With an early-stage, venture-backed supplier, you're not just buying a part, you're inheriting their investors' exit math, and that math has a clock you're not on. Venture capital, strategic corporate investors, and government grants can make a supplier look flush with cash. However, a large funding round is not the same thing as a durable balance sheet, and a well-known logo on the cap table is not a guarantee the company survives its next production milestone. For a business signing a multi-year supply agreement, the real risk often sits one layer below the spec sheet: who is funding this company, how concentrated is that funding, and what happens to your contract the day the money runs out.
A. Insufficient capital — wound down, and sold out from under you
In November 2012, Fisker Automotive had a problem. Its only battery supplier, A123 Systems, had just filed for Chapter 11 bankruptcy, and A123 wanted out of its contract. A123 has been supplying battery packs for Fisker's Karma sedan. Fisker had no backup source. In court filings, Fisker's lawyers said breaking the contract would cost the automaker more than $100 million, and they asked the bankruptcy judge to stop it.
A123's collapse was not exactly a surprise. The company had already absorbed a $55 million recall tied to the Karma's battery packs, and it had burned through much of a $249 million grant from the U.S. Department of Energy. Two years later, Fisker filed for bankruptcy of its own. Both companies' assets ended up with the same buyer, China's Wanxiang Group.
Fast forward to 2024. Northvolt, the Swedish battery maker backed by Volkswagen (a 21% stake) and Goldman Sachs (19.2%), filed for Chapter 11 protection in the United States, listing close to $5.8 billion in debt. BMW had already walked away from a $2 billion order months earlier, after Northvolt's flagship factory produced roughly 1 GWh of battery cells against a planned 16 GWh. By March 2025, Northvolt filed for full bankruptcy in Sweden. Volkswagen's and Goldman's stakes were both written down close to zero.
And this past April, Ascend Elements, a Massachusetts battery recycler, filed for Chapter 11 in Texas, a heavy blow to investors who had put in nearly $900 million, after the federal government canceled a $316 million grant tied to its Kentucky plant. Its CEO called the situation "insurmountable," while also pledging that customer commitments, including its offtake agreement with commodities trader Trafigura, would continue through the case. One footnote worth noting: Ascend's CEO for the five years before this filing built his career at A123 Systems. The industry keeps writing the same story with new names.
What Does This Means for Manufacturers and Distributors?
B. Acquired — by your competitor, or someone who doesn't care about your contract
Lion Electric had a $234M deal with its supplier Romeo Power with a price ceiling and a guaranteed-supply obligation. Those obligations went out the window when Lion’s competitor Nikola bought Lion’s supplier, Romeo Power. Lion sued Nikola alleging that after Nikola acquired Romeo Power, it forced a 65% price hike, cancelled, and pitched Lion's own customers on Nikola trucks. Nikola liquidated Romeo a year later.
Lion's contract wasn't weak. What it lacked were the terms that matter when a competitor takes over: real remedies for a premature exit, and transition terms that let you walk cleanly if you don't want to keep dealing with the new owner.
C. Deadlocked — when your supplier is in a civil war
A supplier doesn't have to be broke to fail you. TransPerfect's two 50/50 co-founders sued each other in 2014 with no plan for how one might buy out the other, and in 2015 a Delaware judge ordered them to sell the company. One of the company’s top competitor's backer led bidders to purchase the company before one founder bought the other out.
A supplier's deadlocked ownership can throw a wrench into your supply chain. The root cause was in the ownership structure and exit planning: no buy-sell or exit mechanism.
Three takeaways
The clauses that help
Resilience isn't only about whether your supplier can perform. It's whether your contract still protects you when someone else owns them.
A. Insufficient capital — wound down, and sold out from under you
In November 2012, Fisker Automotive had a problem. Its only battery supplier, A123 Systems, had just filed for Chapter 11 bankruptcy, and A123 wanted out of its contract. A123 has been supplying battery packs for Fisker's Karma sedan. Fisker had no backup source. In court filings, Fisker's lawyers said breaking the contract would cost the automaker more than $100 million, and they asked the bankruptcy judge to stop it.
A123's collapse was not exactly a surprise. The company had already absorbed a $55 million recall tied to the Karma's battery packs, and it had burned through much of a $249 million grant from the U.S. Department of Energy. Two years later, Fisker filed for bankruptcy of its own. Both companies' assets ended up with the same buyer, China's Wanxiang Group.
Fast forward to 2024. Northvolt, the Swedish battery maker backed by Volkswagen (a 21% stake) and Goldman Sachs (19.2%), filed for Chapter 11 protection in the United States, listing close to $5.8 billion in debt. BMW had already walked away from a $2 billion order months earlier, after Northvolt's flagship factory produced roughly 1 GWh of battery cells against a planned 16 GWh. By March 2025, Northvolt filed for full bankruptcy in Sweden. Volkswagen's and Goldman's stakes were both written down close to zero.
And this past April, Ascend Elements, a Massachusetts battery recycler, filed for Chapter 11 in Texas, a heavy blow to investors who had put in nearly $900 million, after the federal government canceled a $316 million grant tied to its Kentucky plant. Its CEO called the situation "insurmountable," while also pledging that customer commitments, including its offtake agreement with commodities trader Trafigura, would continue through the case. One footnote worth noting: Ascend's CEO for the five years before this filing built his career at A123 Systems. The industry keeps writing the same story with new names.
What Does This Means for Manufacturers and Distributors?
- Diligence the cap table, not just the product demo. Before signing, investigate who has invested into your supplier, how much runway the company has, and whether future funding is tied to hitting production or regulatory milestones. A single dominant investor, or heavy reliance on one government grant, is a concentration risk you can price into the deal.
