Fired by His Own Co-Founder, Then Built the #1 Startup Accounting Platform | David Phillips, Fondo

0:00David J. Phillips:We had$40 ,000 left in the bank. I'll just like restart the company with a new idea. Had these four previous co-founding experiences that didn't quite work out. So I was like, okay, let me try this solo. Did a post on Bookface. Who needs help with Delaware Franchise Tax? We got like 100 companies to sign up for that. Pitched those 100 people on bookkeeping. And that's how we got like our first 10 customers. You need to build trust. The best way to build trust is adding value. The bear case is it's just really hard. It's really hard to start a company and make it successful, and it's even harder alone.

0:30David J. Phillips:What is the case for solo founding? When you're a solo founder, you're just forced to be even more resourceful. Default co-founders happen when you don't want to do the hard thing. Everyone has a co-founder in their pocket now. There's no excuse. You can build anything. So go solo. You're one of the first people that I met that was actually a solo founder. Yeah, it all started with a Zoom interview with you back in 2020, right in the beginning of the pandemic. But yeah, I mean, I think my journey with founding in general, like goes way back to, you know, when I was in college, and I had my first startup, we built a tutoring marketplace, and I had a co founder.

1:09David J. Phillips:And it was amazing had all these like, first learnings of building a company and, you know, how to get how to get customers how to how to build a team, and like working with the co founder. And then, you know, after college ended, you know, I moved up here to San Francisco. He stayed in Southern California. And we just kind of had this like, you know, disconnect about like how are we going to build, you know, this thing that we started. And ultimately, we're just like, we can't, you know, we have to split. And so that was like my first co-founder like split thing. And we ended up just kind of like building two separate companies doing the same thing.

1:49David J. Phillips:and you know it it's kind of a a common thing like co-founder breakups that was my first one and then since then you know I did my my first sort of San Francisco startup after I moved up here I was working at Deloitte but I really wanted to get into startups and you know do my own thing and was going to hackathons won this hackathon partnered up with somebody there and you know heard the advice, like, don't, don't co-found a company with someone you meet at a hackathon, but we did it anyway. And, and, you know, we raised a seed round and then he fired me, you know, six months later. And so there I was again, sort of like in another co-founder breakup and, you know, fast forward, you know, to my next company, decided I wanted to learn to code like that first, you know, that, I guess, second company where my co-founder fired me, you know, I was the non-technical founder.

2:43David J. Phillips:I probably wasn't contributing as much to product as I could have if I was more technical. And so I really had this, after that experience that I wanted to become more technical, I wanted to be able to contribute more. And so I learned how to code and then started a coding bootcamp and did that with, you know, iterated through several ideas before that coding bootcamp started with other co-founders that we ended up splitting as well. And like each time I was starting these companies with co-founders, we would always ultimately end up sort of going our separate ways. And sometimes it was like really amicable.

3:15David J. Phillips:Sometimes it was like really not amicable. And, you know, that coding bootcamp we started, we grew it, you know, my co-founder of that left a couple of years in and ultimately we got acquired and it was a great outcome for everybody. And, you know, when it came to, after that, I started like investing in startups and wanted to start another company myself and did it again with, uh, as a solo founder, you know, um, decided, okay, I've had these, you know, four previous co-founding experiences that didn't quite, uh, you know, work out. And, uh, from like, you know, a team perspective. So I was like, okay, let me try this solo.

3:53David J. Phillips:And I started solo and then quickly, um, got a lot of anxiety building solo. I was like, ah, I don't know if I can do this without a co-founder. You know, I got into YC and I was like feeling the pressure of trying to build something really quickly and go to market really quickly and grow really quickly. And I decided to bring on two co-founders and, you know, we built that version of this company for almost two years and then that company didn't work out. And, you know, my co-founders left and kind of had this refounding moment of the company and started Fondo as a solo founder now. So I kind of just, from my experience, I tried it with co-founders so many times.

4:36David J. Phillips:And ultimately, with Fondo, which has been, you know, my most, you know, the most fun I've had starting a company, Fondo has sort of achieved a lot more milestones that I had previously with my other companies. And so solo founding just worked out for starting Fondo. But it really, for me, it came from all these experiences with co-founders that I was like, okay, I think I need to really do this as a solo founder now. For that transition to solo, because you actually had some, you started solo for Fondo, or what eventually became Fondo. I forget if it was actually called Fondo. It's called Bloomjoy.

