[mbesto]

I've been reading quite a few threads here on HN about Groupon and never saw this. Crazy!

Isn't the point of raising capital to grow the business? How is putting 80% of the capital into founders equity going to grow the business? Do their brains get bigger with more money?

Also as an investor doesn't the business have an obligation to tell the investor specifically what the capital is being used for? If an exec of a start-up told me that they needed capital so they could pay the founders I'd laugh at them... Am I the only one who is super confused here...?

[kinkora]

Someone correct me if i am wrong but i believe the money raised wasn't exactly "capital" per say. From what i've heard, investors for that round were basically buying stock from the founders. Think of it as a private stock market or more commonly known as the Secondary Market (http://www.investopedia.com/terms/s/secondarymarket.asp).

Not saying is the most logical thing to do for a company(from an investors POV) but perfectly legal so long as both sides agree on the transaction and follow any legal obligations.