Most often professional tech startup investments are either (a) purchases of stock in a company; or (b) a 'convertible' loan to the company (that's expected to turn into shares when a full stock-sale round happens).
In both cases, the money enters the company's accounts, not the founders' accounts, and is used over time for business purposes.
If the company fails there's little or no money left to pay anyone back. In an orderly liquidation, there might be a little left over, or picked up from an asset/tech fire-sale. Those amounts go first to pay back creditors, first among them anyone owed salaries, as much as possible. If any is left over, it's split proportionately among shareholders, usually first to 'preferred' shareholders (professional investors). But by this point the liquidated value is likely to be nothing, or pennies on the dollar.
Professional diversified investors understand this: sometimes the shares go to zero, and sometimes debts are uncollectable.
It's not common for the founders to offer personal guarantees of repayment. (In other kinds of going-concern small-business financing, like bank loans or equipment financing, where the founders/officers have the means, they may offer such guarantees to lenders... but not in highly risky tech startups.)
Now, there's a fair chance that the founders themselves depleted savings or ran up personal debts to feed the company – investing/loaning their own funds, working for little or no salary in the expectation of gains later. So it's often still a draining financial hit... but the professional investors aren't expecting a formal debt repayment.
Instead, if the investors think the failure came after a good honest try, and was a learning experience for founders who will succeed at other times and opportunities, they'll favorably consider investing in a future venture, or help place the team elsewhere. So it's never a total loss: everyone learns things to do, things to avoid, and how/when to work together.
In both cases, the money enters the company's accounts, not the founders' accounts, and is used over time for business purposes.
If the company fails there's little or no money left to pay anyone back. In an orderly liquidation, there might be a little left over, or picked up from an asset/tech fire-sale. Those amounts go first to pay back creditors, first among them anyone owed salaries, as much as possible. If any is left over, it's split proportionately among shareholders, usually first to 'preferred' shareholders (professional investors). But by this point the liquidated value is likely to be nothing, or pennies on the dollar.
Professional diversified investors understand this: sometimes the shares go to zero, and sometimes debts are uncollectable.
It's not common for the founders to offer personal guarantees of repayment. (In other kinds of going-concern small-business financing, like bank loans or equipment financing, where the founders/officers have the means, they may offer such guarantees to lenders... but not in highly risky tech startups.)
Now, there's a fair chance that the founders themselves depleted savings or ran up personal debts to feed the company – investing/loaning their own funds, working for little or no salary in the expectation of gains later. So it's often still a draining financial hit... but the professional investors aren't expecting a formal debt repayment.
Instead, if the investors think the failure came after a good honest try, and was a learning experience for founders who will succeed at other times and opportunities, they'll favorably consider investing in a future venture, or help place the team elsewhere. So it's never a total loss: everyone learns things to do, things to avoid, and how/when to work together.