Quora Answer: Is It Legal If Someone Agrees to Invest in Your Idea, & You Buy a Ferarri with Some of the Funds?

The following is my answer to a Quora question: “If someone agrees to invest in your idea, and you take some of the funds, and buy a Ferrari with it, is this legal?”

Whether this is a disputed use of funds, or this is outright illegal depends on whether the investor invested in the company, or in the person directly?  Also, we have to consider the terms of funding.  People who invest in start-ups are not idiots.  They do not just throw in a lump sum.  There are terms and conditions tied to the release of funds.  There are milestones, there are checks and balances, and there are restrictions on the drawings from capital.  In significant cases, they would demand a seat on the board.  This is not going to happen unless the funder is a moron.  In such a case, he learns an expensive lesson once.