Honest question: but what can a company really do if it goes bankrupt and shuts down, since there is no money to pay for infrastructure and workforce?
Of course, they could probably release code to the open-source. Still someone needs to run the service. Also, if the code contains intellectual property, wouldn't existing investors enforce the company of selling the IP rights in case of a bankruptcy?
I am not taking sides here, just trying to understand what options a company (any company) could explore in this case.
If you sell a product with a promise to run servers for N years, you put a deposit to run servers for N years, or you have a contingency plan to let a third party run it for N years after you went out of business.
If you can't deliver on a promise and didn't make a good faith effort, maybe you committed fraud.
I have no idea about bankruptcy law -- does the company defaulting on their contractual obligations make their customers their creditors? Maybe the customers are entitled to get rights to whatever code the company had and is free to run it at their own expense. Or maybe nobody really cares enough about 800 dollar teddy bears.
Allocate money for 5-10 years of support for this contingency, beforehand, as long as the seed round is secured (so in this case: in the past). $800 is an okay investment for a household item for 10 years. For 2-3 though, or even 5? Not at all.
Sounds like you can't sell the product then. Maybe the product is bullshit and it should not be on the market. General sentiment in the comments says the product is bullshit and can't work. Maybe it's correct. Or maybe you should be smart about it somehow and invent a contingency plan and legal structure that doesn't involve putting that much money into escrow. And everybody who isn't that smart will become rich.
Imagine you have 10k and want to become rich by building a luxury appartement building. Can you start selling property titles without first having funding? Can you raise capital, sell not-yet-existing properties, then close up and expect everything to be okay?
Of course, they could probably release code to the open-source. Still someone needs to run the service. Also, if the code contains intellectual property, wouldn't existing investors enforce the company of selling the IP rights in case of a bankruptcy?
I am not taking sides here, just trying to understand what options a company (any company) could explore in this case.