6 ms·

Just wanted to ask how common is it to return money to VC's? Or how is this any different than a bank loan, If the VC doesn't shoulder the risks that come with

by kamaal 12y ago

Just wanted to ask how common is it to return money to VC's? Or how is this any different than a bank loan, If the VC doesn't shoulder the risks that come with these kind of projects I wonder what is the value they add. People might as well borrow the money on loan.

oalders 12y ago
The post says they raised "$250,000 from friends & family". That seems like a strong incentive to make sure your investors (read: loved ones) can recover their investments.
- chrissnell 12y ago
  Would the typical VC deal allow founders to return money to their seed round investors before the VCs?
  - balls187 12y ago
    Pretty sure not. Seed round funding usually uses a convertible note. Assuming the VC round is a priced round, the seed round investors are treated as if they had put in money during the price round. Thus they would have same class of stock as the VC investors, with the same liquidation preferences.
  - birken 12y ago
    FWIW any professional investors, especially VCs, would love to buy out previous investors: fewer signatures, less dilution, fewer lines on the cap table, etc. But as a seed or early investor, you probably don't want to be bought out if further rounds of investment are happening (and in any standard deal you'll have the right to hold your stock as long as you want). Further rounds of investment normally means the company is successful and growing. It also means that professional investors think the investment is a good deal, so as an early stage investor your best bet is generally to stay on the bandwagon. In the case of Wattage, the company is going bankrupt, so as an investor you are going to be getting between 0 - 100% of your money back. So it seems like the founders tried to get that closer to 100% so there wouldn't be any negative feelings. But if you are an investor in a successful and growing company, getting your money back is not a good return.
joshu 12y ago
That doesn't make sense. Banks don't make unsecured loans of that size.
javajosh 12y ago
That's a good question, but realize that the OP is returning the money to angels, the $250k they got from "friends and family". So, even more than being a standup guy, he's ensuring congeniality with the in-laws. :)
TheCoelacanth 12y ago
It's far from guaranteed that an unsuccessful startup will be able to return the investor's money.
daenz 12y ago
I'm astonished at the amount raised from "friends and family." If my network of people I can ask is 250 people (a lot!), and my success rate for securing some amount of money is 10%, the average amount contributed per person is $10,000. Maybe it's my modest means speaking here, but that's an insane amount.
- ska 12y ago
  If you have the sort of friends and family who will put up $50k, this is much more achievable, no? (I have no idea what sort of situation the poster is in, but F&F rounds can certainly go higher than $250k).
- billyhoffman 12y ago
  It's not "Friends and Family." It's "Friends and Family who qualify as accredited investors." (at least in the US). An accredited investor is "someone whose net worth exceeds $1M not including their primary residence." The vast majority of people are not accredited investors because they cannot use their house as part of their net worth. This is not your extended family giving you a $500 or $1000 to pursue your dream. These are wealthy people who know what they are doing, and are putting in several thousand if not tens of thousands of dollars each.
  - Kranar 12y ago
    Friends and family are allowed to invest in a company without being an accredited investor. The rule about accredited investors involves soliciting investment from the general public. Rule 504 allows a company to raise upwards of 1 million dollars over a 12 month period from non-accredited investors so long as that money is raised from pre-existing contacts, that is no general solicitation is made. http://www.sec.gov/answers/rule504.htm http://www.sec.gov/answers/rule504.htm
- loumf 12y ago
  It might be "friends and family (and myself)".
ska 12y ago
VC's exist to service a market that banks wouldn't touch with a 10 foot pole.

by kamaal 12y ago

oalders 12y ago

The post says they raised "$250,000 from friends & family". That seems like a strong incentive to make sure your investors (read: loved ones) can recover their investments.

chrissnell 12y ago
Would the typical VC deal allow founders to return money to their seed round investors before the VCs?
- balls187 12y ago
  Pretty sure not. Seed round funding usually uses a convertible note. Assuming the VC round is a priced round, the seed round investors are treated as if they had put in money during the price round. Thus they would have same class of stock as the VC investors, with the same liquidation preferences.
- birken 12y ago
  FWIW any professional investors, especially VCs, would love to buy out previous investors: fewer signatures, less dilution, fewer lines on the cap table, etc. But as a seed or early investor, you probably don't want to be bought out if further rounds of investment are happening (and in any standard deal you'll have the right to hold your stock as long as you want). Further rounds of investment normally means the company is successful and growing. It also means that professional investors think the investment is a good deal, so as an early stage investor your best bet is generally to stay on the bandwagon. In the case of Wattage, the company is going bankrupt, so as an investor you are going to be getting between 0 - 100% of your money back. So it seems like the founders tried to get that closer to 100% so there wouldn't be any negative feelings. But if you are an investor in a successful and growing company, getting your money back is not a good return.

joshu 12y ago

That doesn't make sense. Banks don't make unsecured loans of that size.

javajosh 12y ago

That's a good question, but realize that the OP is returning the money to angels, the $250k they got from "friends and family". So, even more than being a standup guy, he's ensuring congeniality with the in-laws. :)

TheCoelacanth 12y ago

It's far from guaranteed that an unsuccessful startup will be able to return the investor's money.

daenz 12y ago

I'm astonished at the amount raised from "friends and family." If my network of people I can ask is 250 people (a lot!), and my success rate for securing some amount of money is 10%, the average amount contributed per person is $10,000. Maybe it's my modest means speaking here, but that's an insane amount.

ska 12y ago
If you have the sort of friends and family who will put up $50k, this is much more achievable, no? (I have no idea what sort of situation the poster is in, but F&F rounds can certainly go higher than $250k).
billyhoffman 12y ago
It's not "Friends and Family." It's "Friends and Family who qualify as accredited investors." (at least in the US). An accredited investor is "someone whose net worth exceeds $1M not including their primary residence." The vast majority of people are not accredited investors because they cannot use their house as part of their net worth. This is not your extended family giving you a $500 or $1000 to pursue your dream. These are wealthy people who know what they are doing, and are putting in several thousand if not tens of thousands of dollars each.
- Kranar 12y ago
  Friends and family are allowed to invest in a company without being an accredited investor. The rule about accredited investors involves soliciting investment from the general public. Rule 504 allows a company to raise upwards of 1 million dollars over a 12 month period from non-accredited investors so long as that money is raised from pre-existing contacts, that is no general solicitation is made. http://www.sec.gov/answers/rule504.htm http://www.sec.gov/answers/rule504.htm
loumf 12y ago
It might be "friends and family (and myself)".

ska 12y ago

VC's exist to service a market that banks wouldn't touch with a 10 foot pole.