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.