The Company: Vertical SaaS for commercial construction project management. $1.8M ARR, 85% gross margins, growing 80% YoY.
The Outcome: 34 investor meetings over 5 months. 2 term sheets, both rescinded in diligence. Founder paused the raise.
Unit economics couldn't survive scrutiny. Two term sheets rescinded during diligence.
The Failure Point: Unit economics couldn’t survive scrutiny.
On the surface, the numbers looked fine. $18K ACV, 12-month payback, 110% NRR. But diligence revealed the problem:
- CAC was understated. The founder wasn’t including the cost of the 6-month pilot period where the company provided free implementation support. True CAC was 2.3x reported.
- NRR was inflated by one account. Remove their largest customer’s expansion and NRR dropped to 94%.
- Churn was masked by timing. Two churned customers hadn’t been removed from ARR calculations because their contracts technically ran through Q2.
Your internal metrics aren't your diligence metrics. Before you raise, stress test every number as if a skeptical associate will audit it. Because they will.
The Fix: The founder is now re-raising with clean numbers. Lower, but defensible. Early signals are better — investors trust the honesty.