twb said,

Not sure we could say that capitalism is to blame for the 38S saga; 38S was running on Rhode Island loans and a bunch of lines of credit *because* the market wasn’t interested in financing their MMO play.

Reportedly, Schilling refused to back down on an absurdly high pre-revenue, pre-product valuation at the same time as he was looking for nearly $50m in seed in a high-risk industry that he had no experience in — no one was going to touch that deal with their own money. Instead, Carcieri (who met Schilling at a fundraiser hosted by the ballplayer) stepped in and, after a series of secret meetings, co-signed the state to a loan for an enterprise it wasn’t qualified to assess. That’s cronyism, not capitalism.

As it is, it’s going to be a long time untangling the mess 38S left behind. In addition to the obvious payables (looks like the company was being run off a credit card and a couple of bank loans at the end), former employees are probably on the hook for expenses they reasonably believed to have been paid: there’s over $100K owed to Atlas Van Lines for re-lo expenses, some $750K to BCBS for employee health insurance, and employees’ houses on the company’s books that were evidently supposed to have been sold during re-lo but never were, leaving the employees looking at a bunch of accrued mortgage payments and possible foreclosures.

Former 38S and BHG employees are naturally angry right now, and I don’t blame them for focusing on Chafee, but I’ve seen a lot of failed startups that sang the same tune: the company’s lying on the ground, chopped up into its component assets, and it’s still insisting that “It’s just a flesh wound!” 38S couldn’t manage its burn rate on the AP side, and had nothing coming in on the AR side. I don’t care how good their art assets were, or how many jerseys Schilling bought employees as gifts: no liquidity, no company, and, thanks to the EA deal, 38S was revenue-free until it could launch or lock up another publisher deal.