The Dealing Is the Tell

Every deal that pushes the edge carries a named risk. Naming it does not protect you. When it arrives, the dealing is the tell, and the tell is where the blame goes.

I sail. You read the forecast, you decide to go out, and after that the sea decides the rest. You deal, or you do not.

I once backed a company building a lens that could correct itself: two rigid lenses, liquid between them, and a pump to adjust it. Everything rode on the seal, and we knew it. We backed it anyway, because the thesis was to keep our customers seven to ten years ahead of the commercial world. The customer did not need a finished device. It needed someone who could judge the bet, and honest people to make it work. A flagship phone today needs three lenses to do what that one could. I had worked in the optical industry and I was a photographer, so I knew glass. The ability to judge came before the bet. The technical lead on the deal was solid, and the engineers were good. The theory held. The seal did not: the liquid was not held between the lenses, and the pressure on it varied as the focus changed.

What I learned about them came when they could not meet the deliverable. They called. They told me the truth, and they did not back away. They did not say someone else had let them down. They said they had missed, and that it was theirs. They explained how it happened. If they had not called, a colleague and I would not have considered flying out. They worked with integrity, so we went and sat with the people. They felt bad. They knew what had happened, and a second verdict from us would have added nothing. Why pile on?

They figured out how to fix the seal. They had signed a deal, and they worked overtime to deliver on it. The recovery was their time and their work. Ours was to support them, extend the timeline and manage the customer.

That is the fall and the getting up. Grace, in a company, is a second chance. It is what lets a fall be recovered from, and it goes to the founder who owned the first try that did not work, explained it, and did the work to deliver. A pitch shows the plan. A failure shows the person, and the investor too. Expertise did not protect any of us, and neither did seeing the risk coming. What a good funder is buying is the sentence "I messed up," said before anyone asks, in place of "they did not deliver."

For an investor, the diligence question is simple. If the thesis is the edge, expect the named risk to arrive. Ask a founder about the worst thing that went wrong, and listen for where the blame goes. A founder who says "I missed it" has told you how the next failure will be handled. A founder who says someone else did not deliver has told you that too. Then decide, before you write the check, whether you will give the second chance. You will be tested on that as well.

The lens company, the thesis, the founders, the visit and the author's background in optics and photography are the author's account and cannot be independently sourced. This is the author's account and is not investment advice.