5:14Yeah, so you had a bunch of different names. You had a bunch of different products. you started solo but then you got co-founders because this sort of anxiety around potentially being solo being solo um you know it was still uncommon but it was especially uncommon back then um i'm curious uh sort of how you think about sort of that that journey of founding right because there's ultimately sometimes many founding moments of a company or even if it's the same entity it's like a completely different company so you know you you started solo and you had these co-founders but like effectively it was a brand new company just with the same shareholders when you actually started Fondo.

5:52Can you share a little bit of what that's like and sort of how you have to communicate that to investors or if you had anybody on your team other than your co-founders at the time? Because I think that it's such a common circumstance that's really under discussed, which is I have co-founders. It's not working out. Do I shut the company down? Do I keep going? I want to keep going, but what's the right thing to do? How do I actually handle that? How did you handle that at the time?

6:19David J. Phillips:Yeah, it's a, it's an interesting position to be in. Um, and there's so much different, uh, feelings around it, right? You know, on the one hand you have, um, you know, whatever happened with your co-founders and whatever's going on there, you have investors that you committed to, um, you have customers that you committed to, maybe you have team members that are already a part of the journey. And, you know, you have to sort of restart the company. And there's a couple things you can do. You could restart the company, you could shut down the company. And we kind of faced this decision. We actually were in the process of trying to sell the company.

6:59David J. Phillips:And we went through months of negotiation, we had, you know, we ran a process, we had a couple of interested people in buying the company, ultimately decided on one company, and we were running out of money. So the company was Bloomjoy. We had a team of about 15 people and, you know, we were running out of money. So we decided to run a process to try to sell the company. We had, you know, conversations with a bunch of people, decided on this one company. They were a great fit. And because we were running out of money and we couldn't make payroll during the negotiations, we're like, why don't you just hire our team?

7:33David J. Phillips:And so that they can like, you know, keep getting paid. We'll transition our customers to you. And then we'll like, we'll finalize the, you know, the stock purchase agreement later, or as we're doing all this stuff, because, you know, we trust each other and everything. And, you know, they hired our team, which is great. And they started, you know, absorbing our customers. And then like, we just couldn't come to terms on that stock purchase agreement. There was, you know, this concept of an earn out. You know, it wasn't like a huge acquisition. It was basically a acqui-hire. And, you know, we would make, you know, the company had raised about a million dollars.

8:14David J. Phillips:We would, you know, our investors would get their money back over time. Ultimately, the deal would have been worth something. But defining how that like gets unlocked, you know, once the deal is closed, like we couldn't get clear definitions around it. And so it was like, this was taking forever, it was dragging out and it was, you know, had a conversation with my co-founder was like, let's just like, like at one point it was just so exhausting to like, keep trying to negotiate this. It was like, let's just end this. Like it's over. We're not going to sue them for like stealing our customers and hiring our team and not doing the deal.

8:51David J. Phillips:Like it's over. And, um, you know, we had like$40 ,000 left in the bank and, um, we'll just, um, I'll just like restart the company with a new idea. And the reason I wanted to restart was because, you know, we did raise a million dollars, you know, it's not a huge amount of money, but it was from friends, it was from investors that we want to build a good relationship with. And I just didn't want to take that loss, you know, that loss of shutting down the company, no one getting any, no, get no one getting a return on their investment. And, you know, the decision to like move forward with these existing investors and this cap table just made more sense than like flushing that and starting over again.

9:33David J. Phillips:And so that was the path that we decided to take. And because it was an amicable parting of ways with my co-founders, like the cap table was good. We were in a good position where it made sense to keep moving forward with this entity. But it was a tough decision. I remember writing the investor update. How do you tell investors that the deal you've been telling them in the past, like three investor updates is like not happening anymore. And you're going to pivot the company and, you know, co-founders are leaving. So, but we just did it, you know, I just sent the email and was like, I'm going to try this idea called Fondo and I'll update you in six months if it's going well, or if I'll try something else.

