JSVHQIn founder-led deals, diligence teams often treat the cap table as source of truth and side letters as footnotes. That order is backwards when economics, information rights, or transfer restrictions live only in the letters.
What breaks in practice
- Economic rights — liquidation preferences, catch-ups, or fee rebates promised in a letter but invisible on the table.
- Transfer / ROFR — restrictions that block a clean secondary or drag along a buyer the model ignored.
- Information asymmetry — one investor gets board materials or KPI packs; others underwrite from the same CIM and miss it.
- Amendment maths — a “majority” that looks fine on the table fails once letter consent thresholds stack.
Diligence sequence that holds up
- Inventory every side letter, amendment, and email confirmation that changes economics or control.
- Map each promise back to a named security and a named holder — not to “the Series A.”
- Re-run waterfall and governance scenarios with letters on, then with letters stressed (sale, down round, founder exit).
- Escalate conflicts before exclusivity hardens; cure language is cheaper than a mid-process retrade.
Related-party revenue and multi-residency exit issues compound this. Side-letter conflicts are a Due Diligence problem first — Structuring only after the rights map is honest.
Bottom line: if the letter and the table disagree, believe the worse case for the buyer until counsel proves otherwise.