Startup horror stories: When co-founders fall out

Last updated: 16 April 2024

Co-founder conflict can be fatal - to startup success that is. According to Noam Wasserman, the author of The Founder's Dilemmas:

65% of startups fail due to conflict among co-founders.

The problem is that running a business is an all-consuming thing, so sometimes it's hard to see the wood through the trees, spot the red flags, and see the warning signs. 

That’s where personal examples come in handy, and in this article, we’ll explore real-life startup horror stories. And why co-founder conflict doesn't have to be the death of your startup.

A few of the following stories shared are from founders who wish to remain anonymous, so their names have been changed to protect their identity (*). Others come from well-known and established businesses.

In any case, we can learn valuable lessons from the following tales of conflict and betrayal.

Stories of co-founder conflict

1. The one where they argued about shares

How it started

Antje Danielson and Robin Chase founded Zipcar in good faith and in want of a greener world. With Danielson’s science background and Chase’s business experience, the two friends thought they were a great match.

Where it all went wrong

After hearing about a friend’s startup crash and burn following a founder fallout, Robin was keen to avoid any awkwardness on the equity front, so they settled on a 50/50 split and thought no more of it - until later.

The problem was that they’d made bold assumptions about how well they’d work together, and each other’s commitment. Robin claims she threw herself into the business wholeheartedly and that Antje didn’t quit her day job and barely contributed from the sidelines, something Antje denies.

Of course, there are two sides to every story. But resentment quickly reached boiling point. And that quick 50/50 handshake decision came back to bite Robin.

Robin wanted more shares but Antje refused. The relationship continued to deteriorate and later, Robin fired Antje. Ouch.

Lessons learned

Zipcar turned out to be a great success. But a year and a half of tension could have easily been avoided had Antje and Robin settled on a fair equity agreement in the first place, one that reflected each other’s contribution. 

If they’d had in-depth conversations about commitments, responsibilities and expectations from the outset they might have known they weren’t a match made in heaven.

2. The one where they refused to compromise

How it started

Founded by former Twitter India chief Manish Maheshwari and former Microsoft senior engineer Tanay Pratap, EdTech software platform Metaversity had a solid foundation and seemed destined for success.

With a market-ready product and over $5M in capital from investors, Metaversity was cool, sleek, and fully funded. So, what made it crash and burn? 

Where it all went wrong

Simply put, Metaversity’s core flaw was its founders. Although they both had exciting ideas, they had two different visions for the company and neither was willing to compromise.

In fact, at one point, the tension between the two founders was so high that investors had proposed Maheshwari take a payout of $100K in cash to leave the company. He refused and the founders’ conflict drove Metaversity into the ground. 

Lessons learned

Starting a business with a co-founder is great. By working with a partner, you can benefit from someone else’s perspective and an exchange of ideas that - in theory - should make you both stronger.

But if you can’t agree on your vision for the company, that conflict will likely divide your partnership and your company catastrophically. 

3. The one where they tried to scam others

How it started

It’s no secret that Silicon Valley has a long history of sexism, but as one of the founding members of her team, the woman in this scenario thought things would be different.

Specialising in marketing, she was looking forward to working with her partners to cultivate a brand that would stand out and revolutionise the sales industry.

Where it all went wrong

Unfortunately, however, her fellow team members regularly devalued her contributions by calling her “the marketing chick” and it soon became clear that the thinly veiled sexism was just an excuse to keep their honest team member from discovering what they were really doing.

In reality, the “sales automation” startup was a scam, designed to steal money from their investors for the founders’ personal use!

Knowing that their only female colleague was a person of integrity who would have called them out, they attempted to bully her into submission through a pattern of casual sexism and exclusion.

Fortunately, she soon figured it out, blew the whistle, and left for a company that genuinely valued her talents and ethics. 

Lessons learned

Starting a new business can be an awesome and rewarding experience, made better by having the right people on your team. But if your startup is actually a scam in disguise, that’s a different story!

While you can’t control the actions or intentions of others, one key takeaway from this story is the importance of doing research ahead of time and feeling good about who you’re working with, even if your business partner is a friend.

4. The one where they mutinied

How it started

CDBaby had a great premise, a great ethos, and a founder who was passionate about his product. Founder Derek Sivers hoped that would be enough to establish a great company culture. He loved music, believed in his startup, and he wanted to work with people who felt the same.

So, when he discovered his co-founders and employees seemed to share the same values, he had high hopes for a successful partnership. Such high hopes, in fact, that he was willing to look the other way and offer second chances when he noticed some slight red flags about his new teammates.

But that option would prove to be his undoing.

Where it all went wrong

Sivers summarises the problem by writing:

"My terrible employees staged a mutiny to try to get rid of me, and corrupted the culture of the company into a festering pool of entitlement, focused only on their benefits instead of our clients."

And that doesn’t even scratch the surface!

The whole story was so sordid that Sivers ultimately cut out two entire chapters of his memoir because, years after the fact, his rant about his co-founders' and employees’ betrayal was so long and vitriolic, he didn’t think it should be published. 

Lessons learned

Although CDBaby ultimately did not collapse, core issues in the company culture gave the startup a spiteful and unhealthy environment.

Sivers also acknowledges fault on his part. In an interview about his book, he remarked:

"So do you want to know the real reason I cut those chapters? I realized it was all my fault. I let the culture of the company get corrupted. I ignored problems instead of nipping them in the bud."

