A senior manager with a large West Coast venture capital firm concurs. Liability is not a question that keeps us up at night. Unless there is malicious fraud, officers are not responsible for the death of the company. Suits against failed start-ups are rare. If a company does fail, it generally doesn't have any cash left to pay back investors.
Investors generally understand the risks very well.
How should the relationship between a small business and its venture capitalists be conducted. This is not the time to try and hide the risks behind your optimism. The relationship between a small business and its funding sources should be based on trust and full disclosure. That's doubly important today. One of the worst things an entrepreneur can do is to underestimate the risks or refrain telling an investment partner about everything that conceivably could go wrong.