Integrity and leadership are hard to measure directly. Diligence looks at observable signals: whether numbers stay consistent, how bad news is delivered, how people are treated and how the founder responds to challenge.
10 min read · Level 3
I do not expect founders to be precise about everything in early conversations, and I would be suspicious of one who was. What I pay attention to is the moment an inconsistency is pointed out: a founder who gets more precise is someone I can work with for a decade, and one who gets vaguer is telling me how the hard board meetings will go.
Observable signals that reflect integrity and leadership:
Signal What to watch Consistency of numbers Do key figures match across the pitch, deck, data room and conversations? Bad news Does the founder raise problems before you find them? Precision Does the founder distinguish facts, estimates and hopes? Response to challenge Defensive, curious or dismissive when a claim is questioned? Treatment of people How does the founder speak about employees, former partners and competitors? Follow-through Are promised documents and answers delivered when promised?
Consistency example.
First meeting: 'We are at 180,000 of monthly recurring revenue.' Deck a week later: 210,000 MRR. Data room: 165,000 MRR for the latest month.
There may be explanations - different dates, definitions including one-off revenue, a lost customer. The question is whether the founder explains the differences clearly when asked, or whether each explanation creates another inconsistency.
Because investors will rely on this founder's information for years, through board meetings and updates. Early inconsistencies usually become larger, not smaller.
Leadership shows in the same signals: founders who hide bad news from investors often hide it from their own teams.
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Two responses to the same question.
The investor asks why MRR figures differ across meetings.
Founder A: 'Good catch. 210,000 included a one-off 45,000 implementation fee I should not have counted. Recurring is 165,000; the 180,000 was an estimate before a customer downgraded. Here is the monthly breakdown.'
Founder B: 'The numbers are all correct depending on how you look at it. We are growing fast, so they change daily.'
Founder A made mistakes and corrected them precisely. Founder B avoided the question. The investor's confidence in Founder A's future reporting is much higher, despite both starting from the same inconsistency.
Dismissing inconsistencies as normal startup imprecision without asking for an explanation and watching how it is given.
Record the same metrics from each conversation and document.
Request a clear explanation with supporting data.
Observe whether problems are raised before you find them.
Note whether the founder engages, corrects or deflects.
Throughout diligence on any founder.
Do not treat honest mistakes that are clearly explained and corrected as integrity problems.
Securities regulators, including the U.S. SEC, have brought enforcement actions against private company founders for misleading investors about revenue, customers or technology, and the published complaints often describe inconsistencies in figures presented to different investors over time.
Inconsistent numbers across conversations are one of the earliest observable warning signs.
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