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VCs won’t invest if they know this is your plan? If you lie to them and keep going for 500k, they can sue you for scamming (or whatever legal term is).

by mantas 3y ago

plonk 3y ago
"I initially planned to scale but eventually realized the company wouldn't make enough to survive, as happens to most startups. I chose to scale down and make the company profitable instead of killing it." Could the VCs really argue against that in court? It's well-known that most startups fail without any scamming.
- thfuran 3y ago
  Making fraud your retirement plan seems unwise, even if there's a chance you'd get away with it.
  - edgyquant 3y ago
    How is there any fraud here? You took seed money, built a profitable company and it just can’t scale to a unicorn. That isn’t fraud and no court would consider it as such
    - thfuran 3y ago
      How is it not fraud to initially represent to investors that you plan to scale to the moon while planning all along to later say that you decided it wasn't going to work out?
      - plonk 3y ago
        What your mental plan is doesn't matter though, as long as you actually made a reasonable effort towards what the VCs expect. Or does anyone actually tell them "invest in me because I'll overtake Nvidia or die trying"? I guess the person taking the VC deal isn't actually against getting filthy rich if they have a chance. If you say "I think this can get big", burn cash and work hard for a while, then recognize the moment where it's not sustainable anymore and scale down, then you did what was expected.
        thfuran 3y ago
        >What your mental plan is doesn't matter though Of course it does. It makes the difference between being wrong and being a liar. >I guess the person taking the VC deal isn't actually against getting filthy rich if they have a chance. If you say "I think this can get big", burn cash and work hard for a while, then recognize the moment where it's not sustainable anymore and scale down, then you did what was expected. But if at the time you said that you actually neither believed it could get big nor intended to try to make it big, you've committed fraud even if the ultimate outcome is expected.
- bootsmann 3y ago
  I don't think you even need to go to court over this. If you have a reasonably good relationship with your VCs you can just offer to buy them out with a small premium on their investment. They see how the business is going too and most are not looking to hold you on their portfolio forever for no reason.
  - saulpw 3y ago
    It seems like VCs will often sell shares for a near-total-loss on their investment, for simplicity and relationship with founders, and they can write it off[0]. [0] https://www.youtube.com/watch?v=XEL65gywwHQ https://www.youtube.com/watch?v=XEL65gywwHQ
htrp 3y ago
>If you lie to them and keep going for 500k, they can sue you for scamming (or whatever legal term is). They'll just boardroom coup you and replace you with someone who will hyperscale up.
- edgyquant 3y ago
  Again, this requires them having a majority stake and we’re discussing YC which is a seed round. The current company I work at is YC backed and the founder still controls 85% of the company
gnicholas 3y ago
Former Silicon Valley lawyer here. It would be very difficult for a VC to win such a case, and it would almost certainly not be worth it for them given the amount of damages at issue. It would also hurt their reputation by making it seem like they got duped by some founder.

VCs won’t invest if they know this is your plan? If you lie to them and keep going for 500k, they can sue you for scamming (or whatever legal term is).

by mantas 3y ago

VCs won’t invest if they know this is your plan? If you lie to them and keep going for 500k, they can sue you for scamming (or whatever legal term is).

plonk 3y ago

"I initially planned to scale but eventually realized the company wouldn't make enough to survive, as happens to most startups. I chose to scale down and make the company profitable instead of killing it." Could the VCs really argue against that in court? It's well-known that most startups fail without any scamming.

thfuran 3y ago
Making fraud your retirement plan seems unwise, even if there's a chance you'd get away with it.
- edgyquant 3y ago
  How is there any fraud here? You took seed money, built a profitable company and it just can’t scale to a unicorn. That isn’t fraud and no court would consider it as such
  - thfuran 3y ago
    How is it not fraud to initially represent to investors that you plan to scale to the moon while planning all along to later say that you decided it wasn't going to work out?
    - plonk 3y ago
      What your mental plan is doesn't matter though, as long as you actually made a reasonable effort towards what the VCs expect. Or does anyone actually tell them "invest in me because I'll overtake Nvidia or die trying"? I guess the person taking the VC deal isn't actually against getting filthy rich if they have a chance. If you say "I think this can get big", burn cash and work hard for a while, then recognize the moment where it's not sustainable anymore and scale down, then you did what was expected.
      - thfuran 3y ago
        >What your mental plan is doesn't matter though Of course it does. It makes the difference between being wrong and being a liar. >I guess the person taking the VC deal isn't actually against getting filthy rich if they have a chance. If you say "I think this can get big", burn cash and work hard for a while, then recognize the moment where it's not sustainable anymore and scale down, then you did what was expected. But if at the time you said that you actually neither believed it could get big nor intended to try to make it big, you've committed fraud even if the ultimate outcome is expected.
bootsmann 3y ago
I don't think you even need to go to court over this. If you have a reasonably good relationship with your VCs you can just offer to buy them out with a small premium on their investment. They see how the business is going too and most are not looking to hold you on their portfolio forever for no reason.
- saulpw 3y ago
  It seems like VCs will often sell shares for a near-total-loss on their investment, for simplicity and relationship with founders, and they can write it off[0]. [0] https://www.youtube.com/watch?v=XEL65gywwHQ https://www.youtube.com/watch?v=XEL65gywwHQ

htrp 3y ago

>If you lie to them and keep going for 500k, they can sue you for scamming (or whatever legal term is). They'll just boardroom coup you and replace you with someone who will hyperscale up.

edgyquant 3y ago
Again, this requires them having a majority stake and we’re discussing YC which is a seed round. The current company I work at is YC backed and the founder still controls 85% of the company

gnicholas 3y ago

Former Silicon Valley lawyer here. It would be very difficult for a VC to win such a case, and it would almost certainly not be worth it for them given the amount of damages at issue. It would also hurt their reputation by making it seem like they got duped by some founder.