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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Most of the responses here don’t directly address the question.
Generally speaking, the owners (shareholders) of a private VC-backed company like WeWork that goes bankrupt do not make any money from that company. There are three exceptions:
1. The operators of the company (as opposed to the investors) obviously earn cash compensation in addition to equity. At mature companies, this cash amount can be large (high six figures, maybe even low seven figures annually), and once earned, is usually untouchable in a bankruptcy except in cases of fraud.
2. A shareholder might have already sold some of his shares to an outside investor in what’s called a secondary transaction. Founders and early investors often do this as part of late-stage and pre-IPO rounds. Of course, now that new investor is the one losing money after the company goes under.
3. Sometimes during bankruptcy there are assets that can be sold off, with the proceeds going toward paying back debt holders, then equity holders (another term for shareholders), in a specific order of preference. Asset liquidation usually doesn’t amount to much but if you’re high up the preference stack and get lucky with the liquidation, you might get your money back and little bit on top.
All that said, most investors making VC investments have a diversified portfolio, so even in a worst case scenario they themselves are not broke after a bankruptcy. And they’re certainly not blacklisted from future investments, legally speaking, unless they committed fraud. But make enough really bad bets and you may very well end up broke (if you’re an individual) or unable to raise your next fund (if you’re an institution).
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