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It seems others are suggesting you simply take their money and ignore all their demands (so long as you aren't violating any contract).

tptacek 3y ago
I'm not saying you're really facing any legal liability here but the strategy you're proposing here involves defrauding your investors. They're going to make these demands explicit before you close the deal!
- xyzzy_plugh 3y ago
  What demands are you thinking? That you raise future rounds? That has not been my experience.
- stickfigure 3y ago
  I don't see this as a strategy so much as just a natural consequence of the system. Most companies "fail" from a VC perspective; some percentage of those are still profitable and keep the founders/employees engaged. Everyone wanted the hockey stick but they got something else. It's not fraud.
  - tptacek 3y ago
    It is if you assure your investors you plan to take risks to pursue hockey stick growth, but instead you intend to keep the money in the bank and putter along.
  - morgante 3y ago
    Right. It's fine/expected if the "failure" comes in this category (though many investors would encourage you to simply repay them and move onto something with more growth potential). The unethical thing would be pitching a unicorn plan when the actual strategy is building something much smaller.
- ShamelessC 3y ago
  > I'm not saying you're really facing any legal liability Why would I? > but the strategy you're proposing here I am re-framing the words of others. Didn't propose anything. > involves defrauding your investors. I don't have any investors.
- itslennysfault 3y ago
  In my example, the company was in no way planning this to be the outcome. They were shooting for a big acquisition or even IPO by capturing a sizable % of a $400b market. At some point it became clear this was not going to happen, but a path to profitability became clear so they followed it. From a fiduciary responsibility perspective this is a perfectly fine choice to make, but it is the last thing the VCs want as it results in zero ROI for them.
  - tptacek 3y ago
    Right. Everybody who works in startups has the experience of shooting for the moon and getting as far as, like, Tulsa. No harm in that! Tulsa's a big city. It's only a problem if Tulsa is where your sights were set before you pull the trigger, which is the feels I get from people talking about this as a company formation strategy. No VC is going to wire you funds on a pitch that's about making high 7s, low 8s tops if it ever succeeds at all.

tptacek 3y ago

I'm not saying you're really facing any legal liability here but the strategy you're proposing here involves defrauding your investors. They're going to make these demands explicit before you close the deal!

xyzzy_plugh 3y ago
What demands are you thinking? That you raise future rounds? That has not been my experience.
stickfigure 3y ago
I don't see this as a strategy so much as just a natural consequence of the system. Most companies "fail" from a VC perspective; some percentage of those are still profitable and keep the founders/employees engaged. Everyone wanted the hockey stick but they got something else. It's not fraud.
- tptacek 3y ago
  It is if you assure your investors you plan to take risks to pursue hockey stick growth, but instead you intend to keep the money in the bank and putter along.
- morgante 3y ago
  Right. It's fine/expected if the "failure" comes in this category (though many investors would encourage you to simply repay them and move onto something with more growth potential). The unethical thing would be pitching a unicorn plan when the actual strategy is building something much smaller.
ShamelessC 3y ago
> I'm not saying you're really facing any legal liability Why would I? > but the strategy you're proposing here I am re-framing the words of others. Didn't propose anything. > involves defrauding your investors. I don't have any investors.
itslennysfault 3y ago
In my example, the company was in no way planning this to be the outcome. They were shooting for a big acquisition or even IPO by capturing a sizable % of a $400b market. At some point it became clear this was not going to happen, but a path to profitability became clear so they followed it. From a fiduciary responsibility perspective this is a perfectly fine choice to make, but it is the last thing the VCs want as it results in zero ROI for them.
- tptacek 3y ago
  Right. Everybody who works in startups has the experience of shooting for the moon and getting as far as, like, Tulsa. No harm in that! Tulsa's a big city. It's only a problem if Tulsa is where your sights were set before you pull the trigger, which is the feels I get from people talking about this as a company formation strategy. No VC is going to wire you funds on a pitch that's about making high 7s, low 8s tops if it ever succeeds at all.