The Fancy’s Shareholders Pocket $20 Million in Series C Round

Earlier this week, the Business of Fashion reported that social commerce company The Fancy had raised a fresh $7 million from Richard C. Perry, whose hedge fund now owns a controlling stake in luxury department store Barneys New York.

That brings the total of The Fancy’s Series C investment round to $60 million, dating back to an initial $26 million raise to kick off the round last fall.

Not all of that $60 million is being used to fund the business: About a third of the investment — or $20 million — is going to “executive officers, directors or promoters” of the business, according to documents The Fancy filed with the SEC this week.

In similar situations, the founders of a startup often are the main beneficiaries of such a financial arrangement, which in this case would mean founder and CEO Joe Einhorn (pictured) and president Jack Einhorn. It’s not clear if other executives or board members received any of the $20 million.

This is not the first time this has happened in an investment in The Fancy. When the company raised funds back in 2011, $400,000 went toward “annual salary for two executive officers,” according to an SEC filing. And back in 2010, $2.6 million of a $6 million round went to Joe and Jack Einhorn, according to a separate document filed with the SEC.

Joe Einhorn and COO Michael Silverman did not respond to emails seeking comment.

Cash-outs like these often arouse strong opinions on both sides of the aisle in the VC and tech community.

Critics contend that such cash-outs are dangerous because founders may not be as focused as they once were, now that they have seen a big payday. On the other hand, investors who believe in giving founders liquidity argue that it can eliminate personal-life distractions and stop an entrepreneur from looking for a quick payday by selling the business.

Either way, these arrangements usually occur when investors are confident that a startup is on the verge of sustained success.

We don’t know if that’s the case with The Fancy, which has now raised more than $75 million.