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 cliff

KEY 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 shares

WHAT 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.”

Welcome to Inside the Deal Process — the show where we break down how investors actually decide to fund companies.

Today’s episode is about A pre-revenue SaaS startup lands a $4M seed round from a VC who passed on better-looking companies. We dissect the deal from both sides of the table.

EPISODE CHEAT SHEET DEAL TERMS REFERENCED:

• Pre-money valuation: $16M | Investment: $4M | Post-money: $20M | Dilution: 20%

• Structure: SAFE with $16M cap and 20% discount

• Investor rights: Pro-rata, observer board seat

• Runway: ~18 months at projected burn rate