10:12I mean, it's, it's a really good story because it brings up all sorts of topics that we can talk about. I think the first one is, is like from a practical perspective, if you're a founder who's in a similar position to what you were going through, like what would be the advice that you'd give for them about how to handle that? I mean, I assume that there's a couple of pieces that are really important. One of them is if the co-founders have been around for a long time, like they've probably vested a significant amount of the company. And if you're going and starting a brand new business that has completely different customers, you know, completely different product, this is something where you obviously want to support the co-founders, especially if it was amicable and they weren't making it difficult, you know, to build the company.

10:57But at the same time, you want to make sure that you have like a cap table that can function as a new company. You know, investors maybe have different opinions about what you should do. Some, the best investors are often very supportive of continuing on, you know, keep going, that sort of thing even if it maybe is sort of like a thing that some a lot of founders might have decided to wind down the company or start fresh I'm really curious like um if you were to sort of give some practical advice around uh co-founders around that sort of thing for people who might be going through a similar thing because I think the reality is like more often than not that actually happens this isn't like some like edge case hypothetical I think this is very real and very often people don't have this uh don't have any sort of knowledge about what other people have done or how they might best approach it.

11:45David J. Phillips:Yeah. I mean, it's, it's super, yeah, there's no blog, there's not many blog posts about this. And I first encountered this with my first like SF startup where my co-founder fired me. And I was like, you know, that was like such a blow. You know, my first company, we had like VC backing, everything was exciting. And then like, you know, you're the, I was the co-founder, you know, getting let go. And, you know, I talked to a bunch of lawyers. At the time, I was pretty new to SF. I didn't really know startup lawyers, but my dad had a good friend from high school who was a real estate attorney. So I spent some time with him.

12:21David J. Phillips:You know, I ended up, you know, also through my dad, he had, you know, worked at Microsoft with a guy who started a startup and was venture backed and he connected me with him and he connected me with his startup lawyer. And so, you know, found a connection to a good lawyer. And he basically told me the best thing I could do is just like move on as quickly as possible. And I shouldn't try to sue the company. I shouldn't try to cause problems because like, you know, what's the point of that? And how do you vest it at this point for that company? I was like, you know, less than a year vested, but I had no, I had no cliff.

12:56David J. Phillips:We didn't do any cliffs. So, you know, I didn't have I had some, you know, I had a meaningful share, but nothing, you know, it wasn't too complicated for my co-founder there to just like, okay, you vested this, like, let's move on, you know, but I could have, you know, first time founder, I thought I deserve so much more, right? I founded the company, blah, blah, blah, right? But this advice from the lawyer was like, just move on as quickly as possible. Like, don't, you know, you own part of this company, suing the company or causing any distraction for them is ultimately going to hurt you. And so you own some of it.

13:32David J. Phillips:So just wish them best. Like you really just want them to succeed so that you can ultimately, you know, get some value for your equity and move on to your own thing. And so, you know, I just took that advice and like, I, you know, got a severance and got my stock and, and just moved on. And, and so when I, you know, that was a big lesson for me. and you know fast forward to now this case was just like yeah how do we how do we just move on from this you know what does everyone want to do after here I'm going to completely pivot the company to something completely new and so yeah just have a very like logical discussion about it and and everyone you know because it was amicable everyone was on the same page and it the cap table was good from there but I do think you know it is complicated when you have you know two years of vesting.

14:21David J. Phillips:And, you know, you have to, you know, if you're going to move forward, you want the cap table in a position for success. And you have to negotiate that, you know, with your co founder, and it's not easy, but definitely finding common ground and being logical helps. How do you think about, and we'll talk about the investor stuff in a second, but how do you think about kind of i think that oftentimes there's two aspects of this is the logic and there's the emotion yeah and uh and if you try and bring logic to an emotional situation it usually doesn't work well you try and bring emotion to a logical situation you know it also it's sort of like uh you know water and oil or something yeah they don't mix so like how do you actually and this is maybe more of a meta question not specifically tied to this but i think this is like a certain example of where this is often going to happen.

15:20How do you sort of do that? How do you sort of like deal with emotional situations and sort of like meet people where they are versus, and, and, you know, the same thing with like logic. Like I think logic is, is always the thing that people wish is the default. Right. But, but emotion is, is often the thing that ends up coming out, especially something where somebody is dedicated a lot of time. It could be a co-founder, it could be a, you know, teammates, that sort of thing. Totally.

