Once someone is on your cap table it's very very hard to get them off. If it's someone who isn't reliable, doesn't align with you philosophically, or is unethical.... There's a world of hurt waiting. You spend the money once, you deal with the consequences for the life of the company. Little things include having to chase down signatures years after they've "checked out" so you can run your business. Bigger things include blocking an exit for petty reasons, or scaring away future, higher quality, investors, because good investors don't want to be in deals with bad ones.
Let's say, for illustrative purposes, that I took an investment from Peter Thiel (it's someone like that). I wanted to work with this person since the late 1990s, and finally got a chance to. They've been an amazing and patient partner / investor, but it hasn't worked out as hoped. That part is very hard, and very frustrating; like trying to refuse gravity. If you've ever thrown everything you have at something, and felt like gravity was bringing the rocket back down early no matter what you do, then you know what I'm talking about.
I regret that the failure of the company will mean the end of working with this investor, it was a rare opportunity. I obviously get to retain value from the experience and what I learned. There is a significant toll that is paid with every serious start-up, measured in years of your life, effort, stress, difficult life trade-offs, and a love for what you do and having to deal with that not working out. All I've ever wanted to do is build, and work with great people; it always sucks to not come through for people you look up to, that believed in you. Even if that person can afford the lost investment, the principle context goes beyond money, it's the hope of creating something that matters and seeing it prosper.
What I can tell you is that it is important to be as honest and forthright when the rocket crashes as you can. You may never work with that investor again. That doesn't mean that nothing has to come out of that relationship. It is important to keep your reputation, especially with regards to someone with a high profile. It is equally important to keep your reputation and relationship with your coworkers and employees. When my first startup went under, there was a lot of anger between me and my partner, who had left college to work with me. But we worked through it and fourteen years later I was a groomsman at his wedding. So, realize that things are going to suck and there is going to be anger, but if you stay straight with them, they will hate the failure instead of hating you. And you can share that hatred for the failure with them, if you don't internalize the failure as being a part of you. It's hard to do that, but it's necessary to some extent to keep following your dreams.
There are roles other than founder which VCs need in their quiver. Failed founders are one of the best places for VCs to find technical knowledge, which can be important for them in vetting other opportunities. Since they have already worked with you, they have a good idea of how much you know and how much you don't. And they have seen failure before, and won't hold it against you unless you do something untoward when things come apart.
Failure sucks, and failing a great opportunity sucks more. But I hope that you really don't regret taking the opportunity, even if it led to a failure. One thing is to ask yourself, if you didn't know if it would result in failure or success, would you take the opportunity again? If you would, then you don't truly regret taking that chance.
If you do realize that your venture is failing, it is good to switch to 'failure management mode'. I did this about a year too late, and it cost me dearly (I still had a forlorn hope, I didn't take salary the last year to save on expenses, ended up living in my car, girl left me, lots of fun). Maybe for you, failure management may mean salvaging relationships, your love for what you do, and hope for the future. All that emotional stuff is the hardest part of what we do, and managing that for both you and your people is a very important part of winding down a failed venture.
Ok, so I am maybe a bit dramatic, but frankly it is all true.
In the end this particular investor questioned every decision we made, wanted to be involved with client meetings, tried to use us as his personal IT/development group without payment, tried to drive us into his personal projects, would show up at the office and start asking people what they were working on and if he disagreed he'd tell them. So overall he became a royal pain in the ass. In the end we wound up getting him out of the business through raising enough money on good terms to buy him out, but it is an experience I would never want to repeat.
What I took away was that if I have any bad feelings, odd feelings or feel something just isn't quite right, I pass now. Divorcing a spouse is hard, getting rid of an investor can be even harder. This is because you basically want to placate this person until you can get them out of your business so they do not go off and become a negative effect on fundraising for you or for the business as a whole. An ex spouse, even if they are screaming you are a douche will be viewed as just a bitter ex, an investor doing this will turn off other investors many times for valid reasons.
If you have specific questions happy to share my experience. I know we had a nightmare with this one, but have had amazing help from others. Just with this one person I could go on for a long time with the nightmares, but hopefully the "short" version covers the key issues.
Now whenever I do the math for accepting shares over money, it's usually not worth it.
That's why they say: "profit points are for suckers".
See also: hollywood accounting.
