Business Liquidator Moves to Silicon Valley

Amid rising hopes for a high-tech turnaround, there’s this sobering sign: Martin Pichinson -- a man who has buried nearly 150 failed start-ups since 1999 -- has swooped into Silicon Valley.

Pichinson, a self-described “doctor of reality” who helps liquidate companies, says he wouldn’t have moved to Palo Alto from Los Angeles a few months ago had he not smelled more high-tech trouble looming.

“Sadly, it looks like 2004 is going to be another busy year for me,” Pichinson said. “There’s still another 6,500 to 7,500 companies out there who are among the walking dead.”

Before he moved here, Pichinson was a familiar face in Silicon Valley and other high-tech hubs because so many venture capitalists summoned him and his firm, Sherwood Partners, to help clear the debris left by the dot-com implosion.

Among the high-profile casualties bagged by Pichinson during the last four years: Kozmo.com, IChristian.com and Alladvantage.com.

Pichinson figures more than 50,000 people have lost their jobs on his watch.

It’s a job that most venture capitalists abhor.

“Venture capitalists only want to deal with the top 40% of the companies in their portfolios,” Pichinson said. “We get the bottom of the barrel.”

With most of the dregs flowing from Silicon Valley, Pichinson decided to move Sherwood’s headquarters to the high-tech center so he would be in a better position to handle the future business.

Sometimes, Pichinson and Sherwood’s 60 employees are able to salvage troubled start-ups by cutting costs and training the executives to rethink their ways.

But for every company that Pichinson has saved, he has overseen the liquidation of about three others since 1999.

Conventional wisdom says Pichinson, 57, is about to face a business downturn himself. With technology stocks finishing their best year since the 1990s and companies poised to spend more money on computer gear, there’s a growing consensus that high-tech’s high failure rate is tapering off.

“Most of the biggest problem companies have been restructured, sold off or closed down,” said Barry Kramer, a Palo Alto attorney who advises venture capitalists.

Pichinson scoffs at that notion, predicting the failures will continue to pile up for the next three to seven years.

“I have closed more companies than anyone in the world, so no one knows better about all the things that can go wrong in a business,” Pichinson said.

Sweeping statements like that are vintage Pichinson -- a colorful former pop music manager who enjoys schmoozing, even when he is filling the role of a grim reaper. Pichinson boasts that his Rolodex is filled with more than 5,000 Silicon Valley contacts.

“Someone has to dance to bring in the business, and Marty likes to dance,” Sherwood Partners co-founder Michael Maidy says of Pichinson’s networking skills.

Pichinson’s showmanship helps open doors, but it’s his ability to close businesses that wins Sherwood the trust -- and patronage -- of venture capitalists.

“Marty likes to talk, but he also walks the walk,” said Spencer Tall, a general partner with APV Technology Partners, a Palo Alto firm that has worked with Pichinson. “He can help you make some very cogent decisions.”

It’s a process that often requires Pichinson to be brutally honest with the entrepreneurs running a troubled start-up.

Sherwood Partners “comes in and talks tough,” said Doug Koo, who ran a failing San Francisco start-up, Cat Technology. “They teach you that some of the things are a necessary evil.”

When Sherwood entered the picture in late 2002, Cat Technology didn’t have enough money to cover about $15 million in bills, Koo said. The start-up seemed destined for bankruptcy until Sherwood engineered a restructuring that led to the start-up’s sale to a rival firm, FusionStorm.

Sherwood Partners isn’t the only business gravedigger in Silicon Valley. The list of other high-tech undertakers in the area includes Diablo Management Group, Venture Asset Group, Gerbsman Partners and the Sage Group.

But Pichinson’s flair has helped separate Sherwood from the rest of the pack, enabling the firm to charge a premium fee.

“We are trusted caregivers, like a hospice,” Pichinson said. “There is always going to be something in trouble, or someone who needs our help.”