5 ms·

Unless an investor additionally gave a loan, there is no debt owed in any way to investors - that's the point, they made a decision to invest at risk and presum

by hoodoof 10y ago

Unless an investor additionally gave a loan, there is no debt owed in any way to investors - that's the point, they made a decision to invest at risk and presumably did due diligence based on accurate information.

Benjamin_Dobell 10y ago
Errr, wait what? Firstly, to say there's no debt, monetary or otherwise, to someone who believed in your company enough to hand over their own money (or money in their control) to back you is just pure arrogance. Secondly, there absolutely is debt. When a company goes into administration the assets are sold to pay out those who hold equity in the company. They're literally owed debt. EDIT: To clarify for those responding saying that equity does not constitute debt... Creditors and investors are different, absolutely. It is also correct that investors are typically paid last during administration (although investors may form agreements to come before other investors). Nonetheless, during administration, the administrator determines how much money the investors are "owed", which is literally the definition of debt.
- stevewilhelm 10y ago
  > When a company goes into administration the assets are sold to pay out those who hold equity in the company. They're literally owed debt. This is incorrect. Please see the differences between equity and debt. [1] [1] http://smallbusiness.findlaw.com/business-finances/debt-vs-equity-advantages-and-disadvantages.html http://smallbusiness.findlaw.com/business-finances/debt-vs-e...
- dexterdog 10y ago
  They're not owed debt. They own a piece of the company. When the assets are liquidated they will get their share unless they are on the shit-end of a liquidation preference clause.
- mark212 10y ago
  not to quibble, but no, they're not literally owed debt. The assets of the company are used to pay off any actual debt (payroll taxes, outstanding invoices to vendors, etc). Only then is any remaining money distributed to the equity holders. They take absolutely last.
- jdoliner 10y ago
  No matter how many times you say that this situation is "literally the definition of debt" you're still not going to the legal definition of debt so that it applies here. Equity is not debt, they do both until eventually owing another entity money. But in a legal sense that is not literally the definition of debt, because it is also part of equity which again isn't debt. From a practical perspective the difference is that with equity you accept a lower floor (you might get nothing) in exchange for a higher ceiling (your invest might 100x if the company goes public). That's the deal these investors signed up for and unfortunately for them they got option number 1. They're not owed anything because that's the deal they agreed to.
  - Benjamin_Dobell 10y ago
    I have zero idea what the legal definition of debt is in the country/jurisdiction you live in. I also didn't specify what country I live in. Additionally, my first point was one of metaphorical (social) debt. Given the context and the fact I'm typing in English it ought to have been clear I was referring to the definition of debt in English. If that wasn't clear, I apologise for the confusion.
    - praneshp 10y ago
      > I have zero idea what the legal definition of debt is in the country/jurisdiction you live in. I also didn't specify what country I live in. Only definition that matters is the one in the jurisdiction this startup was in.
      - Benjamin_Dobell 10y ago
        Last I checked this was a tech website not a legal one...
        praneshp 10y ago
        So?
mark212 10y ago
comment says "metaphoric" debt. Surely you can agree that the principals of a company owe (in the sense of being socially obligated) a debt of thanks and gratitude to investors for taking a risk on them in the first place?
- hoodoof 10y ago
  No. The relationship is wrong if you feel indebted to your investors and like they deserve thanks. They are partners in the business. Presumably the CEO did all they could to succeed and behaved in an ethical and honorable manner. If they did so, then investors have been well served. I will agree however that anyone who ever chooses to do business with you in any context deserves thanks. On that basis, thanks is deserved.
  - twblalock 10y ago
    > The relationship is wrong if you feel indebted to your investors and like they deserve thanks. They are partners in the business. Plus, they knew the risks. There is no reason to feel sorry for early-stage investors who lose money unless some kind of fraud was perpetrated on them.
    - Benjamin_Dobell 10y ago
      Do you feel sorry for an athlete who hurts themselves? Do you feel sorry for wife of a stuntman who dies in an accident? Do you feel sorry for those with a gambling addiction? I can understand why you wouldn't at all feel sorry for an investor to the same extent as my examples above; presumably the investor hasn't ruined their life. However, my point is knowing the risks doesn't preclude someone from receiving empathy/sympathy.
      - twblalock 10y ago
        > I can understand why you wouldn't at all feel sorry for an investor to the same extent as my examples above; presumably the investor hasn't ruined their life. However, my point is knowing the risks doesn't preclude someone from receiving empathy/sympathy. I was not writing about a general case of risktaking: I was writing specifically about investors. If I had been writing about athletes, stuntmen, gamblers, or any other kind of people, I would have written something that took into account the different contexts in which such people take risks. I really don't see what you are trying to accomplish by changing the focus from a specific case to a general case.

