What happens to VCs and other investors when a startup fails and stops existing?

This happens a lot. It’s not a big deal.

Generally:

• VCs forget you immediately
• Founders wonder WTF to do as they are likely broke
• Staff look for a job

There are 3 outcomes (if you are in Bay Area):

• Fail with no cash left
• Fail with some cash left
• Fail and get an acquihire

Fail with no cash left

No cash goes back to anyone. They flamed out.

If the team did well, then maybe the CEO gets an EIR position at a VC.

The whole team goes on their merry way. Qu if staff get paid out on what they are owed. The notion of solvency is questionable in startup land as you sail close to the wind.

The Founders typically spend two months trying to place the team if they hope to work with them again.

Fail with some cash left

Whatever is left is returned. Same as above.

Fail and get an acquihire

Prob don’t get acquired for much if anything- it’s an honourable exit (You can tell as acq price is never disclosed). The team may get some upside that is not shared with investors (which may piss some investors off). Most people end up with a job (at least for engineers).

Conclusion

You close the company. No one gives a toss anymore unless there is some residual asset worth their time. Investors may let founders try sell assets and only raise their head if they find some $.

Otherwise, VCs don’t care at all. They need to focus on winners.