A term sheet is not a commitment — it’s an invitation to look closer. Most of the capital that walks away from a transaction does so after diligence has begun, not before, and rarely for the reasons founders expect. Five patterns account for most of the deals we’ve seen unwind at this stage.
1. Numbers that don’t reconcile across documents
Nothing erodes trust faster than a revenue figure in the pitch deck that doesn’t match the audited financials, or a customer count that shifts between the data room and the founder’s own commentary. Institutional investors read discrepancies as a signal about discipline generally, not just about the specific number in question.
2. Governance that exists on paper but not in practice
A cap table, a board structure, and a set of bylaws are only as credible as the behavior behind them. Investors doing real diligence will ask how decisions actually got made historically — and a mismatch between the documented process and the lived one is one of the fastest ways to lose confidence.
3. Customer concentration that wasn’t disclosed upfront
Discovering during diligence — rather than during the pitch — that a large share of revenue sits with one or two customers changes the entire risk calculus. It’s not usually the concentration itself that kills a deal; it’s the fact that it surfaced late, which reads as either poor self-awareness or deliberate omission.
4. Founders who manage the narrative instead of answering the question
Diligence conversations are not pitch meetings. An investor asking a direct question about churn, burn rate, or a past legal dispute expects a direct answer — not a redirection back to the growth story. Founders who can’t separate these two modes tend to lose credibility exactly when they need it most.
5. A cap table too complicated to explain in one sitting
Layers of SAFEs, side letters, and informal verbal commitments from early backers create structural risk that has nothing to do with the underlying business. If a founder can’t walk an investor through exactly who owns what and under what terms in a single, clear conversation, that complexity itself becomes the diligence finding.
None of this is really about spreadsheets. Diligence tests whether what a founder said in the room matches what’s actually true on paper — and once that alignment is in question, the specific issue found is almost beside the point.
We’ve run diligence-ready mandates across similar transactions — see our Track Record.
If an investor sat down with your data room tomorrow, what’s the one thing you’d want to explain before they found it themselves?