Insights on Co-founder Dynamics
for Founders & Investors
Content
Intro
Main Factors
Wisdom for Founders
Questions for Investors
Credit & Future Work
1. Intro
I spoke to 60+ founders and investors to gain insights on the number one reason why startups fail: co-founder issues. Negative co-founder dynamics are more detrimental than running out of capital and lacking product-market fit, because people are at the core of all businesses. Undiagnosed co-founder issues are a constant source of tension, resentment, and burnout for founders. Many co-founder issues could be prevented if important observations were made, the right questions were asked and hard conversations were had early on.
This essay intends to serve two purposes:
For founders:
Before partnership: help assess whether the candidate is the right fit for you and for the company.
During partnership: help identify the sources of your co-founder issues and prevent trust from breaking.
For investors:
Deal-sourcing stage: help identify red flags and green flags in co-founders.
Existing portfolio: help your founders work through their issues and adopt healthier mindsets (toxic founders ultimately will create toxic company culture that leads to low talent retention).
I provide questions for investors to test co-founder dynamics at the end.
As you read this essay, take note of your own emotions. If you feel very triggered, it might be a sign that you have some inner work to do.
2. Main Factors
2.0. Summary
A few recurring themes often lead to co-founder issues and breakups. These themes are more visible, and most founders are aware that they are sources of tension with their co-founders:
Lack of a shared history between the co-founders prior to the startup.
Misaligned visions for the company.
Ego issues and fights over who should be the face of the company.
Overlapping responsibilities and unclear boundary setting for decision making.
However, there are also less visible but important factors running in the background that either intensify or prolong co-founder issues:
Lack of self and emotional awareness to do the necessary reflections and introspections.
Lack of skills in handling emotionally-charged conversations and voicing one’s needs.
Lack of founder communities to benchmark what’s expected and acceptable in the industry, leading to second-guessing one’s gut feeling.
Insecurities and defensiveness that discourage honest feedback.
Co-founder co-dependency.
Mutual energy drains and not recognizing signs of burnout.
In this section, I will discuss each of these topics in depth, along with several business and operational factors that inhibit startup success. At the end of this section, I will also share investors’ perception on the number of founders in a founding team, the real reasons for investors’s rejections, and my take on whether co-founder relationships should lean toward being friend-like or strictly professional.
2.1. Shared History
Having a shared history prior to starting the company lays an important foundation for co-founders to trust each other’s character, competency, and commitment, and to reach a faster mutual understanding during disagreements. Ideally, you’ve worked with them or have a work reference, so that you know their problem-solving skills, industry expertises, and work ethics.
Have you seen how they handle stress, pressure, and disagreements?
Have you seen their unfiltered versions in casual settings? Do you know their ambitions, motivations, curiosity, and weaknesses?
Do you know where their business ideas originate from? Did they live the problem they are trying to solve, or did they just hear some cool idea from a friend or a podcast?
Does one of you have deep industry expertise about the market?
Does one of you have an industry professional network for future recruitment?
Do you know how much conviction and commitment they have? Have they built anything on the side, in evenings and weekends?
Are they self-starters? Do they have an insatiable desire to learn?
Do you know whether it is the right timing to form a partnership? Did they just have a company exit? Did they just have a newborn? Are they ready to make big changes in life?
Do they have a founder-market fit? e.g. If they want to build a stress reduction app, does talking to this person make you feel relaxed and comfortable?
Consider working on a testing project with them before starting a company.
If you are promoting an existing employee to be a co-founder:
Do they go above and beyond in their work without you asking? Are they obsessed with their job?
Choose people who take pride in their responsibilities and strive for excellence. Having a strong work ethics is mostly a personality trait, which means hardworking people tend to work hard regardless of the jobs they have been assigned. Remember, your employees won’t care about the work more than your founding team, for example, the performance of your CTO will set the ceiling for the performance of your engineering team.
Other factors that can serve as strong indicators for their future behaviors and decisions:
Do you know whether they have a tendency to self-sabotage?
Do you know if they are capable of keeping long-term friendships?
Do you know how much they have at stake? e.g. Did their parents invest in them using their retirement savings? Are they married and have a spouse with a steady income that can support them? Do you have spousal health insurance but your co-founder doesn’t? These factors might seem irrelevant but can end up determining how soon your co-founder wants to raise funds and how much risk they are willing to tolerate.
