Investor and Board Designee Liability Risks in Venture Capital Financings: Lessons from Diem-II v. Maisonette

On April 6, 2026, the Delaware Court of Chancery in Diem-II, LLC et al. v. Maisonette Inc. et al. addressed several recurring issues of significance in a typical start-up venture capital financing: board liability for company representations in a stock purchase agreement and “pitch deck”; the sufficiency of knowledge allegations against directors and officers based on information in board materials; and attribution of board designee knowledge and actions to the appointing investor for purposes of establishing investor liability for conspiracy and aiding and abetting. The Court’s analysis offers important guidance for start-ups and their investors in connection with fundraising activities and solicitation of stockholder consents.

Facts

Maisonette Inc. (“Maisonette”) is a Delaware corporation operating an e-commerce platform. Plaintiffs Diem-II, LLC, Diem-III, LLC, and Diem-VIII, LLC (collectively, the “Diem Entities”) are managed by Diem Investments, an alternative asset management firm. Between December 2021 and April 2024, the Diem Entities invested approximately $13.3 million in Maisonette in three transactions: (1) an $8 million convertible promissory note executed in December 2021 (the “Note”); (2) a series C preferred stock purchase agreement in February 2022, in which the Note converted into equity and the Diem Entities invested an additional $2.4 million in cash (the “Series C SPA”); and (3) a series D preferred stock purchase agreement in April 2024, under which the Diem Entities invested an additional $2.9 million and secured a board seat and budget approval rights (the “Series D SPA”).

In connection with the Diem Entities’ evaluation of the initial investment opportunity, Maisonette provided them with a slide presentation containing the company’s historical and prospective financial information and financial metrics depicting favorable unit economics, including a lifetime value to customer acquisition cost ratio of 3.2x for 2020 and 2021, with a projected pathway to 4.0x or greater (the “Pitch Deck”). The materials indicated that Maisonette could become profitable in 2024, with an anticipated IPO in 2025.² The Diem Entities alleged these metrics were central to their investment thesis. 

In November 2021, while the Diem Entities were evaluating a potential investment, Maisonette’s board met to discuss the company’s operations and financing developments. The materials distributed in advance of that meeting included a slide titled “Assessment of Finance Capabilities” describing significant limitations in the company’s financial reporting (the “November 2021 Board Deck”). The slide noted that data sources for financial reporting were “directionally correct but not entirely accurate,” that “private label accounting [was] non-existent,” that the company relied on QuickBooks with “limited capabilities,”³ and that the company had not yet undergone an audit. Despite that, the directors and CFO approved distribution of the financial statements and Pitch Deck to prospective investors, including the Diem Entities. Without knowledge of the board discussion or analysis in the slide, the Diem Entities purchased the Note.

On February 2, 2022, the company and Diem Entities executed the Series C SPA, which included company representations about its financial statements,⁴ the absence of litigation, and a “10b-5” representation,⁵ and the Diem Entities funded their series C commitment. After closing the series C financing, the company restated its financial statements for fiscal years 2020 and 2021.

In April 2024, still unaware of the financial reporting and accounting issues addressed at the board meeting more than two years earlier, the Diem Entities and company entered into the Series D SPA, which included the same company representations about its financial statements, the absence of litigation, and “10b-5” representation.

After the Diem Entities appointed their designee to the board at the closing of the series D transaction, they learned that, in 2022, Maisonette had restated its financial statements, resulting in materially lower net revenue, gross profit, gross profit margin, and EBITDA than had been represented in the Pitch Deck.⁶

The Diem Entities also learned that, at the time of their investments in the company’s series C and series D preferred stock financings, the company’s board member appointed by an investment fund (the “Fund”) and , the company’s largest stockholder, was a defendant in a dozen federal securities lawsuits arising from the initial public offering of another of the Fund’s portfolio companies, lawsuits that had not been disclosed to the Diem Entities when they invested. In fact, the company had represented in both the Series C SPA and Series D SPA that there was no lawsuit pending against any company director.⁷

The Fund’s board designee had a dual role as a Maisonette director and as the CEO of the Fund’s operations. According to the Diem Entities, the board designee negotiated directly with the Diem Entities on behalf of both the Fund and the company, and the Fund touted its own participation in funding rounds to encourage the Diem Entities’ investments. 

