What should you do if due diligence uncovers an issue?
Short Answer
Address issues transparently and immediately: disclose the problem, explain your plan to fix it, and don't let it fester. Investors prefer honesty to surprises.
Full Explanation
Common due diligence issues: 1) Founder disputes (one founder claims they own IP, another disagrees), 2) IP problems (you're using OSS without proper licensing), 3) Customer concentration (top customer is 40% of revenue — risky), 4) Unpaid taxes or fines, 5) Undisclosed liabilities (pending lawsuit, warranty claim), 6) Cap table discrepancies (shareholder count doesn't match records). For each issue, the response should be: 1) acknowledge transparently, 2) explain what happened and why, 3) provide a remediation plan with timeline, 4) estimate cost impact. Investors understand that early-stage companies have messiness; they dislike being blindsided. A founder who proactively says "We discovered we didn't properly license this OSS — here's our remediation plan and £50K budget to fix it" is far more credible than a founder who hopes investors don't notice and then scrambles to explain in the final days of diligence. For cap table issues, clarity is critical: hire a cap table specialist (CapShelf, for example, or your cap table platform's own service) to create a definitive record. For IP issues, work with a specialist IP lawyer to secure proper assignments and clearances. These costs are high but worth it — an IP dispute that kills a funding round is vastly more expensive than cleaning up early.
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