2.2. Vision Alignment
When you have a very exciting idea, it’s natural to want to jump right in and build the product, postponing the discussion with your co-founder about your visions for the company. Avoiding these discussions can create impasses down the line. Consider discussing the following topics early on:
Growth Objectives: Do you aim to grow the company for an IPO, or focus on revenue as a software consulting business?
Product Focus: Will you build a platform, niche, or vertical?
Platform: Something that works for everyone and everything, allowing others to build on top of it (e.g. Salesforce, iOS).
Niche: Specific functions for a specific group of customers (e.g. banking for influencers, Duolingo, Strava).
Vertical: Provide an array of functions for a very specific industry (e.g. Shopify)
Target Market: Will you focus on B2B or B2C?
Capital Strategy: Will you raise capital soon or later?
Go-To-Market Strategy: Will you grow the company through a sales-driven or marketing-driven approach? How do you want the product to be discovered?
Budget: What is your budget range for marketing and sales? Remember to include sales commissions, and hiring a dedicated sales team likely will require additional technical and marketing support.
Ethical Boundaries: To what extent are you comfortable being aspirational or omitting details about the product? This might sound controversial, but this question will come up for every startup.
2.3. Ego Issues
Under their grandiose facade, narcissists don’t actually believe they are worthy or lovable, so they rely heavily on external validation to feel okay. You are prone to running into issues on who takes credit and who should be the face of the company with these individuals. Here are some observations that can help you detect narcissists quickly:
Be aware of people with headlines like “Top 30 under 30”, “Forbes top 50”, etc. Most of those “top” titles are awarded based on applications, referrals, or nominations from well-connected people: they searched, applied, and put on these titles for show. Not everyone in this category is a narcissist, but a big chunk of them are very image-driven, and threatening that image frequently means war.
Be aware of winners in public pitching competitions. Many founders and investors have shared that public pitch winners are often not great people in real life. A lot of them have mastered the techniques to wow the audience in public pitching, which is actually an unnatural form of human interaction. If you interact with them in private, chances are you would walk away feeling they are disingenuous, transactional, and leave you with a bad taste in your mouth.
Be aware of smooth talkers who constantly drop complex jargon and big names to impress you but have no actual substance or original thought.
Be aware of people who put you down to lift themselves up, gaslight you, invalidate how you feel, and constantly make you second-guess yourself. When in doubt, remember constructive criticism often comes from care and you can FEEL the person’s good intention.
Be aware of people who always talk about themselves. No matter what thoughtful responses you provide, they always steer the conversation back to themselves.
Be aware of people who just want the entrepreneur status. Do they spend a disproportionate amount of time arguing whether their title should be CEO?
If you have partnered with someone who is ego-driven, insecure, close-minded, and ill-intentioned, GIVE UP and start over. They have near-zero potential for improvement. Tangling with them will only further drain your resources and motivations, and it is time for damage control.
Additionally, be aware that over time, you might evolve into being egotistical and develop a blind protection of your idea, believing that maintaining outward confidence is what makes people take you seriously (especially in the U.S.). In this mental state, even small inquiries can be perceived as threats, leading to a tendency to hide things that are not working. This can spiral into a cycle of anxiety and cover-ups.
2.4. Insecurity
Insecurity fuels narcissism, but it also manifests in other ways. Insecure founders become defensive easily when their faults are pointed out. This defensiveness makes people reluctant to provide honest feedback about the insecure founders’ ideas, operations, and judgements, which in turn considerably slows down their startups’ iteration process.
Pay attention to how they talk about others’ success and their own failures. Do they attribute others’ success to blind luck or unfair advantages? Do they blame external factors for their lack of progress? Do they make you feel everything is against them and they are the victims?
Successful founders are resourceful: they possess calculated optimism and know how to take intelligent risks. Despite the challenges ahead, they are determined to figure things out, instilling confidence in their ability to succeed.
Insecure people often project their fears and insecurities onto others as a way to cope. Pay attention to what they frequently criticize and their efforts to push their feelings onto others. A piece of wisdom to consider: How someone talks about themselves or how other people talk about them is not likely to reflect their true nature. However, how they talk about other people - that is the most accurate reflection of who they really are.
2.5. Emotional Awareness
More often than not, the real reasons that drive us to do certain things lie in our subconscious. Effective communication requires an understanding of what motivates you and what motivates others. Common shortcomings for technical founders include not being in touch with their own feelings and lacking the language and framework to handle emotional conversations.
