Co-founder conflict is one of the main ways startups fail. Philipp Möhring of Tiny, an early-stage investor with a few hundred investments per fund, sees three patterns: ego drama between founders, one founder outgrowing the other, and investor terms that drain the founders' energy. Founders can influence all three before the first crisis.
Why do startups fail because of co-founder conflict?
Many startups fail because the founders turn against each other. Philipp Möhring put it in one sentence on my DEALMACHER podcast: “Startups don't die, they commit suicide.”
Philipp is General Partner at the Tiny Supercomputer Investment Company, or Tiny for short. Tiny is the most active early-stage venture capital (VC) investor in Europe, with a few hundred investments per fund. So Philipp has watched more companies fail than almost any other investor on the continent.
I asked him what kills them most often. His answer: the founders themselves. In my CEO Briefing on why startups commit suicide, I describe the three patterns he sees:
- Co-founder drama: ego conflicts that explode in the first hard phase.
- Uneven growth: one founder develops faster than the other.
- Bad investors: terms that take away the founders' energy.
I see all three in the companies I advise. And founders can influence each of them.
What does co-founder drama look like?
Co-founder drama often starts as friendliness and breaks open under pressure. Philipp described it on the podcast: “That is often ego drama. People who found a company have strong opinions. Some have a tendency towards narcissism.”
Early on, the founders are open, friendly and generous with each other. Then the company hits its first hard phase. In Philipp's words: “And then it explodes all the louder. From both sides.”
The friendly early months hide a gap. The founders have never seen how the other one behaves when the stakes are high. Teams that never practise disagreement find out too late that their co-founder is a very different person than they thought.
How can co-founders learn to disagree?
Co-founders learn to disagree by doing it on purpose, before a crisis forces them to. This is what Philipp does with new teams.
When Tiny meets a founding team whose members have not known each other for long, he looks beyond the points where they agree. He makes them disagree. His reasoning: “You have to learn how to fight with each other. In this high-stakes, high-speed world, you need to be able to bang heads.”
The idea behind the quote is simple. A founding team needs a wide bandwidth of communication. That includes the topics where the founders see things differently.
Two things can help a team build that bandwidth:
- A real open question: pick a decision where you and your co-founder see things differently, and discuss it fully while the company is calm.
- A personal user manual: a short document that describes how you work. In my CEO Briefing on personal user manuals, I describe mine. It covers my personality, my values, my leadership and communication style, and what I appreciate or dislike when working together.
What happens when one co-founder grows faster than the other?
When one co-founder grows faster, the founders often split. This is the second reason Philipp sees. One founder becomes the better leader, makes the better decisions, or does the work that turns out to matter more for the company.
This is hard to talk about. For founders, work and identity are almost the same thing. So a gap in growth quickly feels personal.
Philipp shared two observations from his portfolio:
- Who leaves: it is more likely that the CEO, the chief executive officer, stays and the CTO, the chief technology officer, leaves.
- Where the team met: teams that met in an accelerator programme for young startups split more often than others.
Why does a founder have to reinvent themselves as the company grows?
A founder has to reinvent themselves because each stage of the company needs a different leader. A pre-seed company, at its very first funding round, and a Series A company, after its first large venture round, are different companies. They need a different leadership style and can handle a different level of complexity.
The founder has to change with them. Philipp put it this way: “You have to actively reinvent yourself. Which is difficult for someone who has to appear in front of his team and his investors all the time as the person who knows what is going on.”
He added one observation. Every founder in the Tiny portfolio who reached a Series B round is what he called a growth person. That is someone who started as a deeply focused researcher or engineer. Later, the same person leads several hundred people and stands on a stage next to politicians.
For a founding team, this leads to a question that is best asked early: who is growing into the next stage, and who is not? I recommend that the founders discuss it openly, before an investor raises it.
How can investors cause conflict in a founding team?
Investors can cause conflict when they propose terms that solve their own problem at the cost of the founders' energy. Philipp described two typical situations:
- The bridge round: the company needs a bridge round, a smaller round that carries it to the next real funding round. The investor asks for a two or three times liquidation preference. That gives the investor two or three times the invested money back first when the company is sold.
- The failed fundraise: the round fails, and the investor offers to halve the valuation and take another 20 percent.
Philipp was careful here: “That does not always mean the company dies. But it does mean the company and the founders find it much harder to bring the same energy and momentum they had before.”
I would put it more sharply. A bad term rarely kills a company on paper. It kills the founders' will to keep going, and that is what the next investor sees in the room.
What can founders do about co-founder conflict before the first crisis?
Founders can work on all three risks while the company is still doing well. In a young company, the risk you can influence most sits in the room with you:
- Practise disagreeing: discuss real differences with your co-founder before the first crisis forces you to.
- Name the growth gap: be honest about who is growing into the next stage and who is not, and talk about it before an investor does.
- Judge terms by their effect on energy: when an existing investor proposes terms that solve his problem at the cost of your energy, take that seriously.
Philipp has seen where these patterns lead. The full conversation with him, including how Tiny picks teams at pre-seed, is linked in my CEO Briefing on co-founder drama and bad investors.
“Startups don't die, they commit suicide.”
Frequently asked questions
What is the most common reason startups fail?
Philipp Möhring of Tiny, an early-stage investor with a few hundred investments per fund, names the founders themselves. His first answer is co-founder drama, followed by one founder outgrowing the other and bad investor terms.
Which co-founder usually leaves when a founding team splits?
In Tiny's portfolio, it is more likely that the CEO stays and the CTO leaves. Teams that met in an accelerator programme split more often than others.
How should a new founding team handle disagreement?
Philipp Möhring makes founders who have not known each other for long disagree on purpose. In his view, a founding team needs a wide bandwidth of communication, including the topics where the founders see things differently.
Can investor terms break a founding team?
Terms such as a two or three times liquidation preference in a bridge round do not always kill the company. But they make it much harder for the founders to bring the same energy and momentum as before.
Do you work with founding teams on these questions?
I see these three patterns in the companies I advise as a CEO advisor for fundraising, exits and executive branding. You can read more about my fundraising advisory.
