Eliminate Surprise Red Flags Before Diligence

Beyond a messy cap table, investors encounter other "surprise red flags" during due diligence that can kill a deal. Audit your situation before you start fundraising — it's far better to surface and fix these yourself than to have an investor find them.

Common surprise red flags

Outstanding lawsuits, letters, or threats. Any open legal matter must be disclosed. Undisclosed legal risk discovered in diligence ends deals immediately.

Disgruntled former employees. If someone left on bad terms and could potentially sue down the road, investors will worry. Address this proactively — a clean exit agreement is worth the cost.

Paying personal expenses through the business. Paying rent or other personal costs out of the company instead of taking a salary blurs the line between personal and business finances and raises governance concerns.

Cash-based accounting. Investors expect accrual-based accounting. Cash-based accounting makes your financials harder to interpret and signals that your reporting isn't investor-ready.

Not being intellectually honest about the business. If you are not straightforwardly honest about what's working and what isn't, investors will notice — and they talk to each other. Candour builds trust; spin destroys it.