The minimum level of emotional awareness required for a successful founding partnership is as follows: one founder has above-average self awareness, and if the other founder is not self-aware, at least they need to be a good listener and have the humility to acknowledge that they don’t know everything. Two self-unaware founders will have a tough ride because they will resort to either aggression or avoidance toward each other when things get stressful.
This isn’t superficial awareness of what makes you happy or sad, but a deeper-level awareness of what you take pride in, what you value, what you are ashamed of, what your risk tolerance is, how conflict-averse you are, and the hardest of all: what you are in denial about.
Are you able to reflect and extract lessons about yourself and your co-founder from a conflict, instead of just brushing it off and saying “they are a jerk and tomorrow will be a better day”?
There are 3 types of conversations: small talk, functional talk, and emotionally charged ones. Founders tend to avoid the third type. You should schedule recurring meetings to chat about emotions with your co-founder - so that both of you know there’s space and time to voice and vent, preventing negative emotions from building up into deep resentment.
If the other person is emotionally charged, remember to recognize, validate, and label their feelings first. It can be as simple as “you seem upset / hurt / disappointed”. It doesn’t necessarily mean you agree with what they were saying, but it sends a strong signal that you want to work through the issues together.
Make statements such as “when you did X, it made me feel Y”, instead of “you are always X” or “you never did Y” - those are ineffective communication.
Practicing summarizing what the other person just told you back to them is a great way to clear misunderstandings and build rapport.
Try to get to the bottom of things: what were your and your co-founders’ unspoken underlying assumptions that led to the current situation. Did you get mad at your co-founder for not meeting an expectation that you’ve never communicated? Ask how you can make things better for them, and tell them how they can make things better for you. Remember, being clear is being kind.
Be aware that you and your co-founder may have different levels of stress exposure, e.g. engineering usually has more straightforward goals, but GTM can be much more uncertain.
Be aware of the energy dynamics between you and your co-founder: Do you have non-overlapping troughs and help each other get out of the ditch? Do you stimulate each other’s minds, or do you drain each other’s energy?
Be aware of mental and physical symptoms of burnout. Many people realize they were burnt out only after they took a vacation. You and your co-founder should give each other feedback on whether you think they are burnt out.
2.6. Boundary Setting
Founders who experience smoother relationships generally have well-defined boundaries in terms of responsibilities and decision making. This is not to say founders shouldn’t collaborate, but rather they should collaborate more by using each other as sounding boards.
Work with people whose judgements and competency you trust. If you feel the need to micromanage or be involved in everything, it ultimately stems from a lack of trust. If you need to extensively coach your co-founder and constantly check their work, they likely are not qualified to be your co-founder.
An example of clear boundaries for responsibilities: the CTO makes exclusive technical decisions such as architectural decisions and server choices, while the CEO makes business and strategy decisions.
Do you have a decision-making process in the face of disagreements?
If you have three co-founders, you can vote.
You can test out one idea if there is no clear consensus.
Determine a fair trial period for idea testing and for evaluating team member’s performance.
Focus on the shared goal and outcome, and keep your ego in check.
You don’t have to agree on everything, and if you can extract lessons from each disagreement, your relationship with your co-founder is likely to grow stronger.
You also need to set boundaries for yourself to prioritize your mental resources and energy. Even if you haven’t raised funds and are not paying yourself, it is important to set a paper salary for yourself so that you value your own time and concentrate on what matters the most.
2.7. Number of Founders
a) Solo Founders
The myth is that investors don’t like to invest in solo founders, but the reality is solo founders account for half of the portfolios for many investors. Investors may reject solo founders under the pretext of them being solo, but that’s usually an excuse. After all, investors can potentially acquire more equity from solo founders.
Investors don’t have biases against solo founders, but solo founders need to be technical. Investors don’t believe that if you don’t have the ability to build a product now, you’ll somehow “figure it out” down the line.
Some founders have brilliant ideas and are extremely competent in certain domains, but they may also have very bold and decisive personalities that don’t mesh well in partnerships. For these founders, it is often best to go solo, raise capital quickly, hire experts in areas they lack skills in, and focus on recruiting the top talent and leading them instead.
b) Two Co-founders
Two co-founders is a common setup. The challenge lies in making decisions when there is a disagreement. See 2.6 Boundary Setting for more.
c) Three Co-founders
Many investors and founders regard three co-founders as the ideal setup, because of several reasons:
The third co-founder often can play the mediator role when the other two co-founders strongly disagree on something;
When two co-founders share a similar view, it usually prompts the third co-founder to re-evaluate their stance with less resistance;
Having a third co-founder offers more flexibility for the founding team: they can support either the technical side, the business side, or other urgent tasks and bottlenecks when the technical and business co-founders are overwhelmed.
d) Four or Five Co-founders
HUGE red flags to investors. Having more than three co-founders is an automatic rejection for many investors because decision-making becomes increasingly difficult and equity gets diluted quickly.
