I have written a lot about startups, obviously the ultimate goal of these investments is startup exit. This is not a simple thing at all, so now I would like to share some case studies about how vulnerable a small investor is in the world of startups, both to the circumstances and to venture capital funds, and how difficult it is to achieve a good exit. The cases below have all happened to me in the past 5 years and I think they are very instructive.
In 2021, I created a complete startup portfolio, so in 2025, I updated the articles about startups based on my real-world experiences. You can find the rest of the startup series here:
- 🚀Creating a startup portfolio simply and clearly I.
- 🚀Crowdfunding and what you need to know about it II.
- 🚀Operation of startup platforms in 2025 based on real experiences III.
- 🚀Crowdfunding and what you need to know about it in 2025 IV.
- 🚀Startup exit – The thousand faces of pitfalls V.
💡Where you see the pushpin symbol, I am describing what happened based on my practical experience, because I find this much more realistic than the many theoretical concepts that can be found on the internet.
Failed startup exits – This is how they will ruin you
When it comes to startups, the most common thing to talk about is extreme profit versus extreme risk. How much did the Revolut, perhaps this is the best-known example, which was pushed higher and higher with money from venture capital funds, but small investors could also participate in it, during various crowdfunding events through the Crowdcube platform.
Fewer people know that not only is there a risk that 9 out of 10 startups fail in the first 5 years, there is also a much more insidious, much more difficult to manage risk, and that is the terms of the contract. These are usually different for small investors, angel investors, and venture capital funds. The rule of thumb is that whoever gives more money dictates the terms. Let's look at two cases of what happens when these two sets of investors give money to a startup:
- 👲🏼Small investors: nominee structure, not the small investor contracts, but the platform (e.g. Republic (Seedrs), Crowdcube, etc.), general rules that apply to everyone, generally there are no privileges, maximum protection against share dilution.
- Angel investors: they are located between the two groups, usually investing directly in companies and fighting for better conditions for themselves in the management. This is possible from 25-50,000 GBP in the case of the platforms mentioned above, but they often invest in startups not through platforms, with better conditions than small investors.
- (I.e.venture capital funds: direct investment, they go to the startup and give them a larger amount of money, in return they dictate a significant part of the terms.
From the above, it can be seen that the actors do not have nearly the same bargaining power, just as Warren Buffett does not buy shares for 10 billion USD on the same terms as you do for 10,000 USD. This, in turn, means that venture capital funds are fighting for additional rights for themselves, I have already written about this in passing here, in connection with prerogatives: Startup Investments: Everything You Need to Know About It in 2025 II.
Additional rights are priority rights that can be enforced before the rights of other investors or provide better conditions than usual. These include, for example, the rights mentioned in Part II of Startup Investments, but I have collected a few more without claiming to be exhaustive:
- ⚖️Liquidation prerogative: In some cases, rightful owners are paid out before common shareholders (this specifically happened with the startup Curve).
- ⚖️equity pre-emption: if the share were to be diluted, the investor can still put in money to maintain the ratio, so their share is not diluted (on the Republic (Seedrs) platform, this is almost always available for small investors).
- ⚖️Pre-emptive/subscription rights: also known as pre-emption right. This is a right that gives existing shareholders the first right to purchase new shares or existing shares offered for sale before they are offered to anyone else.
- ⚖️Dividend payment privilege: If the startup pays dividends, those who have the right to receive them first. In many cases, percentages are added to the preference (this has already happened on the stock market, in the case of Berkshire Hathaway, they bought into Occidental Petroleum with an 8-9% dividend preference).
- ⚖️Sales obligation: If the majority owner were to sell the company, the minority would be required to stay with it under the same terms. The investor wants to avoid the minority blocking the exit (usually the default is that they cannot block it).
- ⚖️Co-selling right: If the majority owner sells, the minority can demand to be taken with them on the same terms. Protects against loss of control.
- ⚖️Participating preferred (PP): The preferred investor first gets back the amount invested and then shares in the remainder once again, as if he were a common shareholder. This is an extremely powerful right.
- ⚖️Non-participating preferred (NPP): weaker than the PP right, the owner only has one choice: either he requests the invested amount back or he shares according to his ownership ratio.
- ⚖️Cap on participation: PP is capped (e.g. valid up to a maximum of 2x return).
