Brian Nichols is the co-founder of Angel Squad, a community where you’ll learn how to angel invest and get a chance to invest as little as $1k into Hustle Fund's top performing early-stage startups

Culture isn't ping pong tables. It's what happens when things go wrong.

I've seen embezzlement four times across nearly 400 investments at Hustle Fund. All four founders passed background checks. No criminal records. Upstanding citizens. You can do all the traditional due diligence and still end up working with criminals.

That's why cultural due diligence matters. The team dynamics, the founder relationships, the way people treat each other when stressed. These factors determine whether a company survives hard times or implodes.

What Culture Actually Means

Culture is what your customers see when they meet any employee. If you have one person on your team who treats people badly, it ruins the brand. Doesn't matter if they pick unicorns.

At Hustle Fund, we filter for humble people who don't take themselves too seriously. That eliminates a lot of talented candidates. But talent without character destroys teams.

Elizabeth Yin tells a story about starting a company with a friend whose wife wasn't excited about him working on a startup. She wanted stability. The marriage tension killed the company. Since then, she spends time getting to know spouses and significant others. They're as important as co-founders.

Morale matters for everyone on the team and everyone important in their lives. As a boss, you rarely hear the truth about team morale. It's your job to find out anyway.

Evaluating Founder Dynamics

Co-founder relationships are the foundation. I've had portfolio companies where co-founders who were dating broke up while running the company. One founder had to negotiate a deal with her ex-husband to get him off the cap table. These situations are messy and often fatal.

When you meet founders, watch how they interact. Do they finish each other's sentences or talk over each other? Do they give each other credit or subtly undermine? Do they have clear roles or constant confusion about who's responsible for what?

Ask them directly about their co-founder agreement. How do they make decisions? What happens if one wants to leave? What happens if someone gets sick or has a family emergency?

The honest answer might be, "We haven't figured that out yet." That's not necessarily disqualifying for pre-seed companies, but it's a yellow flag. Great co-founder teams communicate constantly and explicitly about expectations.

Warning Signs in Team Building

Life happens. People get sick, injured, or face family health issues. Co-founder deaths or serious illnesses have affected many of our portfolio companies. The question is whether the remaining team can continue or whether the company collapses.

One founder overstayed his visa. The company would have shut down if we couldn't help him relocate to Canada. Immigration status isn't something most investors check, but it can destroy everything.

The way founders talk about hiring reveals culture. Do they value diversity of thought or just hire people like themselves? Can they articulate what kind of people they're looking for beyond technical skills?

At Hustle Fund, we think like a sports team. Elizabeth brings in leads through content. Eric closes them. Shiyan adds polish and people skills. Everyone acknowledges what others do better. There's no ego about who gets credit.

If founders can't identify what each team member does better than them, that's a problem. Good founders hire people smarter than themselves in specific domains and trust them to execute.

The Role of Incentives

You have no money, no prestige, nothing meaningful that anyone would want to work with you for. Just hope. How do you keep people motivated?

Early employees need to believe in the mission enough to sacrifice market-rate salaries. If the founding team can't inspire that belief, the company won't attract talent.

Equity matters, but it's not everything. Employee equity in early-stage startups varies wildly. We've seen everything from zero equity for early employees to nearly co-founder levels of ownership. The key is whether the equity balances the risk.

If you're hiring employee number one and paying near market rate, 1% to 5% equity is typical. If you're paying $10,000 per year and housing, employee one should get 10% equity because they're taking founder-level risk.

The wrong equity structure creates resentment. Underpaid employees who feel exploited will leave. Overpaid employees who don't perform will drag the company down. Founders who understand this balance and communicate transparently tend to build stronger teams.

Assessing Resilience Under Pressure

Startups face constant wrenches. How founders respond to adversity tells you everything about culture.

We had one portfolio company where the CEO had to let everyone go except himself and manage the existing customer base solo. The music stopped on fundraising. They couldn't grow. But the CEO kept customers happy, maintained profitability, and eventually found an acquisition.

Compare that to founders who raised huge amounts, spent recklessly, and couldn't make cuts when the market shifted. Their preference stack became so high that no reasonable exit could return money to investors.

Thrifty founders who watch every dollar usually do better in downturns. They understand unit economics. They know exactly how much money comes in and goes out. They're analytical about cash flow because they had to be. Fundraising was always hard for them.

Founders who had money thrown at them often lack this discipline. They hired too fast. They spent on things that don't move metrics. When times get tough, they don't have the muscle memory for frugality.

Red Flags to Watch

Some cultural problems are obvious. Founders who blame their team for failures. Leaders who can't admit mistakes. Teams where everyone seems stressed and unhappy.

Other problems are subtle. Founders who avoid difficult conversations. Teams where people don't give each other direct feedback. Companies where the CEO makes all decisions and nobody else has ownership.

The worst scenario is founders who aren't aligned on vision. If one founder wants to build a lifestyle business and another wants unicorn growth, that tension will explode eventually. If they haven't discussed exit expectations explicitly, you're betting on a time bomb.

Pay attention to how founders talk about past experiences. Did they learn from failures or just rationalize them? Do they take responsibility for mistakes or deflect? Can they articulate what they'd do differently?

Long-Term Value of Good Culture

Culture isn't just about avoiding disasters. It's about building sustainable companies.

Strong cultures attract better talent. People want to work at companies where they're treated well and given ownership. Better talent leads to better execution. Better execution leads to better outcomes.

Strong cultures also handle growth better. Scaling from five people to 50 requires different processes and communication. Companies with explicit values and clear expectations can grow without losing what made them special.

At Hustle Fund three years in, we still love our team. That's rare. It's also essential. If you don't enjoy working with your co-founders after the honeymoon phase ends, something is deeply wrong.

Good culture shows up in retention metrics too. If early employees are leaving or founders are churning through team members, that's data. People vote with their feet. High turnover means something is broken.

Practical Due Diligence Steps

Talk to early employees, not just founders. Ask them why they joined and what they like about working there. If they hesitate or give generic answers, dig deeper.

Look at Glassdoor reviews if the company is big enough. Talk to former employees if you can find them. People who left are more honest than people who stayed.

Ask founders about the hardest conversation they've had with their team in the last three months. If they can't think of one, they're either avoiding conflict or lying.

Check in with portfolio companies regularly, not just when things are going well. How do founders communicate during tough times? Are they transparent about problems or do they hide issues?

Meet the spouses and significant others if possible. Are they supportive or resentful? Do they understand what the founder signed up for?

Why This Matters for Returns

Cultural problems kill companies that should have succeeded. Technical execution, market size, and timing matter, but team implosion is one of the top reasons startups fail.

You can't predict embezzlement or health crises or visa problems. But you can evaluate whether the team has resilience to handle unexpected challenges. You can assess whether founders communicate well enough to navigate conflicts.

The companies that survive are rarely the ones with perfect plans. They're the ones with teams strong enough to adapt when plans fall apart.

Culture determines whether founders can raise the next round. Investors talk to each other. If your founders screwed over one investor, nobody else will touch them. Doesn't matter if they're building a unicorn.

Culture determines whether customers renew. People buy from people they like and trust. If your team treats customers badly or doesn't care about their success, retention suffers.

Culture determines whether the company can hire. In a tight talent market, the best people have choices. They pick companies with good reputations and strong cultures.

At Angel Squad, we share resources on evaluating team dynamics and company culture alongside traditional investment metrics. Join to learn from investors who've seen both the spectacular successes and the avoidable failures caused by cultural problems.