Burn, Baby, Burn
Navigating Cash as a First-Time Founder and Its Impact on Co-Founder Relationships
Preface
Over the past 24 months working with founders at an early-stage venture fund, I have witnessed incredible success stories watching founders successfully take products to market. I have also been part of turnkey moments, helping founders work through the trials and tribulations of the founder journey whether it’s a pivot conversation or a fundraising one. And in those experiences I began to contextualize success as a function of failure (f(n) = n + 1; where n = # of failures and f(n) = your first successful company). Within that frame of mind, I started to wonder; If success really is a function of failure, why do we not try to learn more about what’s behind the red curtain during the preamble?
We tend to only hear about or pay attention to the home-run raises, the shiny valuations, or the billion-dollar outcomes. But company building is a muscle that founders sometimes spend decades of their lives working out and toning. Wins are hard to execute and even more difficult to come by. It’s no secret that 90% of companies fail. And I wanted to learn about those 90% that don’t quite make it to better understand the 10% that do.
For this first piece, I chatted with a founder about their company-building journey: what went right, what went wrong, and what went sideways. Their story is shared anonymously.
If this founder’s story resonates with you and/or if you would like to share yours, anonymously, DM me at @mtangarova2 on X.
Anonymous Founder Story
Industry: Blockchain, FinTech
Investors: Venture-Backed
Last Fundraising Round: Seed Round
Founder Interviewed: First-time Founder
# Co-founders: 2
Background
MT: How did you end up becoming a founder, and starting this company?
I always had an eye for potential opportunities, even though I didn't initially understand what “being a founder” entailed. Nowadays, there is a caricature of what being a “founder” actually means. For me, it started in high school working on side projects, and in my career, one prestigious name on my resume led to a lot of opportunities. I met my co-founder because of that.
We connected via an email and then a phone call, and it felt like meeting a long-lost sibling. We felt like reflections of each other: both very young and had similar fast trajectories in the tech industry. We had both worked at startups at an early stage and shared a passion for design and technology. Our first conversation lasted hours and felt natural. We found we had a lot in common, but were just different enough to where we felt we complimented one another well.
Later, those differences would prove to be more difficult.
We were friends for a year or two before we started building random side projects. My co-founder was in the blockchain community and at that time I was becoming more interested in the use cases within the space as well. We ventured and explored different software concepts that excited us in the space, ending up at the concept and company we eventually raised on.
MT: What felt special about that original concept that made you feel like you should make a real go of it?
Broadly, our thesis was that there was a large market of real people who would use an obscure bit of software.
I wanted to build for mass adoption and envisioned our company on the front page of the New York Times one day, using that manifestation as my north star in everything we did. My co-founder’s mission was more focused on crypto enthusiasts. This was difficult because when you’re not aligned at the core about what you’re building and the goal of the product, it kills progress in one direction and affects the bottom line. We had two different visions for the company. Later on, this would manifest itself into our team's efforts being split between two visions. I thought we should stick, move, and pivot, he didn't agree, and the union suffered.
That wasn't the most problematic difference we had, though it was a symptom of a larger difference in values and operating philosophies.
Eventually, we built a platform, had a few important projects that used our software, and decided to raise money, a sizable seed round, with an excellent name-brand cap table.
Turning Point
MT: And you'd been bootstrapping before, so this was the first money you'd taken on together.
Yes. We finally had money to manage together. And like a marriage, it's one of those topics that you should talk about before you walk down the aisle. But 45 days into what should have been our honeymoon, I saw some major financial issues.
My co-founder had been managing our operations — setting up HR, paying contractors and invoices, making sure our investors had wired their checks — but when I checked our bank account almost 2 months in, it seemed short by a few hundred thousand dollars, at least. I thought maybe we hadn't received a handful of those smaller checks, but it wasn't so. It turns out my co-founder had drained the bank account significantly on, what I would argue, were completely unnecessary expenses and efforts.
A lot of those expenses were never spoken about. In my heart, I can truly say that I don't think my co-founder was trying to be shady and hide them — it was a matter of negligence, inexperience, and naivete. Those things all could have been resolved if we could agree to manage our treasury together, and differently.
Having “grown up” around service businesses that sell time, I was hard-nosed about what we should spend on, even though we had raised plenty of money. My co-founder's background was not the same, and in a zero-interest rate environment, maybe his approach of high spending would have been less risky. But the market was shifting, and the writing was on the wall. The rift was not only how we spent money, but how we planned to spend money.
I voted to stay lean, and he voted to “spend and grow” — but we hadn't found product-market fit yet so that spending wouldn't be fueling growth. Just a fire.
MT: It seems like you were good friends before co-founders, so how do you broach that sort of conversation/confrontation?
We sat down and went over our expenses together, but with every transaction, our relationship started to feel strained. They had blown through 1/5th of our cash by this point, and on every line item, they were defensive about the spend rather than remorseful. I asked, point-blank: “Why do you think this is acceptable?” to which they said: “I was thinking we would raise more money soon.”
