The craft
Red flags
The warning signs that experienced angels act on, separated from the ones that merely look alarming — and what each one usually turns out to mean.
Realistic time Ongoing, throughout the process
Most red flags are not about the business. They are about behaviour: how founders answer a question they do not like, what happens when you ask for a document twice, whether the story stays the same across three conversations. Business problems are usually fixable and behavioural patterns usually are not.
The second thing worth saying is that many things that look alarming are not. Missed projections, a co-founder departure handled well, a pivot, a bad quarter, a competitor raising more money — these are ordinary features of early-stage companies. Treating them as disqualifying leaves you investing only in companies whose problems you have not found yet.
The list below separates the two. The first group is about how founders behave, and those signals are the ones that most reliably predict trouble. The second is about the company, and is more contextual.
01
Behavioural signals — the ones that matter most
Inconsistency across conversations is the strongest single signal. Ask the same substantive question in three different meetings, in slightly different forms. Founders describing something real describe it consistently; the details vary and the substance does not. Material shifts in the answer are worth pursuing directly.
Evasiveness about specifics is the second. A founder who answers a precise question with a general statement, twice, is usually avoiding something. This is distinct from not knowing, which is fine and easily distinguished — "I do not know, I will find out" is a good answer and a very different one from a change of subject.
The third is how they talk about people who have left. Former co-founders, departed employees and lost customers are all tests. Founders who describe every departure as the other person's fault are telling you what they will say about you.
Check
- Ask the same key question in three separate conversations.
- Note any request for information that goes unanswered twice.
- Ask why the last person to leave the company left.
- Ask what they got wrong recently, and listen for whether the answer has substance.
- Check whether the founders can describe a disagreement between themselves honestly.
02
Structural red flags
These are facts about the company rather than the people, and most are discovered by asking rather than by analysis. Each one is either fixable now or permanent, and the distinction is what determines whether it should stop you.
A departed co-founder with a large vested stake, missing IP assignments, no founder vesting, and undocumented equity promises are the recurring four. All are cheap to fix at pre-seed and close to impossible at Series A, which is why they are worth raising early and directly.
Check
- A former founder holding a substantial stake with no ongoing role.
- IP not assigned by contractors, or created while employed elsewhere.
- No founder vesting, and reluctance to introduce it.
- Equity promised in offer letters or emails and never granted.
- Convertible instruments outstanding that were not mentioned until asked.
- For US companies: 83(b) elections never filed.
03
Commercial red flags
Metric substitution is the most common: being shown a number that is not the number that matters. Downloads instead of active users, sign-ups instead of paying customers, pipeline instead of revenue, GMV instead of net revenue, net retention without gross retention. In each case the substitution points at the weaker figure underneath.
The second is a single point of dependency presented as a strength — one customer, one channel, one platform, one supplier. Concentration is normal early and it is a risk regardless, and founders who describe it as validation have not thought about what happens if it goes.
The third is a competitive answer of "no one is doing this". In almost every case somebody is, or customers are solving the problem another way, and a founder who cannot describe the alternative has not spoken to enough customers.
Check
- Is the metric being shown the one that matters, or its more flattering neighbour?
- What proportion of revenue comes from the largest customer?
- Is growth dependent on one channel whose cost is rising?
- Can the founders describe what customers do today instead?
- Does the burn rate match the stated plan and headcount?
04
Process red flags
How the round itself is run is informative. Extreme time pressure with no explanation, terms that change late in the process, a data room that arrives incomplete after repeated requests, and a valuation that has moved substantially in weeks without a corresponding change in the business are all worth noticing.
Urgency deserves particular scepticism. Real rounds do close and allocations do fill, and manufactured deadlines are also a standard technique. The reasonable response is the same in both cases: ask what the deadline is driven by, and treat an unwillingness to explain as an answer.
Check
- Is there time pressure, and is the reason for it specific and checkable?
- Have the terms or the valuation changed during the process, and why?
- Did the requested documents arrive complete, or in fragments?
- Who else is investing, and will the founders let you speak to them?
- Is the lead investor who the founders say it is? Confirm it.
Stop and think
Red flags
- The same question answered materially differently in different conversations.
- A document requested twice and not provided.
- Every departure from the company explained as somebody else's fault.
- Metrics substituted for their less flattering neighbours.
- Manufactured urgency with no checkable reason behind it.
- A valuation that moved substantially with no change in the business.
- Reluctance to introduce you to a single customer or co-investor.
Take these into the room
Questions to ask the founders
- Why did the last person to leave the company leave?
- What is the most disappointing number in your business right now?
- What did you believe six months ago that you no longer believe?
- Who else is in this round, and may I speak to one of them?
- What is driving the timeline on this round?
- What would your toughest customer say about you?
- What have I not asked that I should have?
From the decoder