15:43David J. Phillips:I mean, I think, you know, hoping and encouraging that you're like the other side has really good startup legal counsel, right? Because a lot of times in these founder breakups, you might end up with a former co-founder who has a real estate attorney helping them out on the side, right? And they're like, well, you own 50%. Like, what is this vesting thing, right? Like not everyone, not every attorney understands vesting and cliffs and things like that, right? So you really want them to have an experienced startup attorney on that side to guide them with that advice of like, just move on. Like you're going going to, you're going to nuke the company, like take, you know, take some position in the company and wish them the best, you know?

16:19David J. Phillips:So yeah, helping make it clear that they should have good counsel, like kind of, um, it's not necessarily you telling them that they need to do this for the betterment of the company, but they have like an independent third party that's actually on their side telling them what's best for them and for the, um, yeah, what's best for them. Because if they're a shareholder in the company, ultimately what's best for the company is best for them. Right. So you just want to, yeah, help, help, help them get that, that advice. And when navigating sort of, um, a transition like this as a founder, I know that you said that you were, you know, pretty nervous about talking to your investors.

16:55Um, how do you like, how do you sort of think about just like communicating with investors generally?

17:03David J. Phillips:Yeah, I think it's good to always have, um, some investors that you're close with, you know? So, um, I, I'm really close with, uh, Chris and Peter who are partners at, uh, Transmedia Capital. So they sort of backed me in my previous company. You know, Chris was actually someone who was giving me advice when I got fired from my first company, um, cause he was hosting the hackathon that, uh, that we won. So, uh, he's always been in my corner. And so, um, you know, when this was happening now with this, this new company and, um, the pivot and, you know, I went to lunch with him and his partner, Peter, and I was just like, you know, I'm thinking about this thing, you know, and, um, you know, I'm not sure if I should do it or if I should tell the investors or whatever, and just got, you know, them supporting me like at that lunch, uh, just having their support, you know, they weren't even our largest investor or, um, you know, but just knowing that they were in my corner for this just helped me have that confidence.

18:03David J. Phillips:It's like, okay, this is the thing I'm going to do. That really helped push me over. So finding a really close ally in your investor pool helps a lot. That's really cool. If you're enjoying this conversation, then perhaps you're starting your own company. And if so, you should apply for the Solo Founders Program. I've spent the last seven years working with startups and founders who are figuring things out. And I'll tell you, the ones that make the most progress are the ones who make sure that they have relationships that can help them go the distance. The Solo Founders program is about bringing 10 solo founders together so that they can build solo together versus building solo them.

18:40I'll work with you, we'll invest$100 ,000 and we'll make sure that you make the most progress that you possibly can in three months. If that sounds interesting, you should learn more and apply it at solofounders.com slash program. Maybe we can talk a little bit about sort of how Fondo is much, a very good like reflection of your past experiences and things like that. because I do think that as people go on and build companies, and especially if it's their second or third company, they tend to move towards things that maybe, or pivot even, they tend to move towards things that are maybe a better fit for them than maybe where they started.

19:17And also I think that there's something to be said about solo founders. When they do it really well, they end up finding something that's truly related to them versus it's just related to one of the co-founders. Usually most co-founder relationships, if there's two co-founders or three, there's one that's like really close to the problem, but the others are maybe a little bit more removed if not completely removed from it. And I've seen that work. We definitely see that work. You invest in startups. You've seen lots of startups over the years. you know that co-founders can have that where one is like deep subject matter background person and the other is more of like, you know, somebody who's just really good at whatever it is that they do and they can apply whatever it is that they do to that business.

20:02But I'm really curious how you think about how Fondo, the version of Fondo, like once you kind of were solo, you had 40k left in the bank, you know, out of a million dollars raised. Like this is a really big turnaround for the company and Fondo is doing really, really well now. It's like, it's considered like the company in its category. And I think that's really wonderful. Um, but maybe talk about how sort of your experience, um, led to like focusing on this and, and that's sort of like the very early days of Fondo. And then once you talk about that, I want us to talk about sort of how people can think about that themselves, like how they could actually put that, um, that frame of mind towards figuring out the things that maybe they could be working on.

