« How Do Limited Partners Feel About "Fair Valuation" Guidelines? | Should We Talk To VCs If We Aren’t Interested In Raising Money? »

I Was “De-VC’d” What Do I Do Now?

Question: I was deVCeed. My VC just one day said that he does not want to do it anymore and wants me to pay back investment that they made. That’s it?

Our Take: Ouch. Something here isn’t right; start up investments are not like banks. We can’t invest in you one day, get tired and “withdrawal” our money the next. Standard financing documents don’t have this mechanism in them, unless you count redemption rights which are triggered by a certain date in time and rarely used. So bottom line, my guess is that your VC doesn’t have the rights to simply say “I’m done, give me my money back.” Either way, we wish you good luck.

January 24th, 2007 by     Categories: General QandA    
  • http://www.weareonlyhuman.com Jason Sadler

    I think this is one of the scariest things for a startup is finally locking down a VC but then not knowing what is going to come of it..
    We are definitely starting to seek out some VC funding with our first project Only Human.
    This is a very informative site by the way, great work.

  • http://mult.ifario.us Paul Brown

    Note also that there is a legal principle called “impairment” that can work in your (the entrepreneur) favor. A redemption (buying back stock from shareholders) can only proceed if it wouldn’t impede the company’s ability to operate, so for example, if paying back shareholders would render the company unable to operate, you’re legally bound not to proceed. (Check the laws for your state, of course; I can speak for IL and DE.)

  • Cavil

    Rumor is this what happened in FilmLoop case. Does this have legal standing?

  • ming666

    use a lawyer that does this stuff for a living. he/she may cost an arm and leg but preventing stuff like this makes all the difference in the world. i have always been a cheapskate on everything but. if you are serious (and you better be) the money you spend up front can help you save 10x that in the future.
    also simple term sheet = good relationship + no tricks
    you may think you are getting over on the VC by getting an inflated valuation (you know it is!) but you suffer by giving up simplicity in terms. terms which comeback to bite you in the ass. they are not stupid – this is what they do for a living – they are looking for a rate of return over a certain amount of time – they will get it by hook or by crook. besides, if they are stupid enough to get rolled on something as fundemental as valuation then why do you want their money, input & interference in your business?
    good luck.