The No.1 reason startups fail in the first two years, according to a VC

One of the biggest reasons why startups fail depends on the relationship between co-founders, says a venture capitalist.

Reece Chowdhry, co-founder of Concept Ventures, said initial teams often split within two years because co-founders clashed or lacked a shared vision. The venture capital firm, founded in 2018, says it is Europe’s largest pre-seed fund focusing on idea-stage startups. It recently announced that it had raised $88 million for its newest fund.

Chowdhry told CNBC Make It that founders invest based on their personalities and characteristics before they even own a product. Chowdhry explained that there are four to five key characteristics he looks for before going all-in on a startup.

“I think 80% of our decision belongs to the founders, and we are generally the first investors in every company we invest in,” Chowdhry said in the interview.

“The number one reason why companies generally fail within the first 18 to 24 months is because founders disagree with each other or don’t get along, don’t have the same alignment of vision and purpose, and that’s what we think is really important,” he said.

In the first meeting with the founders, Chowdhry emphasized that co-founder chemistry was one of the key characteristics he was looking for.

“One of the things we obsess about most is, ‘How well do you know each other? Have you experienced a meaningful life event? If I interview you both separately, will the answers be the same? What will this person’s strengths be? What will their weaknesses be? And do you know each other well?”

“If I gave you the New York Times dating questions, would you get to a level where you could really get to know people?”

Other key traits Chowdhry looks for in founders include obsession with a particular field or industry, relentlessness and grit, a growth mindset, and evidence of exceptionalism in a field outside of business, such as sports or chess.

Concept Ventures was an early backer of Eleven Labs, a $3 billion voice AI company co-founded by Mati Staniszewski and Piotr Dąbkowski in 2022. Chowdhry said that two important features stood out during his meeting with Eleven Labs’ co-founders and convinced him to invest.

“The two things that stood out were the obsession with the field, so literally thinking about it for a long time, and the team dynamics. They were like childhood friends. They knew each other very well. They complemented each other really well,” he added.

Y-Combinator co-founder and startup guru Paul Graham also shared similar information in a blog. He cautioned that solo founders face an uphill climb, and most successful startups have at least two or three founders.

In one of his posts, Graham wrote that a startup with a single founder “Vote of no confidence” because it shows they couldn’t convince any of their friends to join. But failure is possible even if there is more than one founder.

“The relationship between founders has to be strong. They have to really like each other and work well together. Startups do to the relationship between founders what a dog does to its sock: If it can be pulled, it will,” Graham said.

Concept Venture’s Chowdhry added that investment decisions in early-stage startups require examining the “whole package” rather than a single founder.

“It needs to be a package, and I think what a lot of VCs optimize for is they typically meet the CEO and they will focus more on the CEO, even though 50% of the work is two or three people,” he explained.

He noted that many companies being established in Europe have very technical founders but are looking for a founding team with complementary skills.

“It’s not just a technical and non-technical thing. One person is a very fast thinker and the others balance them. The slow thinker slows down the other person. If someone has attraction, they can attract world-class talent,” he added.