- ⚖️Control rights: It is primarily related to the appointment of managers, in addition to the fact that the consent of a given investor is also required if, for example, the startup wants to issue new shares, etc. Usually, "board member" rights are given for direct investment and typically people whose expertise is relevant to the company invest such a large amount. After 25-50,000 GBP/USD/EUR.
- ⚖️Information privileges: It's exactly what it sounds like, quarterly and monthly financial data, right to view books, etc. It's not typical for startups, but more normal managements usually provide quarterly and monthly reports anyway.
- ⚖️Rights for share transactions: This is a rights issue, and it can include many things, such as pre-emptive rights, pre-issuance rights, preferential rights, etc.
- ⚖️Right of return: redemption right, the investor can have the company repurchase the shares after a given period of time, usually 5-7 years.
- ⚖️Pay to play: If the investor does not invest in a new round, he may lose certain preferences. It forces the investor to provide additional financing.
In addition to the above, there are other rights, since a contract can handle everything. So it's worth reading them more carefully. Does thoroughness protect you from being caught in a trap? Not really, you will see why from the examples below.
📌In practice: The right to pay dividends is very rare in the case of startups, because these companies usually burn money, not produce it. In other words, if a startup pays dividends, it also means that the company is entering a mature phase, because if it cannot reinvest the cash in its business, it will pay it. I don't even like dividends in the case of listed companies, because they have to pay taxes on it, but in the case of startups, I hate them. There was only one such case when I came close to it, it is still a matter of the future whether they pay or not, but for me this is likely a reason to sell.
Startupp exit 1: Liquidated company (Wilton London LTD., Crowdcube platform)
Wilton London was a bio-neutral cleaning products company that I invested in on the Crowdcube platform in 2021. It's a relatively simple case, the company couldn't pay its creditors and went bankrupt, which is what we call bankruptcy. In this case, because creditors have priority over owners, the company's assets are sold during liquidation and the creditors are paid out of that. Creditors include the state, in England this is known as HM Revenue and Customs.
You will usually receive two documents from Companies House for this:
- 👨🏼⚖️who is the liquidator, more formally “notice of the appointment of a liquidator in the event of a voluntary winding-up initiated by members or creditors”.
- 👛liquidation document, which includes a list of creditors and liabilities
This is a relatively simple case, it's what I mentioned earlier: 9 out of 10 startups fail, and that's what happened here too, I didn't even get to the startup exit here.
📌In practice: The thing is, Wilton London's management communicated relatively frequently, there was no particular sign of failure, it happened quite suddenly, and then boom. This is the risk you run with startups, it's a relatively simple case.
Startupp exit 2: this is how the valuation became -99,31% (Hydrate Drinks Group, Republic platform)
Hydrate Drinks Group, formerly Happy Drinks Co., formerly Skinny Drinks Group, and before that Skinny Tonic Limited and HALO Drinks Company Limited and HALO Capital Limited 🤣. I think the name changes are already a bit of a mouthful, but basically the company wasn't doing badly, in December 2023 the share price was still £14,46, the company's estimated value was £67.4 million, but it has been making losses all along and has been doing so ever since. So, since its founding in 2018, the company has been absorbing investors' money for 7 years, which is quite a long time to turn an idea and an implementation into a profit.
Then in the second quarter of 2024, CEO Ian Milton gave the company a quick loan of 455K GBP to overcome short-term financial problems. Since the company's liquidity had become negative, it had to be overcome somehow, so they raised 4,5 million GBP through an additional share issue, a rights issue that was carried out internally, meaning that previous investors could still put money into the company. The question is, what was the share price at the time of the capital injection? Now hold on: 0,01 GBP, which represents -99,31%, a brutal loss in valuation. How much would the “stock” have to rise to return to its original valuation? Roughly 146,700%, or 1467 times!
The value of the company fell to 466,000! GBP from 67,4 million GBP, so the capital raised was ten times this. This is usually added to the company value, so it rises to about 5 million GBP. This is false because if the company burns this again, then in reality the valuation only exists on paper, since you cannot get out of it at a reasonable price. Although there is a secondary market on the Republic platform, the price there also obviously drops to where the current valuation is. The capital raising naturally involves share dilution, against which everyone has the right to prevent dilution, this is equity pre-emption, in other words, I could have put money in if I had believed that something would actually come of it.
📌In practice: Why did this whole situation arise? Because the company couldn't get the bottling plant up and running, and this appeared as a huge sunk cost on the company's balance sheet, plus the orders also have quite a lot of short-term costs, bottles, packaging, etc. The lesson is that it's very difficult to invest in companies that produce physical products, which is why I only have a few GBP follower positions in them to learn from such mistakes.