Slightly different POV:
I had the opportunity to work for a company for either options, or accrue extra annual leave. I took the options. Smart people took annual leave (because it was still actually payable/real money)
At the end, as it turned out we all lost our jobs anyways, people who had taken annual leave got extra money. I got a huge bunch of options.
Now that's fine they may have been worth something, but I still had to exercise them. It was ok though, the CEO told us all verbally we would have 12 months to exercise them.
2 months later, I got an e-mail from the CFO asking what I was doing with my options as they would lapse in 30 days. I had to exercise them or let them die. I was already committed, so I thought what the hell, I'll exercise them because otherwise I walk away with nothing
So I forked over even more money.
I wish I hadn't exercised those options. They ended up being worth exactly $0.
Until startups change the 90 day exercise window, you can go to something like esofund.com to help offload some of the risk.
I will only now take money to scale a business that's already working.
I've seen countless conflicts among the founding team because VCs push bad decisions on them and some of the founders fell like they have to follow them because they want more money form the VCs and the other half of the founders know the VCs are full of it.
I've seen VCs push out good founders, leaving the weaker founders behind in the company-- so they could have more control.
Notice all of these examples are VCs. Seen a LOT less shenanigans perpetrated by angels.
But I have the benefit of experience through osmosis, watching others get into problem investments and learning how to avoid them. It's difficult to describe how to do this properly, it's a complex and subtle art, and you never really know if you did the right thing (assuming the investor isn't throwing chairs at you during negotiations or something). It takes a lot of chutzpah to say no, and a lot of the reasons to say no end up being buried in deep contractual agreements even lawyers have trouble reading.
Treat investment like a loaded gun. It's a tool, but a dangerous one when used foolishly and without control.
We made a decision in our last startup to actually turn down a term sheet and go heads down instead of taking money from a VC which we had seen a number of red flags from but had committed to leading a round of funding.
I know it was the right decision to make it and even though it seemed hard at the time I never once regretted it, but I have no doubts that if we had taken the investment I would have regretted it almost every day since
Marginalized members of wealthier business family units deal with the same/parallel social issues as broke, corrupt, controlled workplace/parent-state organization cultures.
A warning to ask "would you trust your parents to look after your money?"*
If anyone fits that situation and reads here before or around trauma, read yourself and be warned about economic abuse madly easier due to/based on how well you are known and objectifiable by even close family.
I waited to share because it is complicated, difficult, and accumulated, to struggle to explain at my age still.
It broke a lot of important parts of my life apart.
I am making my own version of (CC) @Painreal and #paincoin to try to deal with that count and age of power remorse.
[1] http://new.spring.me/#!/r/would-you-trust-your-parents-t/660...
But it was too late to do anything about it. I was pitching like a money craze just to set up the company and get things going. I managed to get what the startup needed and start rolling.
But Ow Boy! Getting investment from a politician that is from a 3rd world country can go south very quickly. We are talking about like really bad south.
I learned few things on the way:
1- Bad investment can very easily kill the company.
2- Living rough and patching things together can be a better investment than taking someone's money that you know will cause you horrible outcome.
Edit: red flags:
1- He/she have no clue how proper investment is done.
2- No trust or believe in the actual entrepreneurs. I don't care how much he/she offers, you've got to see it in their eyes that they are willing to do this and you as an entrepreneur is the one.
3- Don't take a politicians investment! Bad bad money.
I suppose it may depend on whom the investment is from, but it also makes me glad in many ways that I've turned down all of the people who have wanted to invest in my company thus far and run it strictly on the revenue it generates. (i.e. it was a hobby of mine that started generating revenue and only after that did I bring other people on to help)
Now if the OP had asked if anyone had regretted taking YC money, I could see your point.
Bad investment stories abound in the silly valley, and across the industry at large, however. Asking people to share some of theirs is legitimately, utterly on topic for a forum site aimed squarely at the needs and interests of technology entrepreneurs.
Instead, tumbleweeds. Live and learn.
This is over nearly 30 years founding startups.
With regards to sounding out investors; talk to the companies that they have invested in before, especially the companies that didn't do so well.
That'll often tell you all you need to know.
PS: see new comment
Maybe a more specific question would be appropriate?
http://www.quora.com/Have-you-ever-regretted-taking-an-inves...