Do seed investors who put their money into startups get refund if the startup fails?
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Do seed investors who put their money into startups get refund if the startup fails?
It depends on the term sheet but generally, no. Investors take a share in the company for their investment so risk is distributed. In most cases unless there is a personal guarantee which isn’t often the founder shouldn’t have to pay back the investors. One need not pay anything if startup fails. Yes, there will be lot of bad feeling if it happened due to overpowering partners and may leave a bad taste. Legally, no one is liable since a company is a separate entity.
First, an investment is not a loan. If your startup failed, he is not entitled to his money back. However, if there were funds or assets left over, those assets could be liquidated and the funds distributed among all the parties that held equity. Seed investors accept more like 99% failure with the small 1% hope of a single success.