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Brutal Startup Failure
49 points by theHolyTrynity 4 days ago | hide | past | favorite | 28 comments
My first (vc backed) startep failed after three years.

We started in 2021, working in crypto. Looking back to the time we got started, I made some serious foundational errors: - Selling 40% of the company at preseed for 1.2mln and signing a predatory shareholder agreement - Trusting a co-founder relationship which never really worked, hoping to fix it along time

But 1.2mln$ in the bank made me forget about these issues. Started to work on the business heads down.

After 18 months of iterating, things were finally moving. Our vision became clearer, and we got into a well-known accelerator. But that’s when everything started to unravel.

My relationship with my co-founder began to deteriorate rapidly. I felt like I was doing everything—closing clients, managing product, handling content, brand, fundraising—you name it.

My co-founder, on the other hand, wasn’t pulling his weight. His network and skills weren’t contributing to the startup’s success. I raised these issues multiple times, and each time he made promises that he would step up and deliver. But in reality, anything he touched would underperform.

Eventually, the investor and I decided to revoke his powers. That's when the nightmare began: a drawn-out legal battle that lasted 12 months (one third of the startup life).

My biggest mistake was not thinking long-term. I didn’t fully grasp the fact that I was locked into a relationship with this co-founder for the next 5 / 10 years, with him owning 30% of the company and having no intention of selling. His ego was bruised, and I was overly confident that I could fix everything by just working harder on the business.

That led me into a nearly unbearable situation: - I was working myself to the bone, with a very low salary - I owned less than 30% of the company. The rest of the team had little to no equity. - 70% of the company was split between an investor with no clear value-add and a co-founder ready to go to war.

On top of that, the investor still owed us money and refused to invest further. They helped me fire the co-founder, but after that, it was radio silence. I couldn’t even raise new money with this cap table. The only way out was to negotiate a deal: - The investor would give up some of their shares. - The investor would provide the promised funding. - My co-founder would sell at a reasonable price based on what we had in the bank.

But months of negotiations went nowhere. The co-founder demanded 10x what we could afford and threatened to sue the investor. The investor, on their part, refused to inject more capital into the company.

Despite all this chaos, we actually reached break-even, but the co-founder’s constant weekly threats and harassment drove me to a dark place. My stress levels became unbearable, and I lost all enthusiasm.

Eventually, I made my final offer to the co-founder: "Take $150k now, or we shut down the business." In a formal shareholder meeting, he not only rejected the offer, but called it ridiculous. That’s when I snapped. I hired a lawyer and resigned. The company shut down. 10 employees fired.

Huge. Fucking. Failure.

Now, my co-founder is suing the investor and walking away with around $100k from the settlement. Meanwhile, I walk away with nothing, except lawyer fees.

Lessons Get the foundation right. Product market fit is achievable with time and the right team. The foundation is much harder to change later.






This happens way more often than you might think. Congratulations on surviving to tell the tale, and best of luck with your next venture. These lessons will stand you in good stead, provided you recognize that this is only one way to kill a startup. Trust me, there are oh so many more...

(and product market fit is a necessary condition, but unfair advantage is where it is at)


thanks, I know that this happens frequently. But at the same time it feels so sad to shut down a company that was indeed starting to see pmf

> The co-founder demanded 10x what we could afford and threatened to sue the investor.

When this happens, you have to invert the offer and say that he can pay you that amount for you to leave instead.


We did it.

I proposed to give him my shares for FREE. He refused, knowing it was not capable of running the business.

On one hand, he told me the business value was in the millions. On the other, he would not buy the entire business for free.

Also, he always knew he could get some money suing the investor


Sounds like a solid learning experience.

It's also why I am incredibly hesitant to have a co-founder and it's why I went the bootstrapped approach instead of VC funding from the start.


yeah, problem is that is extremely hard to do it alone

My approach for the future: - Don't raise unless you really need to scale. Bootstrap as long as you can - Co-founders are ok, but with very clear pacts and shareholders agreement to manage conflicts


Don't forget vesting agreements with a 1 year cliff, exactly for situations like this.

Yes. First startup and jumped right at it, skipping the fundamentals.

I was not the only one though, the investor gave us a lot of money with a very bad shareholder agreement


That's brutal man, wish you better luck ahead.

Granted I've only got started on this journey a few months ago, but I tried to find a co-founder and failed 3 times to find someone who I can trust and is capable. I think I'm just going to do it myself because counting on someone else at this stage while giving up significant equity to a bozo is a recipe for disaster.


Yes... Cofounders should be people that you have been knowing for years.

It is very easy to fuck it up


I feel like a lot of people just want to call themselves a founder. They don’t want to do research/sales outreach and they can’t help with building.

I’m a swe and I’ve done everything from cleaning pantries to delivering on 100 million plus projects. So I can do anything. But I also don’t know a lot and love learning and figuring stuff out. I wish I could find someone who could compliment me well.


It sucks, the people are everything. Integrity and execution are the main ingredients. The rest is luck. But no integrity or no execution and you implode. You literally just need integrity and execution.

agree, if you get these two right product market fit will follow

If you're still reading this, could you say more about how you found your co-founder?

And do you have thoughts on how next time you'd go about picking one differently?


Uni friend. We had aligned interests. But the red flags have always being there.

Great question. I'll try to have a trial period on the job. Set a high bar for integrity and execution. And then legal vesting...


Thanks. Good answers.

For what it's worth, the people I've had the most success working with are people I've already spent some time working with. But yes to those other things too.


sorry to hear the stress that your cofounder caused. how did you know them before the venture?

cofounder arguments are common, esp in crypto. for your next venture, it's better to have a cofounder agreement with vesting schedule in place. once someone becomes irrational and unreasonable, it's a sign to get lawyers involved.

dont be too hard on yourself, happens to the best of us.


Cofounder was a uni friend. I was introduced to the investor by a common friend, but needed to do more dd.

Agree on the vesting. Rookie mistake. Also on the investor part - surprisingly they never asked it.

Will make sure to involve a good lawyer as soon as possible in the next venture


This - co-founder conflict - is the #1 reason startups fail. Went through something very similar 2023-2024: legal, emotional drama, conflict, losing $$$ (legal, putting $$ into the company), another co-founder leaving

it's hard and brutal especially for first-time cofounders, but it's part of the process


Glad to hear I am not the only one...

It sucks for the time that it takes away from building a company. And it is one of the reasons I'll probably go for a standard job before starting a new one


As an aside did you get some salary while working on it. Are investors happy for some of the 1.2m to be founder salary. Asking for a friend.

Yes but way below market rate. Honestly, that's my mistake, I could have negotiate it better and asked for more. I did not think about the worst case scenarios enough.

Good investors understand the benefits of founders mental health and should not push you to work for free.


Sad to see this but thanks for posting as a cautionary tale. I think you made the right decision to resign. Hope you take care of your mental health and have some much needed rest!

Thanks. Hope other founders will see this as well... Cannot build an house without a good foundation

why was it so hard to find a deal with the cofounder?

because he knew he either would get the buyout or the settlement money

What about just founding the next one alone? Will VCs still invest in that?

Yes, next time I will think very carefully about which investors to involve.

Disclaimer: I am not in a startup / tech hub. I realized that there are many more investors outside my geography. Professional investors.

Indeed I am leaving my country and starting new in another place




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