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Investments in money-losing companies have a natural raise-or-do-something date called "zero cash day". And generally, the company can't raise new money without

Investments in money-losing companies have a natural raise-or-do-something date called "zero cash day". And generally, the company can't raise new money without having a majority of each class of preferred stock vote for it, i.e. a majority of the money in every previous round. So if enough investors have lost confidence in management, no matter how much board control management has, investors can let the company run out of money.

koolba 10y ago
> Investments in money-losing companies have a natural raise-or-do-something date called "zero cash day". And generally, the company can't raise new money without having a majority of each class of preferred stock vote for it, i.e. a majority of the money in every previous round. So if enough investors have lost confidence in management, no matter how much board control management has, investors can let the company run out of money. I was thinking more about the situation where the founders fire all the employees, run the operation as lean as possible (to maintain their obligations), and stretch the $62M as long as they can. At $2M/year that's 31 years without accounting for any growth of the money itself. Besides due diligence on the part of the investors to not give money to the kind of person that would do that, what prevents that situation?
- greglindahl 10y ago
  xenadu02 is correct that your scenario is vanishlingly rare. After a nosedive, the next most likely scenario is that a failing business cuts its way to semi-profitability, which leaves the investors stuck with a low-growth investment in a fund that's nearing its end.
- xenadu02 10y ago
  If the founders retain board control and don't run out of money there is little the investors can realistically do. Both sides are taking a lot of risk, I wouldn't rate this as a terribly concerning one. Far far more founders spend too much money and nosedive into the ground.
- deleted 10y ago
  [deleted]

koolba 10y ago

> Investments in money-losing companies have a natural raise-or-do-something date called "zero cash day". And generally, the company can't raise new money without having a majority of each class of preferred stock vote for it, i.e. a majority of the money in every previous round. So if enough investors have lost confidence in management, no matter how much board control management has, investors can let the company run out of money. I was thinking more about the situation where the founders fire all the employees, run the operation as lean as possible (to maintain their obligations), and stretch the $62M as long as they can. At $2M/year that's 31 years without accounting for any growth of the money itself. Besides due diligence on the part of the investors to not give money to the kind of person that would do that, what prevents that situation?

greglindahl 10y ago
xenadu02 is correct that your scenario is vanishlingly rare. After a nosedive, the next most likely scenario is that a failing business cuts its way to semi-profitability, which leaves the investors stuck with a low-growth investment in a fund that's nearing its end.
xenadu02 10y ago
If the founders retain board control and don't run out of money there is little the investors can realistically do. Both sides are taking a lot of risk, I wouldn't rate this as a terribly concerning one. Far far more founders spend too much money and nosedive into the ground.
deleted 10y ago
[deleted]