GAME OVER
JIM MITCHELL’S morning ritual was as consistent as the Southern California sunshine. After fruit, bacon, and a blueberry muffin at Martha’s 22nd Street Grill in Hermosa Beach, the CEO would cruise in his Porsche up Highway 1, to El Segundo. On this particular day in the fall of 2015, Mitchell had settled into his office at children’s tablet maker Fuhu and was in the midst of his morning conference calls when a panicked employee from the finance department barged in. “You are not going to believe this,” the staffer said. They turned to Mitchell’s computer and logged into Fuhu’s Wells Fargo account. The balance the day before: $4,512,662.53. The balance now? $0.00.
Even before all of Fuhu’s money disappeared, Mitchell was having a doozy of a month. Three weeks before, he and his co-founder, Robb Fujioka—Fuhu’s mastermind and headstrong president—had been contacted by attorneys representing the company’s primary manufacturer, Foxconn. The Chinese giant was more than just a vendor. It was an investor and patron that had been instrumental in launching Fuhu on its meteoric rise. With gross revenue of $196 million and a three-year growth rate of 158,957 percent, Fuhu had earned the top spot on the Inc. 500 list of the fastest-growing American private companies in both 2013 and 2014. But behind the scenes, the company was falling apart. In recent months, it had racked up unpaid bills from just about everyone it did business with. And Foxconn—to which Fuhu owed between $60 million and $110 million, depending on who was counting—had finally reached its breaking point. The lawyers told Fujioka and Mitchell that until they paid their tab, their company would be cut off.
Fujioka insisted this was just a negotiating ploy. “There is no concept of bankruptcy or contract law in Asia,” claims Fujioka, who considers himself well versed in the Chinese way. Within 48 hours, Fuhu’s partners were on a plane to Hong Kong, where they hoped to strike a deal with Foxconn executives. But Foxconn wouldn’t budge. To Fujioka, it was all part of the dance. He sent his CEO back to El Segundo, assuming he understood that they would eventually work out a deal.
But Mitchell, a former Accenture consultant, wasn’t so sure. When he returned home, he phoned up Walmart, Target, and Best Buy to warn them that Fuhu might not be able to fill their Christmas orders. Then he called Christian Donohue, a managing director of Tennenbaum Capital Partners, an L.A. private equity firm that operates a special situations fund for distressed companies. Five months earlier, Mitchell and Fujioka had persuaded Tennenbaum to give them a $10 million loan to provide much needed cash flow. Once Donohue was on the line, he seemed sympathetic. “Christian’s response was, ‘This is unfortunate. This is a big surprise to all of us. I feel bad for you, but we will figure out a way to work through it,’” Mitchell later recalled. But by the morning of October 30, Tennenbaum had
