Having been dishonest. Or at least, having pushed “the truth” one or three steps too aggressively.

Due diligence for early-stage software companies is mostly confirmatory:

  • Do the beta customers really use the product, like you said?
  • Is the rest of the team really as committed as you said?
  • Is the competitive landscape really as you said?
  • Are your prospects really going to buy, like you said?
  • Is the rest of the round, the other investors, really as solid as you said?

If you’re close to a term sheet and it’s an early stage deal, make sure you were honest.

We all are optimists as founders, we all push things a bit.

But a diligence process should make a prospective investor more confident, not less.

If things turn out to be “different” than expected because you pushed the envelope on honest a little too far …

The deal will die.

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