By Palak Devpura
An American fund invests in an Indian startup expecting a successful exit in five or six years. The company grows, but an IPO is nowhere in sight. The investor now wants its money back.
Can it simply ask the founder to return the investment?
Usually, equity is not a loan. Buying shares means accepting business risk, and finding an exit often depends on a willing buyer, an agreed transaction and compliance with applicable law.
One possible route is a secondary sale. The US fund may sell its shares to another investor, an existing shareholder or an eligible buyer. Another is an acquisition of the startup, where investors receive proceeds under the agreed share rights. In some circumstances a company buyback may be considered, but corporate law and funding restrictions have to be satisfied.
Investor agreements often describe exit possibilities in advance. They may contain transfer rights, tag-along provisions, drag-along mechanisms, information rights or agreed efforts toward a future listing. But a clause written into a contract is not a guarantee that an exit will happen on schedule.
READ: The startup raised millions. Why is the founder still broke? (November 4, 2026)
For investments into Indian companies, foreign exchange rules add an important layer. Depending on who buys the shares, applicable pricing guidelines, valuation, sectoral conditions, transfer documentation and reporting requirements can affect the transaction. In particular, the RBI framework generally does not permit a non-resident equity investor to be guaranteed an assured exit price under the relevant optionality arrangements.
That distinction matters when an investor asks for a fixed return regardless of company performance. A commercially attractive promise still needs to fit within Indian law and the specific investment instrument.
Founders can also face pressure when the investor’s fund reaches the end of its life. The company may be healthy but not ready for a sale. An investor may want liquidity for reasons unrelated to the startup’s actual performance.
READ: Your AI built the product. But can your startup really own it? (November 3, 2026)
The sensible response is to examine the shareholders agreement, capital structure, prospective buyers and available regulatory routes before anyone promises a timeline or a price. A negotiated secondary sale may preserve the business better than forcing a rushed transaction.
The most important exit conversation should happen before the investment arrives. Founders and investors who agree on realistic possibilities at entry are better prepared when their priorities diverge years later.
Raising international capital brings opportunity, but an equity investment does not automatically become repayable just because an investor decides it is time to leave.
(Palak Devpura is co-founder of Spinach Laws, a startup-focused legal services firm advising founders on incorporation, brand protection and cross-border transactions. This column is part of the ongoing Spinach Laws × The American Bazaar series on law for founders.)