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Why Startup Deals Fail: It’s Not Just About AI, It’s About Governance

Update The Cost of Silence in Startup Deals In the ever-evolving landscape of the European startup ecosystem, a recent occurrence highlights a critical issue facing founders looking to secure acquisitions. A promising startup, equipped with robust traction and a clean capitalization table, lost a significant deal not due to its product or potential, but because of a lack of active governance and communication during the due diligence phase. When confronted with a critical question regarding the EU AI Act, silence echoed in the boardroom, leading to a swift disengagement from the interested buyer. Why Governance Matters More Than Ever The startup scene has seen remarkable growth, with notable companies like Aleph Alpha and Synthesia leading the charge, yet the incorporation of AI regulation is a game-changer. Founders might be racing towards innovation, but their boards must keep pace. The silence observed during crucial discussions indicates a deeper issue: an absence of engagement can signal to investors that the deal lacks stewardship, creating doubts about the startup's direction and strategy. Building Trust Through Active Engagement It's not essential for every board member to be an AI expert. However, they must be proactive in challenging ideas and exploring risks associated with new technologies. A quote from an astute buyer encapsulates this sentiment perfectly: “If no one’s argued about this internally, they probably don’t know where it breaks.” This perspective underscores the need for boards to exhibit a culture of inquiry, inspiring confidence from potential investors and partners. In conclusion, the failure to engage during pivotal moments can cost startups not just deals but long-term trust from investors. It emphasizes the importance of maintaining an open dialogue within the boardroom, transforming silence into action and assurance. As the startup ecosystem continues to adapt to new regulations, the focus must remain on fostering active governance that embodies both innovation and accountability.