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Except the implication is they “invested” in companies they didn’t have the cash for. It’s not acceptable to say you’ll invest in a company and then go fundrais

Except the implication is they “invested” in companies they didn’t have the cash for. It’s not acceptable to say you’ll invest in a company and then go fundraise to fulfill that commitment. Those things need to happen in reverse order.

kirillzubovsky 9y ago
Although I would love to agree with you in theory, in practice in Silicon Valley everyone is selling first and building second (or not at all). It's not unlikely that 500 was fundraising with one hand and investing with the other, and when their master sales person left, the process got a little tangled.
- thanksgiving 9y ago
  If I remember correctly, Microsoft famously sold Windows like this...
  - asadlionpk 9y ago
    Not Windows, DOS.
lhh 9y ago
For the record, this happens all the time in the private equity world (they're called fundless sponsors).
JumpCrisscross 9y ago
> It’s not acceptable to say you’ll invest in a company and then go fundraise to fulfill that commitment When a VC “raises” capital, they don’t get a box of cash. Instead, their LPs sign commitments. When the VC signs a subscription agreement with a company, they “call” that capital from their LPs. LPs are then obligated to supply it promptly so the VC can meet its obligation to the company. This is done to separate cash management and investment. (While the cash sits waiting, one investor may want it in CDs; another in Treasuries. Mingling that risk with the core activity of VCs, picking great ventures, isn’t worth it.) OP is saying the LPs, as part of their commitment, may have had an out in their paperwork. VC signed subscription agreement. VC called money. LPs said “no, we’re exercising this clause to delay or not give you that money.” TL; DR a round isn’t raised until it’s closed. Disclaimer: I am not a lawyer. This is not legal advice. It outlines a hypothetical and does not necessarily represent the facts and circumstances of 500 Startups.
- austenallred 9y ago
  Yes, but you don’t invest money that isn’t closed.
  - JumpCrisscross 9y ago
    > don’t invest money that isn’t closed Are you talking to the VC or the company? When a VC says they have “closed” a fund, it means they have collected commitments. (I have found no consistency in what companies mean by having “closed” a round.)

kirillzubovsky 9y ago

Although I would love to agree with you in theory, in practice in Silicon Valley everyone is selling first and building second (or not at all). It's not unlikely that 500 was fundraising with one hand and investing with the other, and when their master sales person left, the process got a little tangled.

thanksgiving 9y ago
If I remember correctly, Microsoft famously sold Windows like this...
- asadlionpk 9y ago
  Not Windows, DOS.

lhh 9y ago

For the record, this happens all the time in the private equity world (they're called fundless sponsors).

JumpCrisscross 9y ago

> It’s not acceptable to say you’ll invest in a company and then go fundraise to fulfill that commitment When a VC “raises” capital, they don’t get a box of cash. Instead, their LPs sign commitments. When the VC signs a subscription agreement with a company, they “call” that capital from their LPs. LPs are then obligated to supply it promptly so the VC can meet its obligation to the company. This is done to separate cash management and investment. (While the cash sits waiting, one investor may want it in CDs; another in Treasuries. Mingling that risk with the core activity of VCs, picking great ventures, isn’t worth it.) OP is saying the LPs, as part of their commitment, may have had an out in their paperwork. VC signed subscription agreement. VC called money. LPs said “no, we’re exercising this clause to delay or not give you that money.” TL; DR a round isn’t raised until it’s closed. Disclaimer: I am not a lawyer. This is not legal advice. It outlines a hypothetical and does not necessarily represent the facts and circumstances of 500 Startups.

austenallred 9y ago
Yes, but you don’t invest money that isn’t closed.
- JumpCrisscross 9y ago
  > don’t invest money that isn’t closed Are you talking to the VC or the company? When a VC says they have “closed” a fund, it means they have collected commitments. (I have found no consistency in what companies mean by having “closed” a round.)