You crushed the pitch.
Investor interest is high.
The term sheet is almost in.
Then comes the due diligence (DD).
And just like that — everything stalls.
Because while you were focused on the deck, your books weren’t ready for the deal.
In our experience working with funded startups, compliance gaps and backend blind spots are one of the top reasons term sheets get delayed, renegotiated, or dropped altogether.
Here’s what founders need to know (but rarely hear).
Real Story: The $500K That Got Stuck
One of our clients — a fast-growing SaaS startup — had a $500K commitment from an international fund.
But during DD, the investor team found:
- TDS notices that weren’t disclosed
- Delays in Form 26Q filings
- Mismatches between expense declarations and actual banking trails
Result?
🔒 Deal paused for 3 months
⚠️ Investor confidence shaken
📉 Valuation renegotiated
All because of issues that could’ve been fixed before the DD process began.
5 Red Flags That Kill Investor Deals at the Last Minute
These are the most common issues that stall or sink funding rounds — especially in seed to Series A stages:
GST Mismatch
- ITC claimed doesn’t match GSTR-2A
- Refunds claimed without reconciliation
- Multiple GSTINs but only partial compliance
Why it’s a problem:
Investors worry about future tax demands + liability hidden in your books.
Unregistered IP or Assets
- Trademarks not registered under the company
- Core IP still in founder’s personal name
- Software licenses not properly documented
Why it’s a problem:
They’re not buying you — they’re buying the IP. If it’s not legally protected, it doesn’t exist in their eyes.
Unclean Cap Table
- ESOPs not documented
- Share transfers not filed with RoC
- Mismatched versions of equity issuance records
Why it’s a problem:
Ownership clarity is non-negotiable in venture deals. Fuzzy equity = red flag.
Fake or Inflated Expense Claims
- Personal expenses passed off as business
- Unsupported reimbursements
- Marketing spends with no invoices or contracts
Why it’s a problem:
This raises governance concerns — especially for institutional investors. If you blur lines now, what happens post-funding?
Vendor-side TDS Defaults
- You’ve paid vendors, but haven’t deducted or deposited TDS
- Show-cause notices pending
- 26AS mismatch
Why it’s a problem:
These trigger regulatory flags and can bring personal liability to directors — something no investor wants to inherit.
What Smart Founders Do Before Due Diligence
They build a clean backend before opening the data room.
Here’s the startup checklist we use for every pre-DD clean-up:
Founder’s DD Checklist:
- GST filings (GSTR-1, 3B, 2A match)
- Income Tax filings + Form 26AS
- TDS returns + vendor compliance
- IP ownership docs (trademarks, source code, licenses)
- Cap table, share certificates, RoC filings
- Statutory registers (register of members, board minutes, etc.)
- Expense ledgers with proof
- Loan agreements or convertible notes
How Pitchers Global “Pre-Cleans” Books for VC Rounds
We act like the investor’s finance team — before they do.
We:
- Audit your tax, legal, and financial compliance stack
- Flag every potential red mark
- Reconcile filings, structure ESOPs, fix GST/TDS mismatches
- Package your data room in investor-friendly formats
The result?
Faster approvals.
Less back-and-forth.
Stronger negotiation power.
Red Flags That Kill Investor Deals – Want Our VC-DD Ready Checklist?
We’ve turned our internal process into a plug-and-play tool for startup founders.
💬 Comment “DD Ready” and we’ll DM you the exact checklist we use to prep startups for investor scrutiny. Get in touch with Pitchers Global today!