5 ms·

Mostly salaries to support a small team. We are returning the remaining capital to investors.

Barbing 3mo ago
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.)
- mikeocool 3mo ago
  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.
- GabrielBianconi 3mo ago
  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_ 3mo ago
  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 3mo ago
    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
    - Barbing 3mo ago
      Wonderful!
    - theendisney 3mo ago
      Education costs time and money. It would be depressing if your first painting was your best work.
      - purple-leafy 3mo ago
        Ha it was definitely my worst work - so far
- hn_throwaway_99 3mo ago
  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 3mo ago
    Thanks, that's exactly what happened. The title is misleading unfortunately but that's how social media goes...
- Schnitz 3mo ago
  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 3mo ago
    Worse and also most likely illegal too (sometimes jail or ban on running companies). Depends on where you do it.
  - overfeed 3mo ago
    > 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 3mo ago
      > 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.
herodoturtle 3mo ago
Kudos to you and your team for not burning through the rest. Hope you have better luck with your next project.
- GabrielBianconi 3mo ago
  Thanks!
maxnevermind 3mo ago
I thought usually founders try to pivot till they run out of money. I wonder if that is good or bad for a serial entrepreneurs if they decide to shut it down instead of pivoting?
- latchkey 3mo ago
  He might not have had that choice. Investors can put money into a bank account, and just as easily take it out. This is what happened in the 2000 dotbomb.
  - gtm1260 3mo ago
    not really true unless you raise on terrible terms.
- hn_throwaway_99 3mo ago
  I feel like pivoting got unwarranted hype in the 2010s or so, possibly because Slack was an outlier in how successful they were. Major pivoting is almost always a really bad idea. (I admit I'm doing a bit of weaseling using the "major" qualifier, but when I searched for examples online, a lot of the ones that came back weren't major pivots, just slight refinements of focus to find better product market fit). Pivoting usually carries a lot of baggage - better to just give the money back and start afresh most of the time.
- mrandish 3mo ago
  Many founders do try serial pivots until the money's gone. An entrepreneur shutting down cleanly with half the runway still in the bank would be seen by future potential funders as a net positive. It's worse to grind through all the money trying increasingly extreme pivots away from the original. It takes maturity and decisiveness to recognize when a startup's core idea isn't going to work. In cases where any pivot wide enough to get into different lane is essentially a whole other business, it's often better to just shut down. Even if the last desperate pivot starts to work, you often have some team members and investors who aren't a good fit for the new focus and, worse, the 'new' business that's finally starting to work is almost out of money and the cap table is messed up. It's usually better to shut it down and reboot cleanly. Founders who've successfully raised millions and executed well are usually quite fundable, even if their first startup didn't work out. Sometimes the timing is wrong or the market evolves differently. The key is how well you think, execute and communicate through both the windup and the wind down.

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.)

mikeocool 3mo ago
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.
GabrielBianconi 3mo ago
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_ 3mo ago
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 3mo ago
  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
  - Barbing 3mo ago
    Wonderful!
  - theendisney 3mo ago
    Education costs time and money. It would be depressing if your first painting was your best work.
    - purple-leafy 3mo ago
      Ha it was definitely my worst work - so far
hn_throwaway_99 3mo ago
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 3mo ago
  Thanks, that's exactly what happened. The title is misleading unfortunately but that's how social media goes...
Schnitz 3mo ago
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 3mo ago
  Worse and also most likely illegal too (sometimes jail or ban on running companies). Depends on where you do it.
- overfeed 3mo ago
  > 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 3mo ago
    > 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.

herodoturtle 3mo ago

Kudos to you and your team for not burning through the rest. Hope you have better luck with your next project.

GabrielBianconi 3mo ago
Thanks!

maxnevermind 3mo ago

I thought usually founders try to pivot till they run out of money. I wonder if that is good or bad for a serial entrepreneurs if they decide to shut it down instead of pivoting?

latchkey 3mo ago
He might not have had that choice. Investors can put money into a bank account, and just as easily take it out. This is what happened in the 2000 dotbomb.
- gtm1260 3mo ago
  not really true unless you raise on terrible terms.
hn_throwaway_99 3mo ago
I feel like pivoting got unwarranted hype in the 2010s or so, possibly because Slack was an outlier in how successful they were. Major pivoting is almost always a really bad idea. (I admit I'm doing a bit of weaseling using the "major" qualifier, but when I searched for examples online, a lot of the ones that came back weren't major pivots, just slight refinements of focus to find better product market fit). Pivoting usually carries a lot of baggage - better to just give the money back and start afresh most of the time.
mrandish 3mo ago
Many founders do try serial pivots until the money's gone. An entrepreneur shutting down cleanly with half the runway still in the bank would be seen by future potential funders as a net positive. It's worse to grind through all the money trying increasingly extreme pivots away from the original. It takes maturity and decisiveness to recognize when a startup's core idea isn't going to work. In cases where any pivot wide enough to get into different lane is essentially a whole other business, it's often better to just shut down. Even if the last desperate pivot starts to work, you often have some team members and investors who aren't a good fit for the new focus and, worse, the 'new' business that's finally starting to work is almost out of money and the cap table is messed up. It's usually better to shut it down and reboot cleanly. Founders who've successfully raised millions and executed well are usually quite fundable, even if their first startup didn't work out. Sometimes the timing is wrong or the market evolves differently. The key is how well you think, execute and communicate through both the windup and the wind down.