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its-a-throw-away_ t1_j5z93kz wrote

Think of a business as an engine that is designed to generate money.

The business plan is the engine's blueprint.

But for the engine to actually run, you have to machine its parts, assemble them, test the engine, and make a few adjustments before it will reliably generate revenue. These require startup capital.

Engines also need fuel (cash). But the idea is that so long as it generates more cash than it consumes, then the engine does its job.

Angel capital is what lets a startup begin building the pieces needed for its money engine to run. Once the engine starts running, cash is diverted back to investors in proportion to what was agreed upon in exchange for their equity.

Even if the business is sold or acquired, the initial investors still retain their share of the business's output.

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breckenridgeback t1_j5zbkuo wrote

It's actually pretty rare for a startup to be turning enough of a profit (or indeed, any at all, although that's changing recently) for investors to make money directly off of dividends. Their money usually comes by selling their share of the company during an acquisition or IPO.

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bluehat9 t1_j5ze0id wrote

Maybe rare with "startups" but "companies" do pay distributions and dividends to their shareholders. Some companies aren't looking to IPO or have a large exit and are just cash-flow generating machines

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