When Founders Disappear

Ghosting is an occupational hazard in venture capital. VCs ghost founders. Founders ghost VCs. It's an uncomfortable reality of our industry that we've all grown accustomed to navigating. Usually, it happens because one party isn't as interested but doesn't want to close the door—maybe the VC wants to see if the business improves, or they're waiting for another firm to put in a term sheet first (sad but true). We're both in the business of talking to dozens of people, so while that kind of ghosting isn't ideal, we're at least used to it.

But there's a particular brand of ghosting that stands out as uniquely frustrating (and wrong on many levels): when founders who take your capital disappear with no notice.

The app gets pulled from the App Store. Social media accounts go dark. The website goes offline. No announcement. No dissolution notice. No explanation whatsoever. You reach out to the founder via email. Nothing. You try LinkedIn. Crickets. You even send an Instagram DM. Still unreachable. Believe it or not I have done all of these things multiple times with companies and founders that have gone dark.

I imagine it's very frustrating from the LPs point of view as well. And you're left in the absurd position of having to admit: "I literally cannot reach anyone at the company." It’s embarrassing. And candidly I don’t just stop there; I'll ping VCs around the table and ask if they know anything or if they’ve spoken to the founder recently, and in almost all cases they're in the same spot as me.

And the companies that pull this vanishing act are almost the ones that are not doing well. It doesn’t mean they weren’t prolific for some moment - a few were backed by tier 1 funds - but they are always the ones that are not doing well from my experience. Turns out good pedigree and top-tier investors are no guarantee that a founder won't handle failure in the sketchiest way possible. 

As a very small investor in these companies (typically <1% ownership), I'm left wondering what to do. I'm even more confused why the investor who owns 10%+ of the business isn't doing anything—or at least appears not to be. Did this founder just exit scam everyone? What's the recourse here? The legal fees alone would exceed any potential distribution, so that route doesn't make sense for us given our size. 

The financial loss is one thing—that's the risk we sign up for. But the complete communication blackout creates cascading problems:

• LP relationships suffer when you can't provide basic updates of dead or alive 

• Time is wasted chasing ghosted founders 

• Trust erodes across the entire ecosystem and I will surely never back you again 

And the tax implications are equally frustrating. When a founder disappears and a company effectively ceases operations without formal dissolution, the tax treatment of your investment becomes complicated. Generally, you cannot write off an investment loss until there's a "realization event"—such as a formal bankruptcy, liquidation, or sale. Simply being ghosted doesn't automatically trigger a tax-deductible loss, even when it's obvious the investment is worthless.

The IRS requires documentation that the investment is truly worthless to claim a capital loss. In the ghosting scenario, you're stuck in limbo: the investment is practically worthless, but without legal documentation, the IRS may not recognize the loss.

For fund managers, this creates an additional headache—you can't provide LPs with clear guidance on the status of these positions. Often we're told to obtain formal notice of complete loss, wait for the company to be formally struck from state records for non-payment of franchise taxes, or find some other tangible means of establishing worthlessness. This whole process leaves a messy tax trail that becomes another headache and time suck. LPs are frustrated, but I assure you GPs are equally—if not more—frustrated, having been on both sides of this. So much time wasted.

A simple suggestion from a VC to a ghosting founder - Failure is part of the game. Just tell us - when it happens we get it. We’re in the business of risk and understand most of our companies will return minimal to nothing back. Otherwise we assume the worst - that you're probably at the helm of an exit scam.

Have you experienced the portfolio company vanishing act? I'd love to hear how you've handled it.

If you enjoyed this article, feel free to view our prior posts on adjacent topics 

• How We Closed 14 SPVs in One Month

• Are VCs the New Bankers

• VC Scouts: Why Waiting for Lead Investors Maximizes Syndicate Success

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✍️ Written by Zachary and Alex