- Treat grant and subsidy dependency as a red flag. Ascend Elements' filing followed the cancellation of a federal grant its financing plan depended on. If your supplier's business case leans on a subsidy a future administration or agency could cut, build that contingency into the contract.
- Negotiate early-warning covenants. Require the supplier to disclose material funding events, missed financing milestones, or credit downgrades within a set number of days.
- Understand Section 365. In bankruptcy, a debtor can reject an executory contract that no longer serves its interests, which is exactly what A123 tried to do to Fisker. If you are single-sourced, negotiate backup capacity, IP or tooling escrow, or a step-in right, before you need it, not after.
- Watch who else is at the table. A concentrated cap table cuts both ways. Northvolt's automaker and bank investors had leverage to negotiate a soft landing that a smaller company's counterparties rarely get. Know whether your supplier's investors are likely to fund a rescue, or walk the moment the numbers stop working.
B. Acquired — by your competitor, or someone who doesn't care about your contract
Lion Electric had a $234M deal with its supplier Romeo Power with a price ceiling and a guaranteed-supply obligation. Those obligations went out the window when Lion’s competitor Nikola bought Lion’s supplier, Romeo Power. Lion sued Nikola alleging that after Nikola acquired Romeo Power, it forced a 65% price hike, cancelled, and pitched Lion's own customers on Nikola trucks. Nikola liquidated Romeo a year later.
Lion's contract wasn't weak. What it lacked were the terms that matter when a competitor takes over: real remedies for a premature exit, and transition terms that let you walk cleanly if you don't want to keep dealing with the new owner.
C. Deadlocked — when your supplier is in a civil war
A supplier doesn't have to be broke to fail you. TransPerfect's two 50/50 co-founders sued each other in 2014 with no plan for how one might buy out the other, and in 2015 a Delaware judge ordered them to sell the company. One of the company’s top competitor's backer led bidders to purchase the company before one founder bought the other out.
A supplier's deadlocked ownership can throw a wrench into your supply chain. The root cause was in the ownership structure and exit planning: no buy-sell or exit mechanism.
Three takeaways
- A contract is only as strong as the entity behind it. New owner, new incentives.
- Remedies evaporate in bankruptcy — a damages clause is worthless against an empty estate. Which is why diligence matters as much as drafting.
- Your leverage is highest before you sign.
The clauses that help
- Change-of-control / assignment. This clause decides what happens to your agreement the moment your supplier is sold or its ownership changes. A strong version requires notice and your consent before the contract can be assigned, and gives you a trigger to reprice, renegotiate, or exit if the buyer is a competitor or a restricted-country party. Without it, you may have to deal with a “new” counterparty with entirely different incentives, which is exactly what happened to Lion Electric.
- Insolvency and default definition. Spell out precisely what counts as insolvency and breach(missed payments, covenant breaches, a secured-lender enforcement, a lost license) and what you're entitled to do when you see it. Lean on pre-bankruptcy triggers, because bankruptcy filing is already too late. Built in early, these rights let you suspend performance, demand adequate assurance of counterparty’s performance, accelerate deliveries, or exit while there's still something to act on. That's how you stop the bleeding and pull your tooling, data, and final shipment out before the other creditors line up.
- IP, firmware, and tooling escrow. An escrow places the things you can't rebuild overnight (source code, firmware, designs, and physical molds and tooling) with a neutral third party, to be released to you on defined triggers. It matters most where the supplier holds the only "keys" to keep your product running or to move production elsewhere. Negotiate the release conditions with care: an escrow that only opens on a formal bankruptcy filing may open too late.
- Step-in / alternative-sourcing rights. A step-in right lets you take over the work your supplier can no longer do and start using alternative (typically pre-qualified) suppliers. Alternative-sourcing language gives you the freedom to buy elsewhere without breaching an exclusivity term once the primary supplier stumbles. Define the trigger objectively. For example, define number of days in delay, number of units volume short, an insolvency or deadlock event. This is the operational insurance policy that keeps you producing when the primary source can't.
- Last-time-buy and transition support. When a product is discontinued or a supplier is winding down, a last-time-buy right lets you place one final order to bridge you to a replacement instead of being cut off overnight. Transition-support obligations require the supplier to maintain a minimum supply, hand over documentation, and help you qualify a new source over a defined period. Together, they turn a cliff into a ramp. These are easy to skip because they only bite at the end, which is precisely when you'll have no leverage to add them. So build them in now.
- Successor-binding price terms. This makes a new owner inherit your whole deal — pricing, discounts, and service levels — not just the parts that suit them. Without it, a new owner of your supplier can quietly reprice everything, which is the heart of what Lion alleged after Nikola took over its supplier. Language binding "successors and assigns," with a cap on increases over the term, keeps your economics intact through a change of control.
- Security interests in tooling, inventory, or IP. If your supplier fails, the order in which creditors get paid is set long before the bankruptcy — and unsecured customers sit near the back. A security interest in the tooling you paid for, the inventory you prepaid, or a license to the IP you rely on moves you up the line and gives you a claim on the specific assets you actually need. Perfect it properly (a UCC filing, for instance) so it holds up against other creditors.
Resilience isn't only about whether your supplier can perform. It's whether your contract still protects you when someone else owns them.
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Disclaimer: This blog post is not legal advice. It is for informational purposes only. Reading this content does not create an attorney-client relationship. Consult with a licensed attorney to address your specific issues. Do not act upon this information without seeking professional legal counsel. IB Law Firm does not endorse any of the cited sources and is not responsible for the content of linked resources