7 ms·

You're confusing investment with constraint-free donation.

• keithwhor 8y ago
  I assure you that I have never confused the two. :) Venture investment at this level of sophistication typically involves the purchase of equity in a company with the general expectation that the value of the investment will increase over time, as valued by other actors in the market. However, at this stage there are little to no financial or legal negative repercussions for a company failing to meet this expectation as long as they've acted ethically. (I mean, outside of the value of equity going to zero and having to shut down the company.) There are forms of investment, or vehicles of financing - venture debt and specific types of convertible notes - that have the expectation of repayment given a timeframe, but they're not typically what we're talking about when we talk about modern venture investment and straightforward equity transactions (like a Series A here). In fact, YC explicitly invented the SAFE (Simple Agreement for Future Equity) as a way to prevent "bad actor" investors from asking for returns from convertible notes ("repayment") and sinking companies early. The unwritten rule in venture investing in SV was literally, "don't ask for your money back," some Angels were screwing companies over by doing exactly that, so the SAFE codified protection against it into a low-friction investment vehicle. tl;dr: Investment is not constraint-free, but there is certainly not an expectation of "repayment." It might seem a little semantic (versus, say, "generating returns") but it's important people understand the difference between equity transactions and debt - the constraints exist but they differ and, as such, incentivize behavior, growth and spend differently as well.