CEOs of small startups that never should have gone public are these days finding themselves staring down oncoming trains: their businesses aren't salvageable, and shareholders are either furious or resigned to writing off their investments. What are the options?

The shield of bankruptcy is often not an out, as many small companies don't have debt. Using the cash that remains in the company to try another line of business is often impossible because there's inadequate staff to do so, and the company charter may not support the change.

Squeezing the remaining cash into the bank accounts of the remaining employees (often the founders) can thus seem like an attractive idea, even if it's clearly not in the shareholders' interest.

It's situations like these that call for takeovers, as Douglas Spink, CEO of Seedling Technologies, explained to me. There's a business in buying out struggling companies and putting their assets to work in new ventures. It can be hostile, because it exposes the founders to risks they may not find attractive. But with the help of companies' investors, firms like Seedling attempt to convince (or force) founders to commit what's left of their capital to giving a new idea a fighting chance.

- Rafe Needleman

COMPANIESSeedling Technologies

RELATED STORIESThe Red Eye: Downtime with Roger McNamee Sold for parts Standard business practice Recycling the Web Vulture capital The Smart VC: Down but not out The Smart VC: Where's the money? Toxic treatment Fish or Cut Bait: A reprise of merger mania?