A startup with promising potential — strong traction, a clean cap table, and a strategic buyer — seemed set for success, aided by an AI-enhanced narrative that aligned the board. However, during a diligence call, the question arose: “How does this fall under the EU AI Act?” The founder turned to the board, receiving only a vague response with no follow-up or ownership, leaving just last month’s uncaptured board minutes.
Three days later, the buyer withdrew quietly, leaving without drama. Such disengagement reflects a lack of evident leadership at the table.
In 2024, AI is reshaping Europe’s startup scene, with Aleph Alpha raising €500 million, Mistral achieving unicorn status rapidly, and Synthesia transforming content creation. The EU AI Act now makes regulation a key factor in discussions about capital, products, and risk. Founders accelerate, but boards lag behind, leading buyers to walk away when they notice this disparity.
Silence within boards is concerning. In situations where boards fail to understand or question AI-related aspects, buyers assume the worst due to the lack of discussion, as seen when one buyer remarked that a lack of internal dispute suggests a lack of awareness of potential issues.
In deals above €30 to €50 million, governance signals matter. A board’s apparent passivity can make a deal look unstable, regardless of the product’s strength.
The issue is not just regulation; it is about trust. Boards require someone who can connect product, capital, and compliance and who asks necessary questions. AI strategies typically fail due to a lack of scrutiny rather than overreach. For instance, no one probed into how an AI layer was trained or governed, leading a buyer to withdraw.
A board should enact healthy tension — dissent, pushback, and risk ownership — to indicate active governance. If those involved are reading this before an exit, alignment might already be in jeopardy. Founders should welcome friction now, investors should watch for gaps in AI claims versus board documentation, NEDs need to ensure the team remains realistic, and buyers should inquire about candid feedback and dissent.
Startups do not fail because of AI. They fail when no scrutiny questions potential failures. Robust boards not only approve plans but examine them against reality to ensure resilience. If your AI narrative is market-ready, ensure governance is equally prepared. In exits, the unseen risks often lie unspoken.