2.8. Co-dependency
Co-dependency isn’t limited to toxic romantic relationships; it can also manifest in co-founder relationships. Co-dependency occurs when Founder A seriously lacks competency in key areas, but Founder B is willing to tolerate and coach Founder A for an extended period, because witnessing the positive impact on Founder A makes Founder B feel worthwhile. Founder B may either have low self-esteem, or conflict aversion, or both.
However, a co-founder is not an employee: you can’t afford to waste valuable time and resources coaching the other person. You need someone who is competent and whose judgment you can trust.
2.9. Community
Having a founder community or regularly talking to your founder friends helps benchmark what’s normal and acceptable in the industry. For example, it allows you to learn whether your co-founder’s behavior is toxic.
Most founders actually have an accurate intuition about what actions need to be taken to correct a bad situation, such as removing a co-founder or firing a poorly performing employee. However, they often second-guess themselves and prolong the bad situation. Being in a founder community offers you more perspectives, clarity, and confidence in what needs to be done.
2.10. Miscellaneous Considerations
The following factors don’t fit precisely into any of the categories above, so I’ve grouped them together:
A great team comprises people with complementary skill sets and energy types. If one of you generally brings in the mission / passion / sense of urgency for the team, the other person should be relatively calmer and softer so that your employees feel more comfortable bringing issues up.
Ideally, you and your co-founder are physically in the same place, or, at the very least, in the same time zone. Early startups require rapid turnarounds, and being in close proximity facilitates quick communication and decision-making processes.
For repeat founders, be aware of your urge to overcompensate for what didn’t work the first time. For example, you may want to overemphasize one quality in a co-founder and overlook others.
Do more research and avoid incorrectly extrapolating mainstream customers from the characteristics of early adopters.
Market Validation: Have you talked to enough potential customers before building the product? Are you solving a problem that is painful enough for people that they are willing to jump at the first opportunity to get rid of the problem?
Being too protective of your idea before finding product-market fit might kill your company.
Perfecting code too early is not advisable.
2.11. Real Reasons Why Investors Reject
The two most common reasons founders hear from investors are:
Not sure if there is a market;
It is too early / poor traction.
While these reasons are usually at least partially true, there are other reasons that investors don’t often disclose:
Lack of founder-market fit, e.g. when founders transition drastically from their background or training to something entirely different.
The pitch may be airtight but the interaction between the co-founders rubs investors the wrong way.
Founders themselves are too sales or too GTM.
Disagreement with founders’ technical approach.
Unscalable business model.
But why don’t investors explicitly communicate their real reasons? Many career VCs used to provide thoughtful feedback to founders in their pass notes, but they often received defensive 20-page-long responses from insecure founders (See 2.4 Insecurity). Consequently, investors become unsure whether to refute those points, simply say thank you, or ignore the responses altogether. Over time, they learned not to provide honest feedback to avoid these unpleasant interactions.
A pro’s response to an investor’s pass note would be graceful and concise - a simple “Thank you for your time. Let’s keep in touch.” is often the best approach. Remember, it is not personal - VCs have LPs to report to, and the business is built on 10x returns. This is a long game: Come back for Series A. You may secure more funding from the investor while offering smaller equity - you get your “revenge” anyways.
2.12. Friends or Professional?
One founder asked me whether co-founder relationships should lean toward being friend-like or strictly professional. My take is that at the minimum, you should enjoy hanging out with them casually. A co-founding relationship is similar to a marriage in many ways - you spend hours with this person on a daily basis. You need to know some aspects of their personal life because, aside from work competency, trust is built on understanding the other person’s character, what they care about, how they treat others, and whether they make good decisions in their personal life.
However, a co-founding relationship is somewhat conditional - trust is maintained on the basis that you deliver what your role is supposed to deliver. You also need to know what’s important to you and cannot compromise on. You need to be more comfortable raising different opinions, giving feedback, and asking tough questions than you would in typical friendships.