That seemed incorrect on many levels, in particular, because we hadn't found true product-market fit, in my opinion. At this point, we couldn't seem to agree on anything: our progress, our product vision, or how much or what we should be spending on.
I decided to share with our two lead investors what I saw happening and they, too, started a conversation with us about it. It was a last-ditch effort to try and get on the same page by instilling some urgency from our investors who agreed that our spend was far too high.
I was in shock to see that, even facing our investors who had just written us checks a few months prior, my co-founder grew more indignant. I can somewhat see why: at that point, our investors were suggesting to either give back the money, split it, or for him to take a backseat and allow me to primarily lead the company. Maybe all of those felt like an admission of guilt. I think my co-founder felt like they were being teamed up on.
It was at this point that I started to admit their spending missteps weren't a matter of negligence, but poor ethics. I knew this in my heart when I saw the transactions, but I didn't want to believe that. I wanted to think that we could solve the issue, and keep building. It wasn't true.
There was no end in sight. I ended up taking severance and left. I maintained relationships with our investors in the process, which I am thankful for.
Me: How do you know whether to keep experimenting or whether to give capital back to investors? It seems to be a question that founders are faced with often, and that you experienced as well.
If you’ve gotten to the point of asking that question, that is your signal that you should give the cash back. You’ve lost your heart, your stomach, and your muscles. And frankly, you’re probably feeling very discouraged and burnt out. You need time to replenish your mind, so my advice is to give back the capital if you’re asking the question. In hindsight, that’s what we should have done. But at the time, we had other ideas that we thought were better which didn’t ultimately resolve the issues we had already internalized as a team.
Epilogue
MT: As this battle dragged on, were you still building? Do you think the company would have been successful had you not had such a deep dissonance in values with your co-founder?
Yes, we were still building. Proudly, and highly efficiently, in fact. I had figured out our original thesis wasn't “it” pretty fast, but the fact that we — I? — figured it out in a timely manner meant we would have had so much time to pivot. And we had already started to, with a much stronger thesis, and better validation from customers that seemed to be a target market. I'm biased, but I think if my co-founder had come around to that vision and let go of the crypto-focused dream, we could have been very successful. And, of course, if they had agreed to curtail the spending, or at least been more communicative in the process, we could have made better decisions, together.
MT: What advice would you give first-time founders when choosing who to start a company with?
It's not the most important advice, but make sure there is a clear chain of command and agreement over who should run what, and most importantly: why. In our case, my co-founder was ill-suited to manage cash and operations, but we had stumbled into the company working that way by the time we raised for a variety of reasons. We might have saved our relationship and our company if only we had spoken very frankly about what we thought the other was well-suited for. If you learn anything from this story, it's that any inkling you have that your co-founder doesn't “get it” about something — whether it's finance, design, or an engineering approach — you should surface it as soon as possible, and with an open heart. Looking back, I had some inklings, but I didn't know to listen to them. You might be starting a company with a friend, but that friend can be inept at things that you're good at — and vice versa. And that's okay.
It also would have helped, in our case with two co-founders, to establish some tie-break mechanisms. There were many such even-split points, which is a symptom of a larger clash of values, but egos might have been put aside if we had another mechanism to settle things, whether it meant bringing in some advisors and mentors, or investors, or even hiring a collective executive coach. (That might seem like an unnecessary cost, but if it clears the communication between you and your co-founder, it could be the difference between success and failure. It was in our case.)
My story is riddled with hints that my co-founder was in the wrong, not me. Which is true to many extents. But that doesn't mean that I couldn't have had better judgment about the person I was starting a company with. There was a lot of trust between us, and I was too naive to have some cynicism about things that could have changed our paths completely and saved a friendship. Though I would have never spent the inordinate amounts of money that they spent, I also could have been more diligent from the beginning about checking our spending, rather than not holding them accountable because I was paying attention so deeply to our product rather than our company.
The blame game isn't useful. Neither are egos.
MT: Any closing thoughts?
The experience crushed me. I was so proud of our vision, and the products we had built and were building — even during months of my co-founder fighting and negotiating, in hopes that we could solve our rift — and I felt like we had a real chance at success. In the months following, I lost a lot of my heart for technology and startups. I didn't feel like I belonged anymore. I went through a major depression that still eats at me, and there's not a massive community of people with similar experiences to share it with.
By the time I left, I thought I wanted to be vindicated, but what I really needed was to have a community of people around me who could help me grow in confidence again. When your investors send you a term sheet, it's a sign of validation and belief. When you leave a company you started, it feels like the opposite.
I know many people going through a loss of heart for themselves and their visions. Founder-types are excellent at putting on the air of supreme confidence — it's how they raise money. But it's not useful. The only way out is through — and through, together. In a community where people are constantly looking for something transactional, we'd be well served to look for opportunities to have heart for one another. In caring for others we may earn some care for ourselves. That might be just enough fuel to bootstrap another dream.