What happens if PE firms or investors put money into your company and get no returns. How can the company protect itself or do they just file for bankruptcy if they keep making loses?
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Hi there,
1) What happens if PE firms or investors put money into your company and get no returns.
Institutional investors usually have a liquidation preference.
This means that even if they have say a 20% stake in the company, they will be the first to get any equity return from a fire sale up to a certain amount (usually, at least the amount they invested).
For this reason, you may have founders that raised millions of dollars and get zero if the company has to sell urgently due to cash flow problems.
2) How can the company protect itself or do they just file for bankruptcy if they keep making losses?
A company cannot protect itself from failure except by continuously innovating and improving. The supposed oldest company in the world was founded in the 6th century. This means that any other company founded before went bankrupt. Jeff Bezos famously said that one day Amazon will fail as well ;)
Best,
Francesco
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Yep they will go out of business. As simple as that :)
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They go bankrupt/out of business...
It's a tough world out there!
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