[austenallred]

Except the implication is they “invested” in companies they didn’t have the cash for. It’s not acceptable to say you’ll invest in a company and then go fundraise to fulfill that commitment. Those things need to happen in reverse order.

[JumpCrisscross]

> It’s not acceptable to say you’ll invest in a company and then go fundraise to fulfill that commitment

When a VC “raises” capital, they don’t get a box of cash. Instead, their LPs sign commitments. When the VC signs a subscription agreement with a company, they “call” that capital from their LPs. LPs are then obligated to supply it promptly so the VC can meet its obligation to the company.

This is done to separate cash management and investment. (While the cash sits waiting, one investor may want it in CDs; another in Treasuries. Mingling that risk with the core activity of VCs, picking great ventures, isn’t worth it.)

OP is saying the LPs, as part of their commitment, may have had an out in their paperwork. VC signed subscription agreement. VC called money. LPs said “no, we’re exercising this clause to delay or not give you that money.”

TL; DR a round isn’t raised until it’s closed.

Disclaimer: I am not a lawyer. This is not legal advice. It outlines a hypothetical and does not necessarily represent the facts and circumstances of 500 Startups.

[austenallred]

Yes, but you don’t invest money that isn’t closed.

[JumpCrisscross]

> don’t invest money that isn’t closed

Are you talking to the VC or the company?

When a VC says they have “closed” a fund, it means they have collected commitments. (I have found no consistency in what companies mean by having “closed” a round.)

[kirillzubovsky]

Although I would love to agree with you in theory, in practice in Silicon Valley everyone is selling first and building second (or not at all). It's not unlikely that 500 was fundraising with one hand and investing with the other, and when their master sales person left, the process got a little tangled.

[thanksgiving]

If I remember correctly, Microsoft famously sold Windows like this...

[asadlionpk]

Not Windows, DOS.

[lhh]

For the record, this happens all the time in the private equity world (they're called fundless sponsors).