Tag: Team Building

Co-founder Breakups

Sharing some insights/patterns from various co-founder breakups I have witnessed over the years.

Recently, I received the sad news of a potentially powerful co-founding team breaking up rather acrimoniously. I had been tracking this team closely for several months now as a potential deal, and this happened right as the company received a seed term sheet from a Tier 1 VC.

Over a 15-year career in venture, I have expectedly seen several co-founder breakups, both in my own portfolio as well as those I have known well/ observed from the sidelines. This recent breakup got me thinking about any patterns/ insights I have noticed over several such instances over the years. Here are a few:

1/ Undergrad batchmates seem to have higher endurance

For some reason, I have repeatedly noticed that teams where the co-founders have been undergrad batchmates tend to survive much longer. Perhaps relationships born in those fledgling, relatively innocent years tend to have higher levels of subconscious trust and, more importantly, a sense of love and tolerance.

While it’s easier to find people with complementary skills and similar pedigrees (both of which look great on paper on the team slide), what keeps co-founders together is also what keeps people together in long-term marriages – having an underlying mutual respect & fondness, which leads to daily hours of fun as well as the willingness to both extend higher levels of tolerance to each other, as well as introspect and evolve to meet the other person midway.

Especially at the seed stage, company missions can evolve with pivots, but this mutual vibe is what keeps co-founders together across multiple iterations and often, multiple companies.

2/ Ex-colleagues and work friends seem to have a higher risk

My hypothesis here is that most people tend to put on a work personality at the job that suits their manager’s preferences as well as the company’s culture. Therefore, even after working with someone as a colleague, it’s very hard to know their real, full personality and values. In many cases, people end up misjudging mutual fit, especially when it comes under the immense pressure of doing a 0-to-1 startup.

Interestingly, this applies to colleagues at both large companies as well as startups. As an investor, I often hear pitches where founders say, “We worked together in the trenches of this early-stage startup and discovered this idea”. While this gives the impression of a strong set of founders germinating inside the cauldron of another startup, I have frequently seen such teams breaking up soon. While they do have the claimed early product and GTM skills they together learned at the startup, the mutual co-founder vibe & grit end up breaking under pressure.

3/ Co-founders coming together via common friends/ relatives, without a strong shared history, is a miss

I see this scenario a lot – one person decides to start up, spreads the word around for a co-founder, connects with someone via a really strong common friend/ relative, and both decide to partner.

In the majority of these cases, there is no shared history, and the team also hasn’t had the opportunity to spend enough time in the trenches going through the ups and downs together. When pitching to seed investors, they usually tell the story of “our skills are perfectly complementary, and both of us have met each other multiple times at this X/Y/Z person’s parties over several years, and developed a shared passion for this idea”.

In most cases, this ends up being a window-dressed story of the co-founding team and lacks the underlying bond & trust needed to grind out the tough times.

4/ “Earned co-founders” are solid

In many cases, folks start as single founders, surround themselves with early founding team members, validate, iterate, and get to early PMF with them, and during this journey, 1-3 people naturally come up and start playing a critical role in the management team. In a sense, they start playing the co-founder role without the title (or the equity).

I call these earned co-founders, and these are solid personas. In many of these cases, I have pushed the solo founder to look at these 1-3 people as core parts of the leadership team, if not as full co-founders, and have it also reflect in their equity at the appropriate time.

A decade of YC learnings on what not to do

Recently saw an amazing SaaStr talk by Michael Seibel (YC Partner) on a decade of learnings from YC (or to put it in another way, top mistakes startups make post demo day). These have been framed as learnings mainly for the post-seed stage (once a company has raised $1–2Mn), but in my view, are broadly applicable to any startup. As we close out 2019, I thought I will recap the top 10 highlights from this talk, just so all of us have this sober perspective heading into 2020.

  1. Assuming that just because you have raised a seed round, you have achieved PMF — “Don’t let investors convince you that you are further along than you actually are.”
  2. Hiring too quickly — per Michael, the standard startup model is, post a ~$1Mn seed round, grow to 8–10 people. Once this happens, the primary job of a CEO becomes “management” whereas it should be driving the company to PMF. Side notes (2a) Trying to take on too many problems or products at the same time. (2b) You want employees who are excited to drive the company to PMF, and not be under the impression that they are joining a company that already has PMF. (2c) An early stage, pre-PMF company should be minimizing # of non-essential employees. (2d) If an employee isn’t becoming an essential employee in first 3 months, it’s unlikely they will ever become one.
  3. Not understanding their business model — “not just pursuing the business model strategy that interests you, but one that is commensurate with what your product needs.”
  4. Not understanding what’s the right time to sell your product to founders/ tech startups as early customers — there are both pros and cons of this strategy. It really depends on what you are selling.
  5. Assuming investors will be a large differentiator — “An A grade investor is someone who signs the paperwork, wires the money on time, and then doesn’t bother you.”
  6. Not establishing best practices around hiring — “do simple things like setting up an intelligent interview process that candidates will enjoy going through, having an open communication process around equity & clearly talking about the candidate’s roles & responsibilities.”
  7. Not establishing best practices around management — “eg. consistent 1:1 meetings between employees and managers, some type of all-hands meeting, getting employee buy-in on direction & strategy.”
  8. Not clearly defining roles & responsibilities between founders — “avoid each startup decision going into a founder committee for resolution.”
  9. Not having level 3 conversations within founding teams to resolve conflict — creating an environment of resolution, not attacking. Not bottling-up conflict issues.
  10. Assuming Series A will be as easy to raise as an angel round — “important to get into Series A discussions with adequate leverage”. Side notes (10a) Don’t get impacted by TechCrunch articles on some Joe raising a $10Mn round for a business that will clearly fail. You don’t know the background circumstances behind that deal. (10b) People who had trouble raising money in their 20s, were finding it significantly easier to raise money in their 30s — this is because 1) investors are considerably more inclined to invest in 2nd-time founders, and 2) if you have been in the Bay Area for 10 years, you are most likely pitching people you already know.

Closing thought: as per Michael, the struggle with most companies is not that their thesis was off. It’s that either their timing was off OR they couldn’t iterate enough on the product to get to the solution that actually solves the problem statement. So, if you keep the team small, iterate quickly and ignore the hype, you can actually spend the time required to solve the problem. You might end up taking 1 yr or 3 yrs to get to PMF — stay lean till then and go to Series A once you have PMF, which gives you significant leverage.

PS: I loved this final quote from him — “In the startup journey, be prepared that both good times and bad times will feel bad.”