High-Tech Liquidator Expects Another Banner Year

Pichinson, a self-described "doctor of reality" who helps liquidate companies, says he wouldn't have moved from Los Angeles to Palo Alto 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."

Even before the move, Pichinson became a familiar face in Silicon Valley and other high-tech hubs, largely because so many venture capitalists summoned him and his firm, Sherwood Partners, to help clear the debris left by the dot-com implosion.

Kozmo.com, iChristian.com and Alladvantage.com are among the high-profile casualties bagged by Pichinson during the past four years. Pichinson figures more than 50,000 people have lost their jobs on his death watch.

It's a macabre job that most venture capitalists abhor.

"Venture capitalists only want to deal with the top 40 percent 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's in a better position to handle the future carnage.

Sometimes, Pichinson and Sherwood's 60 employees are able to salvage troubled startups by cutting costs and training the executives to rethink their ways. Sherwood even brings in an FBI consultant specializing in hostage negotiation techniques to help management.

But for every company that Pichinson has saved, he has overseen the liquidation of roughly 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 high-tech's high death toll 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 carcasses of doomed startups 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.

While Pichinson's showmanship helps open doors, 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 startup. Sherwood Partners "comes in and talks tough," said Doug Koo, who ran a failing San Francisco startup, 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 unpaid bills, Koo said. The startup seemed destined for bankruptcy until Sherwood engineered a restructuring that led to the startup'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 demand a premium fee. When closing a startup, Pichinson says Sherwood typically charges a 7.5 percent commission on the liquidation of the company's assets or $75,000, whichever is greater.

Pichinson began working with the downtrodden in the early 1970s when he began managing music acts around Los Angeles.

His clients included The Miracles after Smokey Robinson left the group, and Lou Rawls several years after the singer had fallen on hard times.

Under Pichinson's management, both acts turned out major hits in 1976, "Love Machine" by The Miracles and "You'll Never Find A Love Like Mine" by Rawls.

Pichinson grew weary of music management and left the entertainment business to begin working with distressed companies in the 1980s. He shows no signs of burning out in his current job, despite all the tales of woe.

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

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