I’ll give the example of my own experience as a founder. My first company, I raised about $600K. I operated for a year, failed, and returned about 50% of the capital I raised. I felt terrible. Everyone said I did the right thing returning the capital, that I was a standup guy for doing it, but still I lost them money. Nobody turned their back on me, once the company wound down…but they just weren’t leaning into investing more time and energy on me. When I went to raise money for my second company, Hyperpublic, weather I asked them or not, not a single investor in my first company invested in my second. Just gives you a sense of the increased friction you face, coming off a failure. Sure I was able to raise money from new investors, but I had to answer the question “is so and so from your last company investing?” and so on. New investors call old investors and say “What do you think of Jordan?” Of course, again, investors who lose $ with you don’t “blackball” you, so they say “stand up guy, did the right thing, etc…” but still their signal of not reaching out to put $ into the next thing becomes something a founder has to overcome.
If you crash and burn miserably due to factors that you realistically could and should have known about and been able to control, your VC's probably won't be open to any new ideas from you - keeping in touch and a personal relationship would depend on the people in question and how much they like you as a person.
If you gave it your best and failed for reasons outside your control, or because of things realistically the VC couldn't expect you to predict, it's more likely they would be open to future endeavors.
At the same time though, you are going to have some VC's that if you fail, that's it, end of relationship - many probably have more tact than just deleting your phone number and ignoring you, but in their minds you will become a much lower priority.
Conversely, I've seen some people who just have a great personality that form a legitimate friendship with a VC that no matter how bad that person failed (this instance was quite bad) the VC still loved this person.
tl;dr: People have very different personalities - it's all dependent on the nature of the specific relationships in question.
Also, as an entrepreneur when doing diligence on whether to accept an investment, I always lookup some of their failed investments and contact the founder. I want to know how the investor behaved when things were going poorly. It's a much better indicator of whether you want to work with them then the padded references they give you (especially when it's to companies that badly want the investor to follow-on in their next round).
Posted anonymously as losing someone's money is still something I prefer to not be associated with.
I try not to post this on every thread, but this kind of thing is horrible. I am talking about the reason OP have to post anonymously.
There is (should be) less moral obligation since an investor should be more acutely aware of this risk than a regular old person off the street.
I would feel terrible losing someone's money who didn't realize it was an option to lose; an investor should not be capable of being that person.
I guess the moral of this story is to do the right thing. This may sound cliche', but sometimes doing the right thing may be the most courageous thing to do.
I wonder if there's a more subtle lesson in that story about knowing when to quit.
If they were able to repay their seed capital, then it's a self sustaining business - there's a very thin line between success and failure here.