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Comment by downandout | Hacker News Reader

I'm not sure how I feel about all of these companies shutting down prematurely to return investor capital (the following example is not based on this company, but it illustrates the point). If a $50M investment actually means $10M in risk capital, and the $40M will be returned at the slightest sign of failure, then entrepreneurs are giving up far too much equity because the investor is actually only risking $10M. Further, the signal that a $50M investment sends to the market about a company is far different than that of a $10M investment.

Combine that with other things like preferred shares, and these large investments wind up being horrible for entrepreneurs, unjustly rewarding for the primary investors who are actually risking small sums in exchange for large portions of equity, and unfair for others that invest based upon what the "smart money" invested with a huge headline number.

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We burned through all of our investors' money, and worked until we couldn't meet payroll. Once it was clear that we were going to run out of cash, I took a job and negotiated a deal that allowed me to make our investors whole.

As I said, my example didn't necessarily apply to your company. But just in the last few days I have read about 4 different startups returning capital to investors. Investors seem to be aggressively seeking the return of capital, which takes the "risk" out of "risk capital". Decreased risk should also mean decreased rewards.

If you chose to do it of your own volition, then that's a personal decision (though one I don't recommend because your investors made a calculated wager on you...sometimes wagers lose, and that's the nature of the game they have chosen to play). But if you were asked or pressured into it, they shouldn't have done that, and by doing it voluntarily, you are teaching those investors to expect it of others.

I'm sad that it didn't work out, but kudos to you for doing this. Behaving decently feels like it's becoming an increasingly rare attribute of doing business these days.

I'm curious if you feel it could have worked out differently if you'd flipped the approach on its head and instead of starting with investment and then the product, you bootstrapped custom radios and built the platform out from there when you had some traction?

I ask partially because I'm in a similar place at the moment with a product (http://mirobot.io) and considering different growth strategies.

> then entrepreneurs are giving up far too much equity because the investor is actually only risking $10M.

Either that or the valuation is inflated artificially 5 fold.

It's probably somewhere in the middle. In any event, entrepreneurs and later investors are clearly getting the short end of the stick here. I can imagine the conversations that lead to these capital returns..."you're failing....if you don't return capital now, you'll never get another investment from a major firm again" (that's if the investors don't negotiate enough board seats/voting rights to just return it without the founder's consent).

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