This is a Shark Tank related question. I've seen some investors say "I lost money investing in this business or that business" and I'm curious what happens after that.

Let's say I gave you 10% of equity for $1 million and my business didn't make it.

Or I partied too much and blew it all.

What would happen to me then?

you'll be eaten by the shark ;}

You would be subjected to a due diligence process (to prove you didn't blow it all in parties), assets will be liquidated to cover outstanding debt, and depending on your company's liability model, every shareholder loses the invested amount, or has to respond with their own wealth to cover remaining debt.

Should you fail the due diligence you could be accused of fraud or scam and go to jail.

Otherwise you just face the loss of investment in the case of LLC.

When liability is not limited, it can result in embargoes, and if the debt is too big, possibly prison.

There's also the reputational damage to you as entrepreneur, which can be the worst of it since it'll make it harder to find investment for further endeavours.

@CoreFusionX I don't think, prison sentences for non-court-related debts are still a thing in the US. And there even is personal bankruptcy which ensures that you won't have that debt burden on you till the end of your life.

Depends on your local laws, but 99% of the time the money is gone. currently there are investors who invested in a company with 1B valuation, put in 50m for 5% share, and the company lost value. to 100m. So now thier share is worth 5m. Think twitter. from 44B to 4B.

It is a high risk/high reward gamble. Most of the time - it fails.

@Oktokolo

Yeah, for sure it varies between countries, and in any way or form, IANAL.

Sure, bankruptcy can get you, as individual, out of jail, but when you file bankruptcy, at least here in Spain, you will have any future income partially seized to cover your debt.

And still, bankruptcy isn't a get out of jail free card. Depending on circumstances, it's a card you might not be allowed to play.

If the business genuinely didn't make it, money gone, that simple. It's how most startup investments go - they're inherently risky.

If you spend the money partying instead of investing in the business, your accounts will show big discrepancies and then you'll be sued big time.

@CoreFusionX Spain is in the EU. I doubt that people go to jail there just for not being able to pay their debts as long as they aren't owing them to the state (somehow, there are always some odd exceptions for stuff like taxes, court fees and fines).

There is also the factor of multi-tier shares, that is often the case with shark-tank style investors (big cash investment funds that do not interfere often in the very, very small company's daily operations).
In a multi-tier share scheme, you often have some shares whose holder is paid first in case of bankruptcy, sometimes even with some above-inflation-adjusted compensation for their invested amount - yeah, the rich do not lose, even when the company does.
And that is not even in case of corporate malfeasance (when you blow your money on parties and blow), that is business as usual in those multi-tier shares contracts.
Naturally that is not the case when you get to shop around for investors, but when you have little choice, and they know it, they will bleed you dry.

@Oktokolo

Indeed, it's not the bankruptcy itself that lands you in jail. However, as I mentioned, filing bankruptcy means the state will seize part of your current *and* future earnings to settle the debt.

Should you do any action with the intention of deceptively reducing your wealth (so less is taken, for example, donating your house to a family member), or otherwise obfuscating your real wealth status *will* land you in jail.

@CoreFusionX ...and rightfully so as the law shouldn't incentivize bankruptcy fraud.