Conduct a thorough investigation of the identified issues to understand their origin and impact. Then, openly communicate your concerns with the founders, assessing their willingness to address them. If the risks can be mitigated, consider adjusting your investment terms, like requesting warranties, protective clauses, or different valuation metrics, to balance opportunity with caution.

Red flags aren’t an automatic dealbreaker for us- but they do shift the conversation. When something pops up in due diligence, we lean in, not out. We take the time to understand the root cause, and more importantly, how the founders respond. Are they transparent? Open to feedback? Willing to make hard decisions? At Pocket Fund, we’ve found that how a team handles pressure says more than a perfect data room ever could. Sometimes we’ll restructure the deal or build in protections- but if the core vision and integrity are strong, we stay at the table.

Red flags during due diligence aren't necessarily dealbreakers—they're conversation starters. It's all about context, communication, and creativity. Dig deeper, talk transparently with founders, and tweak terms to reflect the risk. Smart investors don’t walk away—they walk in wiser. #VentureCapital #DueDiligence #StartupInvesting #InvestorInsights

The first step is to get clarity: dig deeper into the issue, whether it’s around finances, team dynamics, unclear product-market fit, or legal matters. Sometimes what looks like a red flag is just a gap in communication — other times, it’s a dealbreaker in disguise. The key is transparency. Bring your concerns to the founders directly and see how they respond. Are they open, honest, and solutions-focused? Or defensive and vague? That reaction alone tells you a lot. If the core fundamentals are still strong but risks remain, consider negotiating terms that protect you — like staged investments, board observation rights, or extra reporting. But if the red flags go to the heart of trust, ethics, or viability, be willing to walk away.

Great post! 🚩 Due diligence is where the real story unfolds—and red flags aren't always stop signs, sometimes they're just caution lights. In my experience, the key is distinguishing between fixable flaws and fundamental flaws. Transparency from founders is huge—if they're defensive or evasive, that’s a red flag *on top of* the red flag. 🧐 I also bring in domain experts to stress-test assumptions, especially if the red flag is technical or regulatory. Ultimately, it’s about balancing risk with vision—sometimes red flags are just growing pains in disguise. 📉➡️📈 Curious to hear how others weigh these trade-offs!