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

Question

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

In: 755

Answer 1

The answer depends on when the venture fund invested – seed, A, B, C, IPO, etc. and the fund size / strategy.

Early investors likely did not lose money since at the time of investment WeWork was worth less than today. Especially if they exited their positions along the hype phase, or prior to / shortly after IPO.

The later investors probably lost money since they couldn’t sell their position (too many red flags) and WeWork’s IPO wasn’t exactly hot.

However this does not mean a VC fund is now “broke”. Most VCs have multiple funds and each fund places multiple bets on different companies. It is likely that WeWork may have dragged down the performance of a single fund, but if other exits pan out the end result may still be ok. Kinda like how people bet on multiple horses in a horse race.

As for the prior “owner” / CEO, Adam Neumann, Marc Andreessen just invested $350M into his new idea named Flow. In this instance, is the owner still rich? Yep. Blacklisted? Not from Andreessen but Masayoshi / SoftBank probably won’t be sending Neumann holiday cards anytime soon much less another check for investment. In Theranos / Holmes case, the answer is “no” on all accounts.