funding, fundraisingImagine that I came up with an idea, got some investors interested and raised $300k.
12 months down the track, we all realized that the business model won’t have that capital growth that we all thought possible. However, the business model does show that is sustainable and profitable at lower scale than previously thought. The startup then has become a lifestyle business.
What happens with the money invested in the company? Do the company founders need to give some money back to the investors? Or if the investor had 50% of the company, that’s what he is going to have and that’s it?
The money would then stay in the company until the investors exit – by selling to another fund, getting bought out through share buy-backs, etc.
If they have a majority stake in the business, they could sack the CEO and try again. If they’ve enough shares to flex their muscles, they could pressure the CEO to try harder/go faster – which may mean running the company into the ground if it fails.
There actually was an example of the latter in recent weeks. I forgot the name of the business. But it was basically a design related startup that was profitable but small and growing slowly. The VCs wanted it to grow big, fast. And it eventually went bankrupt.
Whatever happens though, no, the founders (the individuals) do not need to give the money back.
investors also get the money back when you take out money in form of dividend including the points mentioned by Denis de Bernardy
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