When VC's buy into a business who gets the money?


This might be a really dumb question but I've heard of a few cases where VC's have purchased into a business and it made me wonder. Facebook's purchase of Instagram recently made me think to ask on here.

If a VC were to buy into your business or you went to a VC for funding, who would get the money? I originally thought that it would get invested in the business, but what if a VC were to knock on your door asking to buy in, would you pocket some of the cash in return for selling shares in your company?

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asked May 4 '12 at 11:25
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2 Answers


Venture Capitalists invest in the business -- the money typically goes to the business for use in running the business. Sometimes (but VERY rarely), the company distributes some of that cash out to its shareholders.

When a company is bought out, like Instagram was, then the people who used to own the target company typically either get cash or stock of the acquiring company. That's why VCs invest in companies.

answered May 4 '12 at 11:35
Chris Fulmer
2,849 points


The VC puts the money into the business, by buying shares, as that makes the business more valuable. This is why they talk about pre-money valuations.

If they gave the money to the founders, they'd probably be distracted and not work as hard, so the investment would tend to fail. By putting the money into the business, the founders would tend to work even harder, to materialise their new found paper wealth.

answered May 4 '12 at 17:14
Steve Jones
3,239 points

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