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

Investments are buying a slice of the company. So when investors gave wework 17 billion dollars , they were given equity , or negotiable stocks in the business. When bankruptcy happens , the business is sold off to pay off as much of the debts it can. The value of assets gets divided among all the people it owes , in around the order of government taxes , wages and so on. People who had loaned money to the business (bondholders) are next , and finally the investors (shareholders)

Investments can be like buying a lottery ticket , with a very very low chance of big payoff, say $17 billion payoff. You get rich if your ticket wins. More often your ticket wont win , and you wont get anything. In the worse case, the business itself does not do well and so many people bought tickets and the payoff is so small such that you loose money.