This article is a part of Poland Unpacked. Weekly intelligence for decision-makers
A startup’s failure is not always the market’s fault. Sometimes, from the very first conversations with an investor, it is clear that the partnership will be difficult. And behind founders’ burnout are poorly structured contracts.
Anxiety, stress, depression, insomnia, the lack of a work-life balance, burnout. According to this year’s Founders Report, more than 87% of startup founders surveyed identified with at least one of these conditions. Many are the after-effects of difficult founder-investor relationships.
Joanna Drabent is among the best-known figures in Poland’s startup scene. She co-founded Prowly, which she later sold to SEMrush. Even she admits that she fell into a trap that took a toll on her health.
“The contract grew extra clauses”
“The most difficult experience for me was negotiating an investment agreement around 10 years ago. During the talks, I found out that I was pregnant. I told the investors openly. The atmosphere immediately became tense – it was easy to see that the fund had never dealt with a situation like this before. In response, the contract grew extra clauses obliging me to return to work just two months after giving birth, including in the event of any future pregnancies,” recalls Joanna Drabent.
At the time, women on startup management boards were still a rarity, and the working culture of venture-capital funds looked very different from today.
“It later turned out that this was not exactly a ‘dream fund’ – either for us or within the wider startup community. At the time, I was focused on growing the business and had no plans for a long break after giving birth, but even then I could clearly sense a lack of trust,” says Joanna Drabent.
A red flag during negotiations
The situation was deeply uncomfortable.
“When I walked out of the glass office tower, I sat down on a bench and started wondering what to do next. I felt overwhelmed. In the end, we managed to negotiate a slightly longer period before my return to work. Today, I believe such matters should not be open to negotiation at all,” adds Joanna Drabent.
Despite the doubts, the agreement was signed. The talks were already at an advanced stage, and the company had previously set aside other financing options.
“I felt responsible for the team, the company and the people. Together with my co-founder, we decided to move forward with the partnership. I identified extremely strongly with the company. It was only after the sale that I realized just how deeply. Looking back, I can say that the red flag that appears during negotiations never really disappears later on,” concludes Joanna Drabent.
A founder’s emotions versus an investor’s objectives
The balance of power between investor and founder is often uneven. The investor has the money, the lawyers and the experience. Entrepreneurs seeking funding, meanwhile – as experts at the law firm J.Dauman Legal observe – are often young people driven by emotion.
“During a first funding round, founders often act through the prism of emotion. They see the startup as their own ‘child’ and do not assume a negative scenario,” says Kacper Fara, attorney-at-law and partner at J.Dauman Legal.
In an ideal world, investment agreements would be concluded in an atmosphere of trust and mutual understanding. In reality, they are often signed under considerable stress.
“A well-structured agreement drafted in the ‘good times’ protects each side when things become difficult. Founders need to safeguard their own interests, yet they are often unaware of that necessity. Awareness comes with age and experience. For an investor, a startup is one of many ventures viewed through the lens of maximizing returns, which is entirely natural. Investors negotiate coolly and without emotion,” he adds.
The foundations of an investment agreement
Experts advise founders to pay close attention to several issues during talks with investors: the model for valuing the company at every stage of the partnership, the scope of investor control and the rules governing a founder’s exit from the business.
“Restrictions on a founder’s decision-making power within a startup can become a source of professional burnout. Entrepreneurs begin to feel they are losing control over the venture, that their relationship with employees is changing and that their ability to shape the company has been diminished. Over time, thoughts of a business divorce emerge. And that is usually when it becomes clear just how important exit clauses really are.
I have repeatedly encountered situations in which the conditions for leaving the company were practically impossible to meet,” explains Paula Miszczuk, attorney at J.Dauman Legal.
What do founders most often stumble over?
Experts explain that the influence of Anglo-Saxon business practices on investment funds has also shaped the way investment agreements are drafted. In Poland too – regardless of whether the deal is signed with a local or foreign investor – contracts commonly include clauses rooted in English-language legal traditions.
Although such provisions have become part of standard market practice, they can easily become a source of conflict.
Some examples:
Operational involvement. As Paula Miszczuk explains, this refers to the number of hours a founder devotes to the project.
- “From an investor’s perspective, the greater the founder’s commitment to the venture, the better. Founders often work nights, overtime and weekends. That does not mean, however, that investment agreements contain clauses obliging them to work a dozen or more hours a day,” the expert says.
Reverse vesting, a mechanism that gives investors the right, under specified conditions, to buy back a founder-shareholder’s equity – usually below market value – if the founder commits certain breaches.