2.13. If You are in Denial
If your current thought is along the lines of “But I’m not very emotionally aware like Elon Musk. I’m controlling like Steve Jobs. Maybe it’s not so bad?” Let’s not kid ourselves: You are not Elon Musk or Steve Jobs. They are also extremely competent and capable and they succeeded despite their issues.
3. Wisdom for Founders
3.1. Quotes
“The ideal mental state for a founder is being like a Buddha: not too happy and not too sad. Running a startup 99% of the time is bad: someone makes fun of your idea, customers tell you they don’t need you anymore, employees quit, product breaks - you can’t be sad every time something bad happens. Why not be too happy? Because humans are not great at treating events in isolation. If you get too happy after signing a deal, you might develop unrealistic expectations for the future, and when the next 99% bad hits you, you become a lot more disappointed.”
“Gareth Southgate, my favorite soccer coach for England, offers this wisdom for dealing with external pressure: remind yourself that you are never as good as people think you are when times are good, nor as bad as people think you are when times are bad.”
“Shipping a product feels like you want to fly a plane successfully on a first try, and you get upset when things break. You need to keep in mind that nobody is slacking and everyone has the best intention for the company. It is just that you are flying a very hard plane.”
“A co-founder is not searched. You should know them for years, know their parents, went through ups and downs together. Don’t start a company with someone you don’t know.”
“I prefer to work with somebody who has done therapy, and you can talk to them like adults.”
“Doing a startup is signing up for growth, resilience, pain, and wisdom. There’s so much you need to be better at, and you come out on the other end becoming a formidable person.”
“For first-time founders: Don’t spend a lot of time on things that don’t matter, such as splitting up equity - just do 50/50 as long as you both work full-time. The only thing that matters is if you can get customers and whether your product has a market-fit. Make something people really want.”
“Selling software differs from selling a commodity: You are solving someone’s problem and you need to make it clear how your solution will make their life better. You end up not focusing on closing deals, and won’t feel bad if you get a No.”
3.2. Communication Lessons
Be more structured and less casual when assigning tasks.
Be more transparent and communicate your expectations clearly.
Better to provide shorter instructions.
Show urgency and be more straightforward when communicating with a specific individual, as opposed to only showing urgency with the entire team.
4. Questions for Investors
The list of questions and suggestions below is ultimately designed to test the co-founders’ commitments, knowledge, whether they have strong cores, and whether they respect each other. This assessment helps in gauging their potential to build resentment. I will write a separate article on why having strong cores is vital for startup success.
Approach them prior to the interview as a non-VC, or hang out with them in casual settings.
Interview co-founders together but also individually.
Ask about their visions for the company.
Inquire how they perceive each other. Ask in what areas they think the other person can improve in front of each other.
Explore their decision-making process and how they handle disagreements. What have they learned about each other from their disagreements?
Discuss how they handle emotionally charged conversations in the past, and provide examples. Self-unaware founders likely will provide chronological facts without deep reflection.
Ask how they built trust in each other’s character and competency.
Observe how they interact with each other. Does one frequently talk over the other? How are they sitting relative to each other?
Inquire whether they have a founder community or close founder friends.
Wild suggestion: Give them a limited budget to travel to a foreign country that neither co-founder has visited, and see if they still want to work together after the trip. A person’s mask is likely to come off in a completely unfamiliar environment. This tests their ability to collaborate effectively in a stressful situation.
For couple founders, ask whether they have successfully run a business together before.
Ask a question that you know they don’t have an answer for. See if they have the strength to admit they don’t know or tell you the question is irrelevant.
Ask how they discovered the problem / market gap.
Inquire why the timing is now.
Have they built other things on the side (evenings, weekends) to demonstrate commitment?
5. Credit & Future Work
Many thanks to all the founders and investors who have spoken to me and shared their stories. Your openness and vulnerability have been invaluable. Special thanks to Ghalib Suleiman, Jon O’Bryan, Nick Sheero, Johnny Wong, Jason Fan, Timothy Cheng, Alan Daniels, Jimmy E. Chan, Tammie Siew, Harry Choi, Markus Pesonen, Matt Bauer, and many other founders and investors who prefer to remain anonymous.
Future Work: In the next phase of this project, I aim to explore acceptable levels of clashes and imperfections in co-founding relationships. I plan to interview co-founders of highly successful startups and study additional factors that enable their success despite differences.
If you’d like to share your insights on co-founder dynamics or discuss your startup stories, or if you are an investor interested in exchanging notes, please reach out to me!
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