by hoodoof 10y ago

Benjamin_Dobell 10y ago

Errr, wait what? Firstly, to say there's no debt, monetary or otherwise, to someone who believed in your company enough to hand over their own money (or money in their control) to back you is just pure arrogance. Secondly, there absolutely is debt. When a company goes into administration the assets are sold to pay out those who hold equity in the company. They're literally owed debt. EDIT: To clarify for those responding saying that equity does not constitute debt... Creditors and investors are different, absolutely. It is also correct that investors are typically paid last during administration (although investors may form agreements to come before other investors). Nonetheless, during administration, the administrator determines how much money the investors are "owed", which is literally the definition of debt.

stevewilhelm 10y ago
> When a company goes into administration the assets are sold to pay out those who hold equity in the company. They're literally owed debt. This is incorrect. Please see the differences between equity and debt. [1] [1] http://smallbusiness.findlaw.com/business-finances/debt-vs-equity-advantages-and-disadvantages.html http://smallbusiness.findlaw.com/business-finances/debt-vs-e...
dexterdog 10y ago
They're not owed debt. They own a piece of the company. When the assets are liquidated they will get their share unless they are on the shit-end of a liquidation preference clause.
mark212 10y ago
not to quibble, but no, they're not literally owed debt. The assets of the company are used to pay off any actual debt (payroll taxes, outstanding invoices to vendors, etc). Only then is any remaining money distributed to the equity holders. They take absolutely last.
jdoliner 10y ago
No matter how many times you say that this situation is "literally the definition of debt" you're still not going to the legal definition of debt so that it applies here. Equity is not debt, they do both until eventually owing another entity money. But in a legal sense that is not literally the definition of debt, because it is also part of equity which again isn't debt. From a practical perspective the difference is that with equity you accept a lower floor (you might get nothing) in exchange for a higher ceiling (your invest might 100x if the company goes public). That's the deal these investors signed up for and unfortunately for them they got option number 1. They're not owed anything because that's the deal they agreed to.
- Benjamin_Dobell 10y ago
  I have zero idea what the legal definition of debt is in the country/jurisdiction you live in. I also didn't specify what country I live in. Additionally, my first point was one of metaphorical (social) debt. Given the context and the fact I'm typing in English it ought to have been clear I was referring to the definition of debt in English. If that wasn't clear, I apologise for the confusion.
  - praneshp 10y ago
    > I have zero idea what the legal definition of debt is in the country/jurisdiction you live in. I also didn't specify what country I live in. Only definition that matters is the one in the jurisdiction this startup was in.
    - Benjamin_Dobell 10y ago
      Last I checked this was a tech website not a legal one...
      - praneshp 10y ago
        So?

mark212 10y ago

comment says "metaphoric" debt. Surely you can agree that the principals of a company owe (in the sense of being socially obligated) a debt of thanks and gratitude to investors for taking a risk on them in the first place?

hoodoof 10y ago
No. The relationship is wrong if you feel indebted to your investors and like they deserve thanks. They are partners in the business. Presumably the CEO did all they could to succeed and behaved in an ethical and honorable manner. If they did so, then investors have been well served. I will agree however that anyone who ever chooses to do business with you in any context deserves thanks. On that basis, thanks is deserved.
- twblalock 10y ago
  > The relationship is wrong if you feel indebted to your investors and like they deserve thanks. They are partners in the business. Plus, they knew the risks. There is no reason to feel sorry for early-stage investors who lose money unless some kind of fraud was perpetrated on them.
  - Benjamin_Dobell 10y ago
    Do you feel sorry for an athlete who hurts themselves? Do you feel sorry for wife of a stuntman who dies in an accident? Do you feel sorry for those with a gambling addiction? I can understand why you wouldn't at all feel sorry for an investor to the same extent as my examples above; presumably the investor hasn't ruined their life. However, my point is knowing the risks doesn't preclude someone from receiving empathy/sympathy.
    - twblalock 10y ago
      > I can understand why you wouldn't at all feel sorry for an investor to the same extent as my examples above; presumably the investor hasn't ruined their life. However, my point is knowing the risks doesn't preclude someone from receiving empathy/sympathy. I was not writing about a general case of risktaking: I was writing specifically about investors. If I had been writing about athletes, stuntmen, gamblers, or any other kind of people, I would have written something that took into account the different contexts in which such people take risks. I really don't see what you are trying to accomplish by changing the focus from a specific case to a general case.