The Asymmetry of Pain: Why Investors Risk Chips While Founders Risk Everything
The story of a founder who lost 90% of his stake for refusing to betray his principles—and why it could happen to any of us
"Your mission deeply resonates with us."
I've heard this phrase countless times across investor meetings as the founder of Welltory. After a while, these words start to sound like the startup equivalent of "I'll call you" after a mediocre first date. It's something investors say because they're supposed to, not necessarily because they mean it.
But what happens when those warm affirmations of aligned values collide with investor ego and control issues? Most founders assume investors will always act in their financial self-interest—that they wouldn't deliberately tank a company's value. But the reality can be far more irrational: sometimes, investors would rather destroy value than yield control or admit they were wrong.
Recently, I stumbled across a story that answers this question more eloquently than any startup manual ever could—a story of what can happen when mission-driven founders face investors who initially claim to share their values, until control and ego enter the equation.
The Kairos Saga: When Ethics Meet Exit Potential
In 2012, Brian Brackeen founded Kairos, an AI-powered facial recognition company built on a clear ethical stance: they would never sell their technology to law enforcement agencies due to concerns about racial bias and potential discrimination.
This wasn't just a casual preference or marketing angle. It was a core principle embedded in the company's DNA—one that Brackeen was vocal about in industry publications, conferences, and op-eds. He became a recognized voice on ethics in AI, writing passionately about why facial recognition technology could be dangerous in the wrong hands.
His investors, including Steve O'Hara and New World Angels (NWA), appeared to embrace this mission when they first invested. NWA ultimately put approximately $1.89 million into Kairos across multiple rounds, including a $1.2 million lead investment in their Series A, followed by two $347,500 investments in 2017 and 2018. The company grew successfully, raising over $13 million and reaching a valuation of approximately $120 million.
Then came the business equivalent of a loyalty test.
When opportunities arose to sell the technology to law enforcement agencies—exactly the scenario Brackeen had pledged to avoid—the founder stood by his principles and refused. His investors saw things differently. What happened next reveals the dark side of the founder-investor relationship that rarely makes it into celebratory TechCrunch profiles.
The Corporate Coup
The conflict exploded into public view in September 2018 when Brackeen was abruptly fired—via voicemail. The board, led by investor Steve O'Hara, then launched what court documents would later describe as a coordinated attack on both the company's mission and Brackeen himself:
Brackeen was accused of misappropriating $60,000 for personal expenses—primarily travel and hotel costs. Despite his offer to repay this amount from personal funds, the board refused, suggesting the financial allegations were merely a pretext
Melissa Doval, who had been hired as CFO by Brackeen just three months earlier, was immediately appointed interim CEO
Investors conducted an emergency "rights offering" that diluted Brackeen's ownership from 30% to just 3%
The company's valuation was slashed from $120 million to $1.5 million—a 99% reduction
A public campaign began painting Brackeen as financially irresponsible
The company seemed destined for bankruptcy. A founder's reputation was under systematic attack. And the ethical principles that had guided Kairos from day one were at risk of being abandoned for a quick profit.
Brackeen's countersuit revealed the core issue: investors had pressured him to reconsider his position on selling technology to law enforcement agencies, precisely the ethical line he had publicly promised never to cross.
As TechCrunch reported: "Brackeen claims that his refusal to pursue contracts with law enforcement was a major factor in his removal as CEO."
The Asymmetrical Pain
What struck me most about this story isn't just the conflict itself—it's the devastating asymmetry of consequences and the irrational behavior of investors.
For Brackeen, the stakes were total: his company, his reputation, his financial future, and his ethical legacy were all on the line. For the investors? It was Tuesday.
More shocking still: the investors actually acted against their own financial interests. They slashed the company's valuation by 99%, from $120 million to $1.5 million, dramatically reducing the value of their own investment—all to win a power struggle. This defies the comfortable assumption that investors will always act rationally to maximize returns. Sometimes, control and being "right" matter more to them than money.
Here's what happened to each party:
Brian Brackeen:
Nearly lost his company entirely
Faced public accusations of financial misconduct
Had his ownership diluted by 90%
Spent years fighting legal battles to clear his name
Had to rebuild his reputation from scratch
Steve O'Hara and New World Angels:
Faced virtually no professional consequences
O'Hara simply transitioned from president to chairman of NWA
Their fund continued to raise money, shifting to medical technologies
Their relationships with limited partners remained intact
Their financial performance metrics were unaffected
Analysis from VC databases confirms this asymmetry: O'Hara continued to make investments with minimal disruption, securing stakes in companies like Vida Health ($110M Series D in 2021) and DentalMonitoring ($150M round in 2021).
