Something unusual was underway in early 2010 at Invite Media, a Philadelphia-based advertising technology startup. Under normal circumstances, it collected money from marketers and used it to buy digital ads. But over two days that spring it suddenly began paying for a wave of ads without waiting for checks to come in, using its own money instead. The company also paid off all its outstanding bills regardless of their due dates, sending its bank account balances plunging.
It would normally be irrational for a company to burn cash unnecessarily, but in this case burning cash was the whole point. Invite’s co-founders were finalizing a deal to sell the company to Google, and reducing Invite’s assets was a key part of their preparation. By drawing down its bank account, Invite could reduce its total assets to a low enough level that the companies could avoid submitting their deal for review to the Federal Trade Commission, according to three people familiar with its finances.
“What we did was we collected as much accounts receivable as possible and immediately paid out everything we could so we didn’t have enough money on the books to trigger the FTC stuff,” Michael Provenzano, one of the company’s co-founders recalled in an interview. Provenzano said he effectively went to the company’s bank and said, “We need you to be okay with our account dropping to a dollar.”
