[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.