4 ms·
> But they were incredibly gracious and both agreed to write off their investment. So the investors just accepted to lose $800k while the founder was getting $
by pier25 6y ago
> But they were incredibly gracious and both agreed to write off their investment.
So the investors just accepted to lose $800k while the founder was getting $3.7M?
Can someone explain the logic here?
- user5994461 6y agoThey are investment funds that manage billions of dollars. They invested 800k hoping to make 80-800M out of it. It's pretty obvious the business didn't pan out as well as intended. It's not really worth their time anymore. Still. They could have caused troubles and tried to recoup their $800k out of the $4M. They were nice not to. The money will be written as a loss and go through some accounting/tax trick to minimize the effective loss.
- IshKebab 6y agoIn what way would it have been trouble? Surely they legally own that bit of the company? Something doesn't make sense. $800k is not a small enough amount for any responsible investment fund to walk away from. I wonder if maybe it was actually worth way less. I think he said they walked away from their $800k investment, but maybe that was at a much higher valuation. If it was only worth $80k I can see them not bothering.
- cercatrova 6y ago800k actually is small enough to give away when you're dealing at that scale. The lawyers fees and other fees wouldn't even be worth that much from a sale. The bigger reason is reputation. If Techcrunch posted an article saying, founder screwed out of acquisition by billion dollar VC, it wouldn't work out so well for the next founder considering that VC.
- IshKebab 6y agoBut he would have still walked away with almost $3m, how would that be screwing him?
- cercatrova 6y agoWhy would they just want their original investment back? They'd demand 5 or 10x the original amount (as VCs) which completely wipes out the acquisition.
- IshKebab 6y agoBecause some money is better than no money? VCs don't really get to demand a certain amount. Investment doesn't work like that.
- cercatrova 6y agoThat is incorrect, VCs absolutely have preferential shares with liquidation preferences which can be multiples of their returns. Some money is not really better than no money if their reputation comes out as nickel and diming their founders, and future founders don't want to take their money, and if the VC misses out on a big exit as a result, now the VC has lost potentially much more than getting the 800k back.
- Aperocky 6y ago$800K is not worth the effort of collection, welcome to the world of venture capitalism.
- matthewowen 6y agoThe positive PR/social value of walking away from it is worth vastly more than the money. You're talking a tiny percentage of the fund value – if having a reputation for a willingness to do the "founder friendly" thing helps you get into competitive rounds in the future, it's absolutely worth it.
- cj 6y ago> So the investors just accepted to lose $800k $500k came from a fund General Catalyst set up specifically to encourage startups to build new businesses that integrate with Stripe. [0] The goal for the money was to enrich the Stripe ecosystem. Not generating returns for investors. If the money came from a regular fund without the Stripe affiliation, General Catalyst 100% would not have accepted the $800k loss. [0] https://www.prnewswire.com/news-releases/general-catalyst-introduces-10-million-fund-to-enrich-stripe-platform-277589911.html https://www.prnewswire.com/news-releases/general-catalyst-in...