This is not common practice. And it's pretty uncool. Note that while I am an angel investor (...) I am in Silicon Valley, where things can be different from the

This is not common practice. And it's pretty uncool. Note that while I am an angel investor (...) I am in Silicon Valley, where things can be different from the rest of the world. Out of the 40ish startups I have invested in, the half-dozen or so VCs I am in an LP in, and the hundreds more startups I merely interact with, I've never heard of anything like this happen. You giving them common out of your own pocket is also probably difficult from a tax POV. Consult an accountant/lawyer/etc. On the other hand, the losses from the previous startup do give them a tax offset, so it's not like they walked away entirely empty-handed. You can make an advisory board and grant them some options that vest over time if they are going to contribute (as they think they are going to, if they think they want to keep the relationship open.) But these guys sound uncool and I would just avoid them in the future. My gut says, however, no. (BTW this is where a good lawyer comes in - they can tell you what is normal in the industry.)