- “We distinguish between bad-leaver and good-leaver clauses. The former concerns more serious violations – for example, committing a tax-related criminal offence or workplace bullying confirmed by a final court judgment involving the founder. If a bad-leaver breach is established, the founder must sell their shares back to the investor, usually at nominal value. A good-leaver clause, meanwhile, may apply to breaches of the commitment clause caused by circumstances beyond the founder’s control, such as hospitalization. In that case, the shares are repurchased at market value,” says Paula Miszczuk.
Exit clauses, or the art of parting ways
To that list one should add lock-up and non-compete clauses.
“This refers to restrictions on selling shares – usually for several years – without the consent of the shareholders’ meeting. We often work with founders who want to step away from the business because they have adopted a different vision for the company, are burned out or have simply lost faith in the project. That is not easy, because most investment agreements include so-called lock-up provisions. In many cases, it is the investor who decides whether and when a founder will be allowed to sell their shares,” explains Paula Miszczuk.
Another issue is the already mentioned scope of investor decision-making powers.
“An investor’s level of authority over the startup’s strategy should be clearly defined. An overly involved investor can often paralyze day-to-day operations. For example, if the investor had the right to approve every transaction above, say, PLN 100,000 (around EUR 23,000), large deals could quickly create organizational and logistical bottlenecks,” adds Paula Miszczuk.
A conflict of interests
It is not uncommon for an investor to want to cash out a startup once it has reached a satisfactory scale, while the founder has entirely different plans.
“This is where drag-along rights come into play. Such clauses allow a majority shareholder – for example, a venture-capital fund – to force minority shareholders, such as the founders, to sell their shares once a buyer has been found,” the expert explains.
Expert's perspective
Years of work under pressure at the expense of health
Founders typically read contracts carefully, but they often operate under time pressure and with the fear of losing an investor. Particularly problematic are provisions drafted “for bad times.” During negotiations, they are often told that certain clauses will never be used, yet everything changes once problems arise or the parties’ interests diverge.
The consequences of such provisions can include conflicts over company management, share buybacks, or founders losing control of ownership. The situation is further complicated by mechanisms such as earn-outs, which tie part of the sale price of a company to its future performance.
When conflict with an investor arises, founders – rather than focusing on product development or sales – end up firefighting disputes. This leads to fatigue, distraction and a loss of energy for further growth. At the same time, the rapid growth of startups often results in psychological overload for entrepreneurs. Many pay for it with burnout and mental-health issues.
Negotiating (almost) everything
Entrepreneurs are often told at the outset that contract terms are non-negotiable. They hear that a fund uses a standard template and that its provisions reflect “market practice.” Yet every agreement can be – and indeed should be – negotiated, adds Paula Miszczuk.
It is better, however, to prevent problems than to fight fires later on.
“Once an unfavorable agreement has been signed, it is significantly harder to reverse or amend it.
It is better to prevent potential corporate disputes by entering investment negotiations with a clear strategy and well-defined objectives,” adds Kacper Fara.
When a case goes to court
The experience of the experts interviewed suggests that a dispute in court often marks the death of a startup.
Such cases are typically time-consuming and multi-layered. In the case of startups, the additional challenge lies in the innovative nature of the business, which requires a detailed explanation of the business and economic context of the dispute.
“The body of case law in Polish courts concerning disputes between founders and investors is still developing. These are relatively new and complex cases. For this reason, in many situations arbitration may be a more favorable solution,” concludes Kacper Fara.
Expert's perspective
If health breaks down, the startup breaks down too
“More and more often, I see patients with IBS, or irritable bowel syndrome, which is a consequence of chronic stress. We most often identify work-related stress as the culprit and tend to ignore the warning signs. However, what is often a ‘temporary’, stress-induced IBS can develop into more serious disorders, such as chronic inflammation,” she says.
For entrepreneurs with obligations toward their startup, the struggle to protect their health is often more difficult than for salaried employees.
In business, there is a persistent belief that if we do not do something ourselves, no one else will do it for us. Hence the need to work 12-hour days and supervise everything. If tasks can be delegated, we should make use of that option.
We regain time for health as a result.
Key Takeaways
- The founder–investor relationship very often becomes a source of psychological pressure and burnout. For founders, a startup is typically an emotional project and part of their identity, while investors view it primarily through the lens of return on investment. This asymmetry frequently leads to conflict.
- Risk is also embedded in the investment agreement itself. Clauses such as reverse vesting, drag-along rights, lock-up provisions or non-compete clauses can, in practice, limit a founder’s independence, make it harder to leave the company, or even force the sale of their shares.
- Experts stress that virtually every contractual provision can be negotiated, even though funds often present them as “market standard.” Founders, especially during their first funding round, are frequently unaware of the consequences of individual clauses and do not attempt to negotiate them.