Venture capitalist Gary Lauder paid just $4.8 million for the remnants of OnLive when the company went through its insolvency process this summer, a letter obtained by this newspaper reveals.

Meanwhile, the Palo Alto company had at least $18.7 million in outstanding debts, not including money it owed in the future for leases and other contractual obligations, according to the letter, which was sent last month to OnLive creditors. The figures indicate that the company’s creditors will end up getting no more than about 26 cents on each dollar they were owed.

OnLive, which had previously raised more than $40 million from AT&T, HTC and other major investors, had been exploring a sale or another investment for a “substantial period of time,” noted Joel Weinberg, the CEO of Insolvency Services Group, which is handing OnLive’s bankruptcy-like process, in the letter. Running out of cash, the company decided to liquidate its assets through an assignment for the benefit of creditors, a bankruptcy alternative that operates under state law.

Lauder’s offer came just days before the liquidation was set to happen, according to the letter from Weinberg, who the company named as its “assignee” in the insolvency. Given the circumstances, it was the best that OnLive could get, Weinberg said in the letter.

“Had the sale to the buyer not taken place, the assignee would have been left with inadequate capital to fund the significant costs to preserve and market OnLive’s patents and other intellectual property, thus greatly reducing expected recoveries essentially to those of a forced piecemeal auction,” he wrote.

Weinberg did not return a call seeking comment but his lawyer, Steven Spector of Buchalter Nemer, confirmed the authenticity of the letter.

In a statement, the new OnLive said its predecessor’s basic problem was not its business model but that it simply hadn’t raised enough cash for its business to take off.

“When planned financing didn’t work out, the company was left with few options,” the new OnLive said in the statement. “Transitioning through this unexpected event has not been easy, but it has left the company much healthier.”

The potential payout is little comfort to the company’s smaller creditors, some of whom are owed thousands of dollars.

OnLive was a frequent customer or Prolific Oven Bakery in Palo Alto, said Regina Chan, daughter of the owner of the local chain. By the time the company went through its insolvency in August, it owed the bakery $2,000, which represented about a month’s worth of Onlive’s orders, she said.

“It’s unfortunate for us because we are small,” said Chan. “We are a family-owned bakery.”

OnLive went into insolvency in mid-August, laying off all of its employees. Weinberg initially estimated that the company owed $30 million to $40 million at the time of its assignment but since then, the new OnLive has reached agreements with certain creditors that have reduced the defunct company’s outstanding debts, said Spector.

Lauder created a successor company that bought the assets, kept OnLive’s game service up and running and offered to hire back nearly half of the defunct company’s workers. Steve Perlman, OnLive’s founder and CEO, was expected to stay on with the successor company but decided to leave less than two weeks after the insolvency.

OnLive’s assignment came less than two months after Sony bought rival streaming game company Gaikai for some $380 million. But Geoffrey Berman, senior vice president of Development Specialists, a consulting company that focuses on distressed businesses, cautioned against making too much of the difference between that amount and what Lauder paid for OnLive.

“If one was doing well as a going concern, then it has a much better valuation than one on death’s door,” he said.

Contact Troy Wolverton at 408-840-4285. Follow him at Twitter.com/troywolv.