Was the management correct? Actually, yes, because they injected a ~500K GBP bridge loan, they didn't call in additional venture capital, but does that comfort anyone? No, because the valuation has sunk to the ground, the company continues to struggle. What's happened since then? Drum roll? another round of capital raising, another 3 million GBP, but now at a valuation of 5 million GBP, since the 4,5 million GBP raised was added to the previous 500K. Of course, this is not a startup exit yet, the story goes on. As long as the musicians play, the people dance, but nothing lasts forever.
Startupp exit 3: almost happy ending with -90% (Nordic Oil, Republic platform)
In 2021, I invested in Nordic Oil, a company that makes CBD products and other nutritional supplements. Then came the downfall in 2022-2024 and most CBD startups went bankrupt, and Nordic Oil also started to suffer. Then in early 2025, the company was acquired by Frank Otto, who is affiliated with the Otto Group, which is often called an exit in startup circles. This is usually the happy ending for a startup, but let's see what happened to the valuation:
- 📈In 2021: The share price was EUR 8,9
- 📉In 2025: The share price was EUR 0,89, which is -90%
In this case, however, both founders and managers suffered the 90% loss, so there was no preferential investor right or other trick in the contract. The transaction was a 100% cash acquisition, so there was no share dilution or the like, so that minority shareholders would not suffer further losses, as was the case with Happy Drinks, where the capital injection involved share dilution. The CEO also offered to compensate for the -90% loss with their products, which they did.
Can we call this a happy ending? Not really, because:
- 💵many would have been happier with cash
- 🫰🏼there were costs to both buying the share and exiting
- 🤑They failed 4 years of opportunity cost
📌In practice: The above case is still one of the rare positive outcomes, as management had no contractual obligation to compensate shareholders with products. This is a gesture because they also expected higher returns from Nordic Oil., which didn't work out, but that happens, startups are like that. So they did what they could in the given situation, this is an acceptable startup exit.
Startup exit 4: execution with additional rights (Curve Ltd., Crowdcube platform)
I left the worst for last because I think this case is the least fair to investors, and it also involves a relatively well-known fintech company, Curve, which also issues bank cards. I first invested in them back in 2019, then increased my position in 2021, but there has been no crowdfunding round since then.
There have already been signs that Curve's management is not the most correct in the world, including:
- 🤔They constantly overpromised the numbers they delivered, not even a little bit
- 🗞️There was practically no substantive information about what happened in the company, sometimes a meaningless letter arrived
- 🏦then oops, in November 2025, it was announced that the company had been sold to Lloyds Banking Group, but retail investors would get nothing from this!
How is it possible that if a company is sold, an investor still loses 100% in the case of an exit? You probably already guessed it, because of the special preemptive rights mentioned earlier. And it is important to see the chronological order here, especially because on Crowdcube, unlike Republic, there is no secondary market, so investors cannot exit their investment:
- 🔼2019: I. Crowdcube crowdfunding round
- 🔽2021: II. Crowdcube crowdfunding round
- ⏬2024: Hanaco venture capital fund and other large investors receive special rights, including liquidation preemption
As you can see, an existing investor cannot do anything against later events, and the company is not even obliged to share the content of the contract with other investors. This is a very ugly thing because it can squeeze small investors out of the game, so it is not only dilution that is very dangerous, but also such special deals. To quote first from the letter written by the Crowdcube platform:
"In this acquisition, the purchase price is only sufficient to satisfy the claims of some Preference Shareholders. The transaction proceeds are anticipated to be allocated among:
Certain private and VC/Corporate investors
Members of the company's management team including the Founder
The residual value will be zero once these prior claims are settled. In practical terms, this means that your investment in the Company through the Crowdcube Nominee will not result in any financial return and should be considered a loss." – Crowdcube
And this excerpt comes from a letter to investors from Curve Ltd.:
"In 2024, the Company completed a funding round that introduced an additional class of dilutive Preferred Shares, carrying higher liquidation preferences than the existing preferred classes. These Preferred Shares were offered to a select number of investors which included Hanaco and other existing Shareholders who had pre-emption rights.
