Throwaway account b/c my startup has not quite failed but is likely mortally wounded. I will use past tense about failing throughout this post even though it hasn't technically happened quite yet.

My startup failed for two main reasons: 1. One of my cofounders (of our team of three) was not full time, but was ostensibly the CEO of the company. 2. Our investors have precisely 0 experience with SAAS startups and we were constantly fighting them about really stupid stuff.

Part time cofounders: Don't do it! Our part time cofounder has a health issue that prevented/prevents him from going full time. My other cofounder and I were willing to give it a shot in the hopes that he'd eventually be able to come on full time, but we never established what that would look like when it happened. When it finally came to him being "ready" to make the leap, he revealed to us that he needed nearly a 6-figure salary, a 1-year severance in case of his dismissal, and he wanted enough equity to control the company. My other cofounder and I had quit our jobs and gone without any pay for 7 months until our seed round, and we were making way below market salaries (we have houses, mortgages, kids, etc. so we couldn't bootstrap forever) after we closed our seed round. Obviously our expectations of our third cofounder's involvement were incompatible with his. This nearly tore the company apart and the ensuing arguments probably permanently damaged our relationships. I would strongly suggest that the founding team needs to take the leap at the same time and be totally on the same page about compensation, equity, responsibilities, etc. I will never do a startup with a part time cofounder again, regardless of any extenuating circumstances.

Dumb, meddlesome money: There's a lot of discussion about smart money vs. dumb money, but you also have to be careful about dumb money that thinks it's smart. Our investors have very little software experience and have certainly never heard of a lean startup, but they certianly think they know everything about running our business. We developed a very poor relationship with them over the past several months, since we were resisting producing things like 3-year plans and lots of documentation. We chose them because we were told that they had connections that we needed to grow, but that didn't end up working out. They recently told us we needed to fire all of our staff and take huge pay cuts until we can convince them that we're spending money wisely. Now, I will readily admit that we didn't always spend money in the 100% most optimal way. We were learning and we made mistakes, but firing everybody is not the way to make the company successful. Either lets go for it or lets go home. Next time I take smart money from somebody I want on my team, or I take nothing and bootstrap.

Avoid tranches: This is somewhat related to point 2, but you should really try to avoid having a tranche. We thought we'd have no trouble getting ours because the milestones weren't hard to meet. Unfortunately when the time came, our investors weren't happy and weren't going to give us the money, milestones be damned. We had the opportunity to take the tranche a few months ago when we had a better relationship with our investors, but we didn't. Another mistake. If you can take the money, then for God's sake take it. One dollar in the bank is worth two in the tranche escrow and whatnot.

Now we're at the point where they won't give us the tranche and so we're going to miss payroll for December come January 1. Then it'll be like rats off a sinking ship. So we're likely in the final couple weeks of our company and I'm writing this story on Christmas after I finished doing some work for a customer. I'm obviously not quite ready to totally throw in the towel, but barring a Christmas miracle I'll be looking for a new "revenue stream" for myself come 2012.

Merry Christmas, HN, and a Happy New Year!