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 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.