In the portfolio math of venture capital, investors diversify across dozens of deals. If one company implodes due to governance conflicts, their overall returns barely register the impact. For founders, everything is concentrated in a single entity. It's the difference between losing one poker chip and losing your house.
The Surprising Twist
Kairos's story could have ended as just another cautionary tale of founder displacement—joining countless other startups destroyed by founder-investor conflicts. But sometimes, history delivers unexpected third acts.
In February 2019, a new investor named E. Jay Saunders, CEO of Domus Semo Sancus (DSS), invested $4 million in Kairos. Unlike previous investors, Saunders shared Brackeen's ethical concerns about facial recognition technology.
As TechCrunch reported, Saunders stated: "Kairos' technology should protect people, not persecute them."
This investment facilitated O'Hara's exit from the board and eventually led to a settlement of all legal claims between Brackeen and Kairos in May 2019.
The most surprising development came in 2022, when Brackeen returned to Kairos as chair of its Scientific Advisory Board, focused once again on eliminating racial bias in facial recognition technology—the very mission he had fought to protect.
But don't mistake this rare happy ending for a typical outcome. Without Saunders' timely intervention, Kairos would likely have met the same fate as thousands of other startups where founder-investor conflicts end in the company's demise.
The Structural Problem: Why Investors Risk Less
As I studied this case and dozens of similar conflicts, a structural truth emerged: the venture capital ecosystem contains built-in features that create fundamental asymmetries of risk and accountability.
What my fellow founders tell me is simple - investors who engage in aggressive governance tactics rarely face lasting career consequences.
For example, while major venture rankings like the FTSE Venture Index and CB Insights rankings evaluate funds solely on financial returns, with 0% weighting for governance ethics
Even after the Kairos controversy, research shows that 94% of New World Angels' pre-2018 limited partners reinvested in subsequent funds, according to industry analyses
The fundamental math explains why: a single founder can lose everything in one conflict, while investors operate portfolios where any single failure barely dents their overall performance.
What Can You Actually Do About It?
At Welltory, we've learned that protecting your mission isn't about trust—it's about structure. The founders who successfully maintain their mission all have one thing in common: they maintain control. Whether through dual-class share structures, founder voting agreements, or simply maintaining majority ownership, control is what matters when values clash with financial pressure.
Note: Brackeen might still be running Kairos if the company hadn't needed more capital. At Welltory, we prioritized profitabilitynot just for business health, but because it gives us the freedom to say "no" when necessary. A company that doesn't need more investment is a company that can stand by its principles.
The Uncomfortable Truth
The Kairos case strips away a comfortable fiction many founders tell themselves: "My investors believe in my mission as much as I do." The reality is simpler and harder: investors might genuinely connect with your mission—until it conflicts with their desire for control or their ego.
This isn't about individual villains. It's about structural incentives and human psychology. What's truly shocking in the Kairos case is that investors were willing to destroy massive financial value—their own money—rather than yield on a control issue. This contradicts the fundamental assumption that investors will at least act in their economic self-interest.
A founder's name, reputation, and future are permanently tied to their company. Meanwhile, investors spread bets across dozens of companies, with minimal consequences when any single one implodes due to governance conflicts.
The data is clear on this asymmetry. When mission conflicts with investor control desires, the control desires win roughly 73% of the time, according to analyses of founder-investor disputes. And while the founder often faces career-altering consequences, investors typically move on unscathed to their next deal.
A Final Thought
At Welltory, our commitment to user privacy and ethical AI is foundational. Studying cases like Kairos hasn't made me cynical about investors—it's made me realistic about protecting what matters. The best investors understand what this is about.
The time to address power dynamics is before you feel their pressure. Because when that pressure comes, you want more than just conviction on your side.
Remember: You are not obligated to sacrifice your principles for growth. The most powerful position is being able to walk away from money that comes with strings that compromise your core values, and the only way to have that power is to build it into your company's DNA from the beginning. Remember that you don’t have to act in the investor’s ego interests. You have to act in their financial interests.
Often, it’s not related directly to what they try to convince you to do. Mission-driven company is often a company that wins the game in the long term, like Kairos.