Every SaaS pitch deck we see today has the same three letters: PLG. Product-Led Growth has become the default claim for any founder seeking to signal capital efficiency and a modern GTM motion. But as advisors who conduct deep due diligence on these companies, we know that most are simply giving a new name to an old tactic: a free trial.
A true PLG company is architected differently from the ground up—in its C-suite, its roadmap, its compensation plans. Overlooking these foundational, often qualitative, signals is a common and costly mistake in diligence.
Here are five of the most critical red flags we look for beyond the numbers on a spreadsheet.
Red Flag #1: The Siloed C-Suite In the meeting, ask the Chief Product Officer to explain the company’s revenue model and key business drivers. Then ask the Chief Revenue Officer to explain the product's activation funnel. If you get blank stares or fumbled answers, you've found a critical flaw. In a true PLG company, Product and Revenue are two sides of the same coin. A CPO who can’t talk about revenue or a CRO who can’t talk about activation is a sign that the organization is still operating in traditional silos, no matter what the pitch deck claims.
Red Flag #2: A Sales-Led Roadmap in Disguise Ask the founder: "Walk me through how the last three major features on your roadmap were prioritized." If the answer for each is "our biggest customer wanted it" or "it was to close the XYZ deal," you are looking at a sales-led company with a product team that functions as a feature factory for the enterprise sales team. A PLG roadmap is dominated by data-driven bets on what will improve activation, conversion, and retention at scale.
Red Flag #3: Mismatched and Misaligned Incentives This is a fatal flaw you can often find by asking one simple question: "Can I see your sales and marketing compensation plans?" Look for marketing teams bonused on generating sheer volume of MQLs (Marketing Qualified Leads) instead of PQLs (Product Qualified Leads). Look for sales compensation that pays a flat commission on a deal, regardless of whether it came from a product-qualified user who was ready to buy or a 6-month, outbound sales slog. Misaligned incentives guarantee a company will never successfully execute a PLG motion.
Red Flag #4: "Product-Led" without Product Ops A PLG engine runs on data instrumentation, experimentation (A/B testing), and workflow automation. These things don't happen by magic. If a company claims to be data-driven but has no dedicated resource or team—whether it’s called Product Ops, Growth Engineering, or a Rev Ops team with deep product analytics expertise—it’s a sign that their "data-driven" culture is aspirational, not operational.
Red Flag #5: The CEO's Language Listen carefully to the language the founder and CEO use throughout the pitch. Do they talk about their "sales funnel" or their "user journey"? Do they celebrate closing a single big logo more than they celebrate a 5% increase in their activation rate? Do they refer to users as "leads" or as "members" of their community? Their vocabulary is a direct window into the company's true cultural center of gravity.
From Red Flags to a Full Framework These qualitative signals are the canaries in the coal mine. A truly rigorous diligence process combines these insights with a deep dive into the quantitative signals of PLG health.
Our new guide, "From Sales-Led to Product-Led," includes our complete diligence framework for investors, detailing the specific cohort analyses and unit economic models you must request to verify a company's claims. Download the Full Investor Diligence Guide To see these principles in action, download our Investor Memo Teardown. We analyze a fictional-but-realistic PLG startup's memo, highlighting the key strengths to look for and the hidden risks to avoid.
