I never understood how venture investments worked even though I studied economic science. Let‘s say WeWork for example. If they got 17 billion as an investment and are now bankrupt. Are the owners still rich or broke and blacklisted for future investments idk
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The investors who didn’t sell lost everything. The owner himself made Billions though because he cashed out before the company tanked.
The owners are the shareholders. They lose most (or pretty much all) of the investment. Most relatively smart shareholders (including the founders) probably didn’t invest ALL their wealth into the company. So they lose what they invested and retain what they didn’t invest.
Unless they are accused of some crime or another, they are probably not legally prevented from future investment. Put it this way, if you bought some Wework stock and held it when they went bankrupt, it doesn’t mean you can’t invest in another company. The reputation of the founders and CEO probably took a beating so they may find it difficult to start up companies in the future but it is far from a blacklist.
The owners are still rich… for the most part. Small investors get screwed whereas big investors securitize the debt by becoming first lien holders.
Say 1 guy invested $1 billion. They usually won’t give it all at once, and it’s secured by assets of the company invested in. That $1 billion is given out in chunks more like a line of credit to fund capital needs, has interest attached and is usually the first in line to be paid back when buying down debt.
So big investor is really only out however much was committed at the time and the interest with it. However, he probably has rights to margin call the balance to protect the investment (could be why they ultimately went bankrupt, idk I haven’t read the report.) and any outstanding balance at bankruptcy is covered by the assets sold during liquidation that he now owns.
He’ll probably lose some of the investment, but probably made it up elsewhere over the time of investment. That’s more or less how it should operate, but in actuality there’s a lot of people doing this vying for first in line in case of bankruptcy.
If you give me 1 billion dollars I’ll give you 1/17th of my company. If the company becomes worth more money in the future, you can sell the part you own for more money. For example if the company is worth 34 billion you can sell your part of the company for 2 billion dollars. Now alternatively, if the company goes out of business, you won’t find anyone who would buy the fraction you own and don’t have money.
It depends… a lot of venture capital is a numbers game. VC’s invest in big portfolios of companies, and many fail. They might lose all/most of their investment on 7of 10 companies, with 2 making decent returns and 1 home run that more than makes up for the 7 total loses.
WeWork is somewhat different in terms of its size/scale. Most companies don’t take on such vast amounts of investment. But WeWork also did eventually go public so many of the investors may have already liquidated some of their shares to pull money off the table, and leave investors who bought the shares post IPO to take the loss. At their IPO, WeWork was valued at $9 billion, so that suggests investors were looking at a big loss even if they sold soon after the IPO, and it’s only gotten worse since then.
Blacklisted!? LOL
Shortlisted for new investments, more likely. They have demonstrated that they can grow a business to very big very fast. The fact that it ran afoul of the law and market demand collapsed is just bad luck, right?
I think the founder already has funding for a new venture so go figure.
All the money these investors invest is extra money. If it all disappears they are still fabulously wealthy. They gamble with money that doesn’t mean anything on the chance that it will multiply exponentially.
I think because their ridiculous wealth was an accident they don’t mind as much losing a chunk of it. They think here’s a guy whose bullshit might take him to the top, just like me. So they invest in the bullshit.
If the company went bankrupt and isn’t bought out by another company, the shareholders lose everything because their shares are worthless.
If you’re talking about the executives who get paid a salary to work in the company, yes they do keep what they got paid.
Yes, the owners are still rich after a bankruptcy. The largest contributor to WeWork is Softbank at approximately $7.1B. That’s a lot. Even after their WeWork losses they still have $8.9B left over, primarily ownership stakes in T-mobile and Nvidia.
Next up is Goldman Sachs at $1.8B. Assets today $1.5 Trillion. Plus additional investor funds they can bundle.
This is the basics of venture capital. Never put all of your eggs in one bucket. You have multiple projects. Each project has multiple investors. This way you share the risk. No single failure can bankrupt you. (Softbank has had string of failures lately, but they are still going).
https://app.dealroom.co/companies/we_work/
https://fintel.io/i/softbank-group
https://www.advratings.com/companies/goldman-sachs
People who start up a company are rarely penalized when it goes broke. It is assumed that if they start up another company or go to work for someone else, their first bankruptcy has taught them what mistakes to avoid. That said I have read in numerous publications that entrepreneurs are allowed to go bankrupt three times before they get frozen out of venture capital.
It takes more than a great idea to build a company, it takes determination, skill, and most importantly luck.
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