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.

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.

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.

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.

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.

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 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.

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.

Thanks!