Founders are instrumental in building and maintaining a positive workplace culture. So, learn from Sivers’ example and don’t sacrifice your company culture. When problems arise, work to fix them - quickly. 

5. The one where they met at the pub 

How it started

Joe King had an idea for an app aimed at university students. Hoping to make the entire uni process easier, he wanted to create an app whose algorithm would help you decide what to study at uni.

He connected with a co-founder who shared his interest and agreed to work with this guy…after they’d met exactly once in a pub. Knowing nothing about how well they would work together, King made the ill-advised decision to enter into business with someone he didn’t know at all. 

Where it all went wrong

King and his co-founder soon began arguing every day, especially once King realised that they were deeply in debt to their investors and had created a tool, not a viable product.

King figured out that they would never make a profit off this app but his co-founder stubbornly believed they would. He negotiated a potentially lucrative deal with a new investor, only to bungle the interview and leave them even more in debt than before.

Unsurprisingly, their app never launched. 

Lessons learned

Don’t start a company with a guy you just met in the pub. Get to know each other first before you move full steam ahead. 

6. The one who betrayed a friend to get ahead

How it started

Successful entrepreneur Mark* was on the hunt for his next project when he was propositioned by somebody in a pub who retired early following huge success in fintech.

Impressed by The Stranger's success, Mark got to work building the software and even hired a CTO, for what he thought was a winning business idea.

Where it all went wrong

But before long, suspicion began to arise. 

"I started to notice things about this guy - for one thing, he told me how he bankrupted one of his friends and that’s how he’d made his millions. I think at that time, a part of me thought, well, there's a lot of bravado here. I'm sure he's exaggerating. I just kind of brushed it under the carpet."

Gradually, The Stranger started showing less interest and putting less effort into the business. But as no prenup had been established, they were poised to take half of the business.

Arguments ensued and slowly but surely, Mark realised he was being pushed out of the business even though he was the one doing all the hard work. The Stanger even went as far as trying to fire Mark.

In the end, Mark's emotional wellbeing hit rock bottom and he got out of the business as quickly as he could. 

Lessons learned

Mark in hindsight said, “I should have been a bit more honest and trusted my instincts and thought about what was coming next". Trust your gut - if it's telling you something isn't right, it probably isn't.

And design an equity agreement that rewards co-founders for their actual contributions, not false promises.

7. The one who lost their life savings

How it started

Friends Tom* and James* knew each other for years before they decided to start a business together. In the beginning, they enjoyed many wins and the future looked bright. 

Where it all went wrong

Over time, Tom saw James' motivations change:

“You know, people get married, people get divorced, people have children and people like, you know… life naturally evolves. And the reality of it is that as people change their outlook, their commitment to the business can wane”.

James decided he didn't want to have an active role in the business anymore, but still wanted to withdraw the same amount.

The problem for Tom was that they lacked watertight agreements: "When we set the business up, I was very naive and we didn't have good corporate governance in place."

Totally demotivated by his co-founder's lack of commitment, Tom decided to move on. He later found out, not from James himself but from an employee, that James had put the business into insolvency proceedings, which had huge ramifications for Tom:

"I lost all my life savings basically off the back of sorting it all out. There is no relationship now."

Lessons learned

Tom realised that if a prenup had been in play, he would have been able to prevent James from taking more than he rightfully deserved.

“There was no safety net, no safeguards to protect the business and as you get later into the business, it becomes harder and harder to make that happen.”

8. The one with the ham sandwich

Admittedly, our final story is not about a co-founder conflict but rather a family falling out!

How it started

Fling was originally designed to be a social networking app for students. At least, that was what it pitched to its investors when it launched in 2012.

The idea for Fling occurred while the founder was on a flight, watching his plane soar across the map to its destination.

This gave him the idea to create a messaging app for students where users could ‘fling’ a message to one another and watch their text soar around the world in the same way you can track a flight. In theory, this was a pretty cool and innocent idea.

Where it all went wrong

In practice, however, the app quickly garnered a thousand users every 10 minutes because Fling’s design made it uniquely convenient for disseminating pornography.

Rather than shutting this down, however, the founder chose to quietly go along with this and ignore any of the ethical issues that soon arose from user behaviour.

As a result of his inaction, Fling was quickly removed from the App Store and the business crumbled.

But rather than being remembered that or for anything he designed or created, Fling’s founder Marco Nardone is famous for one thing only: literally flinging a ham and cheese baguette into the face of his father (also the company’s biggest investor) during an argument.

Lessons learned

There are so many things wrong with Fling that it’s difficult to pinpoint one key takeaway. But it’s important to remember that your morality as a founder is key. 

If you design a product, you have to consider the ethical implications of that product’s use and the degree to which you are responsible. You also shouldn’t hit your investors with sandwiches...

That should be enough startup founder horror stories to satisfy you for one day! The key takeaway from this is that while co-founder conflict is inevitable, there are steps you can take to prevent those conflicts from having catastrophic consequences for your startup.

Speaking of which, there is one conflict we can help you avoid...

Get a co-founder prenup

We have devised a new way of providing equity rewards in a way that is fair for all shareholders.

With Agile Partnerships (aka co-founder prenups) everybody knows exactly what's expected of them from the get-go and there are no nasty surprises later. 

Protect the dream today