For me, so far, it’s been 2.
Two deals I thought I really wanted to do, that were just about at term sheet stage, but then as we dug deep in diligence, enough flags came up that were inconsistent with what we thought that the deal didn’t work out. Not just one flag, but a bunch.
Looking back, though, both these starts-up are doing/did really well! One was already acquired for nine figures, the other is at $50m+ ARR today.
Let me compare that to the top 2 deals I’ve made/done that simply didn’t really work out. In those cases, the due diligence was fine. The customers loved the product, the CEO strongly referenced, technology checked out, etc. All boxes checked. But what happened there was I lowered the quality bar a smidge. Not a ton, but a smidge. In one case, I stretched the definition of recurring revenue too much — and the revenue didn’t recur. In another, I let prospect enthusiasm stand in for true customer enthusiasm. They are not the same.
Lesson for me: diligence is critical but can be auto-confirming. Make sure you go into diligence having already done the right higher-level analysis. And be wary of flags in diligence. But cut amazing CEOs a little more slack here. If they are truly amazing.