[Barbing]

I’ve never heard of this before. Anyone know if it’s uncommon?

Familiar with creditors getting divvied in bankruptcies, but not refunds to investors… oh it’s because there’s never any money left when things wind down. (We hear of retail stores where employees discover closures posted on shop doors when reporting to work.)

[Schnitz]

This is super common with startups and is usually called an orderly shutdown. You don’t want to wait until you are insolvent, but stop when there is enough money left to pay all outstanding liabilities as well as the people that will shut down the business entity, do a final tax return and so on. Then whatever is left eventually gets paid back to investors, who usually have a liquidation preference requiring this as well. The alternative, running truly out of money, no one shutting down anything, a ghost entity that continues to accumulate taxes and penalties, creditors chasing whoever they can get a hold of, is much worse. Just because everyone quits doesn’t mean the entity ceases to exist.

[killingtime74]

Worse and also most likely illegal too (sometimes jail or ban on running companies). Depends on where you do it.

[overfeed]

> This is super common with startups and is usually called an orderly shutdown

Perhaps now, but during the Zero Interest Rate era, the received wisdom was founders ought to keep going until there bank account was empty, in the hope that they may salvage returns for investors. Vendors, partners, clients and employees would be screwed, naturally, but it didn't matter because VC preferred it because losing all the money in a desperate gamble was preferable to lending money to startups at 0%

[antonvs]

> the received wisdom was founders ought to keep going until there bank account was empty, in the hope that they may salvage returns for investors.

Amusing that they managed to create a business strategy that depends on the sunk cost fallacy being wrong.

[hn_throwaway_99]

It actually happens a lot. Sometimes founders may pivot when the original thesis isn't working out, but a lot of times the prudent thing to do is to just say that it didn't work out and return investors' money.

Honestly, I was close to flagging this story because the title is deliberately manipulative - it makes it sound like the founder did a rug pull. But I was really glad to see the founder come in to these comments and just say we tried, but the market shifted under us. Happens all the time.

[GabrielBianconi]

Thanks, that's exactly what happened.

The title is misleading unfortunately but that's how social media goes...

[GabrielBianconi]

It's pretty common. If a startup winds down before it runs out of money, it typically returns whatever is left to the investors. We didn't have any debt.

[QuantumNomad_]

When I was in university I unsuccessfully attempted to start a company with two other students. We had a small amount of capital from a single investor. We did not pay ourself any salary. We had spent money on incorporating the company and buying a couple of iPads, and not yet spent money on marketing etc.

When after a few months we accepted that it wasn’t going to work, our investor got basically all his money back.

It was pocket change amounts compared to the sums of money that they deal with in Silicon Valley. But the point is the same anyway, the investor got back basically everything.

[purple-leafy]

I had a similar thing happen, made a startup when I was 18 and incredibly dumb. Half my money and half an investors.

Ended up having to wind it down because it was a stupid idea and I realised quite quickly after spending money on it. Was a small amount of money but a lot for me. Luckily the investor never asked for money back.

Wound down my second one too but lost no money.

Then came into some money through a software sale about 7 years later, and offered to pay the first investor their full investment back, which was about half the money from the software sale (my only sale ever).

They really appreciated it but declined and instead said no, they want to invest in me AGAIN in the next one.

Felt really nice to have someone believe in you so much they would open themselves up to money risk again rather than take their initial investment back

[theendisney]

Education costs time and money.

It would be depressing if your first painting was your best work.

[purple-leafy]

Ha it was definitely my worst work - so far

[Barbing]

Wonderful!

[mikeocool]

It’s not atypical when a startup figures out things aren’t going to work while there’s still money in the bank.

Early stage startups tend not to have a lot debt to pay off, because there aren’t many places willing to offer them much credit.