The Company has confirmed that Crowdcube's nominee investors were not able to participate. These new Preferred Shares further extended the priority stack ahead of the Ordinary Shares held by Crowdcube investors.” – Curve
The bottom line from the above is that small investors had no chance of avoiding the above 100% loss, and moreover, they suffered this through no fault of their own. Did Hanaco know in 2024 that this would happen in 1 year? We will never know, and I don't think it matters, it's enough if you draw the lesson from it: your fate in the case of startups is not only in your hands.
📌In practice: I would like to add two thoughts to the above case, and both are related to risk reduction. One is that in the case of a startup, you simply cannot have a concentrated portfolio, you have to diversify, because in the case of a 20-item portfolio with the same position size, this is only a 5% loss. And unfortunately, the Curve story can be attributed to a relatively common startup exit outcome, as most companies bet on the interests of small investors from a high point.
Startup exit summary
As you can see above, a startup exit does not always bring redemption, in fact, there are many outcomes where even with a successful exit, there is simply no profit, and in fact. It is quite easy to lose your money, but of course there are positive examples too, just much fewer. The lesson is to definitely diversify your capital and limit the amount of money invested in individual companies. Otherwise, you can face ugly falls, and here you can't sit out the fall like in the stock market, but instead you can fly to -100%.
The flip side of things is, of course, that brutal mispricing can lead to high returns, but at a huge risk. But I'll talk about the positive examples in another post.
Frequently Asked Questions (FAQ)
What is a startup exit?
A startup exit is the moment when a company's early investors and founders exit the business: their shares are sold or otherwise converted into cash or a liquid asset. It is essentially the "cash-on-delivery" moment where the market value of the business becomes clear.
What are the forms of a startup exit?
The most common forms are acquisition (M&A), initial public offering (IPO), management buyout (MBO), secondary sale to another investor, and, less commonly, liquidation. Each has a different logic and financial outcome.
Is the acquisition an exit?
Yes, an acquisition is a classic exit. In this case, another company buys the startup or its shares, and the investors receive their share of the purchase price. Acquisitions account for the vast majority of startup exits worldwide.
What happens to a startup in the event of an IPO?
During an IPO, the company's shares become publicly traded. Investors can typically sell their shares after a lock-up period and realize the proceeds. An IPO is not only a financial exit, but also a change of status: the company now operates as a publicly traded company, with much stricter transparency and reporting requirements.
Is a sold company considered a successful startup exit, even if it is worth less than before?
Formally, yes, since the exit has taken place. However, in a business sense, it is not necessarily considered a success. If the company previously received a higher valuation but ends up selling at a lower price, it is more likely to be considered a failure or a forced exit. The return to investors determines how successful the exit is.
Can venture capital crowd out small investors in the event of a startup exit?
Under certain structures, yes. VCs can obtain privileges (liquidation priority, liquidation preference multiple, anti-dilution) that will satisfy their money and returns first upon exit. If the purchase price is low, small investors may receive nothing.
What additional rights can a venture capital fund acquire over a traditional investor?
Yes. These include 1×–3× liquidation preference, participation priority (the VC gets their investment back first, then shares in the remainder), dilution protection, veto rights, voting surplus at board meetings, or the right to block certain transactions. All of these significantly affect the money distributed at exit.
If a company is liquidated, does that count as an exit?
This is also a type of exit, but not the positive kind. Liquidation means that the company is dissolved, its assets are sold, and the proceeds are used to pay creditors and, if there is anything left, shareholders. In most cases, investors' money is lost.
Can I lose my money during a startup exit?
Yes. If the value of the company at the time of exit is less than the invested capital, or the VCs' liquidation priority absorbs the money due to smaller shareholders, then the investment can be completely lost. Startup investing is by definition high risk, so you accept this at the time of investment.
What is the cost of an exit?
The cost of an exit depends on the type of transaction, but often includes attorney fees, advisory fees, investment bank commissions, due diligence costs, taxes, and platform administration costs if you invested through crowdfunding. In the case of an acquisition, this can range from a few percent to up to 10 percent of the purchase price, and in the case of an IPO, the total cost can be even higher.
Legal and liability statement (aka. disclaimer): My articles contain personal opinions, I write them solely for my own entertainment and that of my readers. The articles published here do NOT in any way exhaust the scope of investment advice. I have never intended, do not intend, and am unlikely to provide such in the future. What is written here is for informational purposes only and should NOT be construed as an offer. The expression of opinion is NOT in any way considered a guarantee to sell or buy financial instruments. You are SOLELY responsible for the decisions you make, and no one else, including me, assumes the risk.