20:44David J. Phillips:Yeah. I mean, it's a really good point. I think, you know, starting a company is difficult in so many ways. Right. And, um, putting together all the pieces of this like puzzle, right. To make this successful company, um, every piece can be really difficult. And, um, you know, when you have a co-founder, there's a process for like, for the way your company moves and like the speed at which it moves, right? And when you're solo, you're kind of unencumbered by that, right? That friction to take an idea from idea to market, you know, it really depends on the, you know, the dynamics between the co-founders, but, you know, sometimes it could work really well and you're both completely aligned and you go from idea to launch like super quickly and, or sometimes it's slowed down.

21:36David J. Phillips:Um, so having, uh, being solo, it's like pretty freeing in those early days of just like, I have this idea. I love it. I really want to do this and you could just do it right. There's no process. There's no friction. And, you know, I used to be an accountant. Uh, I started at Deloitte and I love accounting. I always would, uh, you know, all my companies, that was one way I'd get into like a flow state was like doing our accounting. And so, you know, I'd also during this previous iteration of the company, you know, we ran out of money and we weren't watching our runway as close as we should be.

22:11David J. Phillips:We were working with, you know, a different company to manage our books. It got too expensive. So we stopped. We were doing it in-house. You know, we had a friend of a friend doing it, you know, all these sort of like, you know, unideal ways of doing our books. And we just like lost sight of our runway. And, you know, that was a real problem that I faced with my company, even as an accountant. And so I just thought like, there's got to be, you know, all these startups that are managing their burn, their runway, like trying to build their companies. Like, if I as an accountant was having a hard time with that, I can imagine other founders that are not accountants at all facing it, you know, even worse.

22:52David J. Phillips:And so I was really excited about this idea for Fondo to just build the, like the accounting solution specifically for startups. So, you know, I had used other, you know, startups that do what Fondo does in the past. I have used accountants from, you know, Yelp, Craigslist, you know, we, we built accounting teams at my previous company. So I've sort of done accounting every way you can do accounting as a startup and was, yeah, really excited to build Fondo in a way that was just like specifically designed for founders running their company. So really easy to onboard, really easy to understand the information that you need to know.

23:29David J. Phillips:Really stay in compliance with all the random tax deadlines you have as a Delaware C Corp. So yeah, I was really excited about just making that easy. And so yeah, just just starting with that idea. Yeah, it was very freeing to just try it, you know, and try it without any friction, yeah why didn't you get there earlier you know what I mean like like it's it's really interesting because there's that whole notion of um do what feels like work for others but play for you right and uh and you just said like you know accounting is this thing that you actually really enjoy like doing this work with all you know these numbers and spreadsheets a lot of people would consider that dreadful right but but some people really enjoy it right and you didn't get to building Fondo until quite a while because what what how long was it since you actually started that company the company that became Fondo?

24:23David J. Phillips:It was two years. So yeah two years and you were working out a lot of other things and so it took you a little while and then you've worked at other companies before that right but after being an accountant at Deloitte right so how do you think it took so so long to actually get to the thing that's sort of like a core part of your interest than the things that you're talented at? I think, you know, during that moment where I was like, okay, we're going to pivot the company to something new. You know, I think a lot of founders keep that, you know, list of ideas that they have in their pocket, always, always, you know, jotting down ideas.

24:58David J. Phillips:And I think going through that list, you know, we had$40 ,000 in the bank. So, you know, going through that list of ideas, you know, running it through the filter of which of these ideas can I do solo? You know, which one can I get off the ground solo without needing more than this 40 grand that we have, where I'm really the domain expert and can empathize with the customer really well, can solve the problem really well, and, you know, take the existing, like, what are all the tools that I have, right, that I can use to, like, build something from scratch? And then of all these ideas, which one do I have the highest likelihood of making work without, you know, needing to raise money.

25:45David J. Phillips:And so, yeah, then Fondo just came to the top. So I think just being forced to like run all these ideas through that filter helped, you know, surface this idea that I really was well-suited to work on. Why do you think people don't get there, you know, in the early, like, like off the bat, right? Like, because what, because what were you working on? Like, maybe share a little bit about what you're working on with the co-founders and stuff. And is, is it feels like this is just such a good way to think about things generally, but like, this isn't where you started. No. I mean, so, you know, the previous idea I did relate to as well, but it wasn't as, I didn't have as deep of domain expertise.