Episode 2 - founder who got the term sheet, then lost it. What happened in due diligence?

Today’s episode is about a startup that got the term sheet… and then lost the deal in due diligence. A B2B SaaS company with strong growth, real customers, and investor interest watches a $2M seed round disappear after investors uncover issues the founders thought were “probably fine.” We break down what actually happens after a term sheet, how investors think during due diligence, and why information risk can kill a deal faster than weak metrics.DEAL TERMS REFERENCED: • Investment: $2M | Pre-money valuation: $8M | Post-money: $10M • Structure: Priced seed round • Investor rights: Pro-rata rights, observer participation • Liquidation preference: 1x non-participating • Founder vesting: 4 years with 1-year cliffKEY CONCEPTS EXPLAINED THIS EPISODE: • Due diligence: The investor verification and risk assessment process after a term sheet • NRR (Net Revenue Retention): Measures expansion and retention revenue from existing customers • ARR (Annual Recurring Revenue): Predictable recurring annual revenue from contracts • Customer concentration risk: Overdependence on a small number of customers • Founder-market fit: When founders deeply understand the market because they’ve lived the problem • Information risk: The risk that founders are filtering or withholding important information • Pro-rata rights: Investor’s right to maintain ownership in future funding rounds • Liquidation preference: Determines payout order during exits or acquisitions • Vesting schedule: Timeline over which founders earn ownership in their sharesWHAT YOU’LL LEARN: • Why term sheets are not final until diligence is complete • The real reasons investors pull deals • How investors evaluate founder behavior under pressure • The mistakes founders make when presenting metrics • How proactive disclosure can actually strengthen investor confidence • The framework smart founders use before fundraising: the “risk register.”