first sign of trouble.

via Failure is brutal, success even more… « noise to clarity.

What do you think? Startup chic? Moral bankruptcy? Tell us what you think!

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About the author

Raf Weverbergh

Editor of whiteboard. Raf Weverbergh was a magazine journalist whose work appeared in magazines like Rolling Stone, Playboy, Mail on Sunday, Publico and South China Morning Post. He is the co-founder of FINN, a corporate communications agency where he advises startups and multinationals on their PR and Mustr, the easiest media database for PR professionals. You can contact him on Twitter, Linkedin or Skype (rafweverbergh).

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