It’s OK. As long as the founders did everything they possibly could to make it work. Everything.
There are two types of losses for VCs and professional investors: losses than fit into your “expected loss rate” … and unexpected, and often, abnormally high losses. The first is OK. The second can be Game Over.
Statistically, every early-stage investor is going to see some % of her investment fail, and a large other % not really make much money. As a true angel, your effective failure rate could be as high as 90%. As long as there is one Uber in there — you’re doing fine 🙂 By contrast, late stage investors can’t really afford too much large losses at all. Because the upside is also more bounded.
But net net in all this … investors know what they are doing. They know the risks they are taking.
When investors get hurt hard is when something isn’t supposed to lose money … loses a lot of money. E.g., I write a $500k first into a start-up. Then I put another $2m in. Then $10m in a third round. Then another $20m in the Series C. Now we’re up to $32.5m. In, say, a $250m fund — that’s a lot. Just losing the first $500k? Not a big deal in a $250m fund. It’s OK. Losing $32.5m now though — that’s a Career Ending Move.