To answer 4 from 3, the first investor still owns shares in the company. Except in the worst of circumstances, the next investor will always invest at a higher

To answer 4 from 3, the first investor still owns shares in the company. Except in the worst of circumstances, the next investor will always invest at a higher valuation than all before him/her. Thus, even if the second investor does nothing after the initial investment, not only to they still own part of the company, but that part is going to be worth more (theoretically) based on what kind of equity the last investor got for the amount of money put in. IE if I buy 100 shares of your company in exchange for a $100,000 investment, you can sell 50 more shares in the next round as long as they're worth more than $50,000. It's actually more confusing than that, because the total worth of the company becomes the valuation PLUS the investment. The only way anybody writes off an investment is if the company goes completely under and there's nothing left to salvage. Most VC's have deals in place that give them preferential treatment if the company goes under and has to liquidate assets - they get their money back first.