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How incubators and angel investors work?

Date: 30 Jul 2016    Group: Finance and Investments    Category: Investments   

I have a doubt. If investors invest in my startup and take 10% share and after some time my startup fails.
What if I have to return them back hence their share value becomes zero? Or do I have to return to them all the amount that they have invested first?
How does it works?
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Author: Mahesh    31 Jul 2016      Member Level: Gold     Points : 3  (Rs 3)    Voting Score: 0

Each incubator and VC has their own rules and policies for the exit. No incubator or VC is going to exit without taking their some percent of the investment. And the biggest point in their investment is that they don't invest into startups who think "what if my startup fails". They want to invest into startups that makes them money or have confidence of failing at much better position where the startup has exit value. Nobody invests into the startup that fails at the point where the startup doesn't even managed to generate the revenue.

Considering your scenario where your startup value becomes zero, in such case liability comes down to the founders to pay the VC money back. Unless incubator and VC explicitly tell you that you're not liable to pay on some agreement, then and until then you're liable to pay.

There are some of the loaning incubators and VC and angel investors that take the lowest share or return and invest heavily. However no incubators and VC walks out of the deal with empty handed. Anyone telling you otherwise is just speculating and is not aware of the details that goes onto while acquiring the funding for the startup.

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