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Deal-risk guide
Most diligence findings are negotiable — a missing consent, a late financial, an unpapered grant. A few are not. They either end the deal or re-price it so hard that the round you shook hands on stops existing. The dangerous thing is that almost all of them are invisible at the pitch and only surface weeks in, during diligence, after the leverage has left the room. Here are the ones that do real damage, ranked by cost, with the fix for each.
A founder built the product on a former employer's time, tools, or under an invention-assignment clause that hasn't been cleared. In many jurisdictions that clause can claim the founding IP outright — meaning the thing being financed or bought may not belong to the company at all.
This is the single most dangerous unfound defect in a diligence, because there's no price adjustment that fixes disputed ownership of the core asset. Buyers walk rather than inherit the litigation risk.
A departed co-founder, an offshore contractor, or an early freelancer touched the codebase and never signed a present-tense IP assignment (an NDA is not an assignment). If they own part of the product, the company doesn't — and that's a standard kill-switch in an acquisition.
A former advisor, a contractor, or an early "we'll figure it out" arrangement claims equity that isn't on the cap table. One credible off-ledger claim can freeze a signing, because it means the ownership everyone's buying into is contested.
Your convertible instruments aren't summarized, so a new lead reconstructs the stack conservatively and models more dilution than you did. Worse, an MFN or uncapped SAFE surfaces mid-diligence and re-opens price after you'd agreed terms. New money models its dilution off your stack before it models your business — so a surprise here re-prices the whole round.
Revenue booked on signing or on cash receipt instead of over the delivery period. A quality-of-earnings review restates it — and the restated, lower number becomes the valuation base. You pitched a multiple on ARR that diligence just shrank.
The fully-diluted cap table doesn't reconcile to the share ledger and the issuance consents. Every ownership number downstream is now suspect, and diligence stalls — sometimes for weeks — until it's rebuilt. Delay itself kills momentum, and a rebuilt table often surfaces the other flags on this list.
A key customer contract has a change-of-control or assignment clause that lets them walk — or renegotiate — at the moment of a sale. Buyers read every top contract for exactly this, because it means the revenue they're paying for might evaporate on close.
Every flag above is a weight-3 or weight-2 kill-list item left open. That's not a coincidence — the weighting is the deal-impact ranking. A useful way to read your own risk: count your open weight-3 items. Zero is the goal before a room opens.
| Red flag | Kill-list item | Weight |
|---|---|---|
| Prior-employer IP claim | Prior-employer non-compete / assignment | 3 · fatal |
| Unowned IP | Present-tense IP assignment for all contributors | 3 · fatal |
| Off-ledger equity | No verbal equity promises outside the cap table | 3 · fatal |
| Unmodeled SAFE stack | Convertibles summarized on one page | 3 · re-prices |
| Restated revenue | Consistent revenue recognition | 3 · re-prices |
| Cap table doesn't tie | FD cap table reconciles to ledger | 3 · re-prices |
| Change-of-control clause | Top contracts free of CoC / assignment traps | 2 · re-prices |
The $79 report scores your company against the full kill-list, orders your open gaps by deal impact — fatal flags first — and maps each to the exact document that clears it. Drop in your cap table and it computes your real dilution alongside.
Get the report — $79 →The re-pricers usually are — at a cost. The fatal three often aren't, because they concern who owns the core asset, and that's not something a price adjustment resolves. That's why the ranking exists: your prep time should go to the fatal items first, since they're the ones a room can't route around.
Almost never at the pitch — that's the trap. A handshake happens on the story; the flags surface weeks later in diligence, after the term sheet, when your leverage to renegotiate has evaporated. Finding them yourself, before the room opens, is the entire point of prep.
The mechanics (invention-assignment, post-money SAFEs, 409A) are US-market. The categories — do you own the IP, does the cap table tie, is the revenue real — are universal to any diligence. For anything jurisdiction-specific, confirm with your own counsel; this is educational, not legal advice.
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