alt Hacker News> later investors effectively collude with founders
> a small startup that never found product-market fit. The economy was bad, and they were running out of money, and they took - as I understood it - a dubious Series B led by a dubious investor
The unfortunate reality is that if a startup cannot survive for long on its own, the economy is bad, and investment interest is low - then past invested effort from founders and employees and money from early investors is a sunk cost. They have together created something with almost no independent economic value.
The later investors can buy the assets created so far at near zero cost (the alternative is a bankruptcy auction). They can reasonably argue that the future value of the business is all from their investment, together with a deal to hire the founders and current employees to invest future effort into it.
I mean, yes, that's exactly the argument that the bigger, later investors make, and their lawyers are happy to back them up on that for money.
But consider this. If that were truly the case, why would the later investors work so hard to maneuver their way into this allegedly worthless startup? Why not hire an entirely separate team to build an entirely separate app, and they can own the whole thing with no fuss? If they value the founding team, why not tempt them away to a new venture, and shed all the baggage? Economics has an idea called "revealed preferences" - that words can be deceiving, but costly behaviors are honest - and this does look to be the revealed preferences of the investors.
In other words, just because the later investors can use the threat of insolvency to get their way doesn't mean what's already there doesn't have value.