On March 31, 2025, the Diem Entities filed a complaint asserting claims for fraud, civil conspiracy, breach of contract, breach of fiduciary duty, aiding and abetting, equitable fraud, statutory securities violations, conversion, and unjust enrichment against Maisonette, five of its directors, the CFO and the Fund.⁸ The defendants filed a motion to dismiss all claims.

Court’s Analysis

The Court denied the motion to dismiss a majority of the claims. The Court upheld the fraud claim, holding that the Diem Entities adequately pleaded there were false statements with respect to each of the three transactions—the purchase of the Note, the series C preferred stock, and the series D preferred stock—because the company provided misleading financial statements without disclosing the issues addressed at the November 2021 board meeting or the restatement of the company’s 2020 and 2021 financial statements until 2024. The Court held that the mere existence of subsequently restated financial statements was sufficient to plead that the prior financial statements were materially false. While defendants argued that any misstatement was immaterial, the Court declined to make a materiality determination at the pleadings stage. The Court emphasized, however, that representations about a company’s financial statements are “one of the most important representations in any acquisition agreement,”⁹ suggesting the Diem Entities would likely be able to establish materiality at trial. 

The Court also held that the Diem Entities pleaded sufficient allegations of knowledge—although “barely” so¹⁰—based on the November 2021 Board Deck, which demonstrated the director defendants and CFO had actual knowledge that the company’s financial data was “not entirely accurate” when they approved the financial statements, the metrics, and the projections for the Pitch Deck. The Court also stated that directors who “reviewed, adopted and approved” documents containing misrepresentations could be deemed to have “made” those misstatements.¹¹ The Court further held that “it is reasonably inferable that defendants intended to induce reliance on the representations because they appeared in a written agreement.”¹²

The Court also allowed the breach of contract claims to proceed, concluding that the failure of the company to disclose the litigation against the Fund-appointed director in the Series C SPA and Series D SPA was sufficient to plead a breach of the absence of litigation and 10b-5 representations in those agreements. The Court also held that the Diem Entities adequately pleaded damages under a “benefit of the bargain” theory—the Diem Entities “received [equity] interests worth substantially less than they would otherwise have been” absent the breaches. Further, while not ruling on the issue, the Court intimated it would also explore at trial whether the company had breached its financial statements representation. 

The breach of fiduciary duty claim likewise survived. The claim alleged that the Maisonette directors breached their duty of disclosure to the company’s stockholders by failing to disclose the company’s violation of the absence of litigation representation when it solicited stockholder consent to amend the company’s certificate of incorporation. The Court instructed: “When directors request discretionary stockholder action, they must disclose fully and fairly all material facts within their control bearing on the request.”¹³ Although not an appropriate determination at the motion to dismiss stage, at trial the Court would determine if the omitted information was material to the stockholders’ consent.

The Court upheld the conspiracy claim, holding there was a reasonable “pleading-stage inference” to support the allegation of a “confederation” between the Fund and the other defendants to commit fraud as part of the convertible promissory note and series C preferred stock financings. According to the complaint, the Fund learned of the company’s inaccurate financial statements through its board designee and it conspired with the company’s directors and officers to induce the Diem Entities’ investments to prop up the company and “protect”  the Fund’s prior investments. The Court noted several facts supporting this allegation: the company marketed the Fund’s  investment to third parties when it originally sought investment from the Diem Entities;  the Fund purportedly negotiated the terms of the series C financing directly with the Diem Entities through its board designee; and the Fund’s designee allegedly “oversaw Maisonette’s fundraising efforts” as well as the creation of the Pitch Deck, financial statements, and series C and series D transaction documents. With these allegations, the Court could not rule out the possibility that the Fund-designated director was acting “at the behest of” the Fund in committing the alleged wrongs.¹⁴ Thus, the Court found the conspiracy allegations sufficient to survive the motion to dismiss.

The aiding and abetting breach of fiduciary duty claim against the Fund also survived because the Diem Entities had sufficiently alleged the Fund’s knowledge of the other defendants’ breaches and knowing participation in them. The Court held that the Fund’s board designee’s knowledge of the board-level discussions—including the November 2021 Board Deck acknowledging data inaccuracies—was imputable to  the Fund as the entity that designated him to serve on Maisonette’s board. Citing Calumet Capital Partners,¹⁵ the Court held that a board designee’s participation on behalf of a designating entity can satisfy the substantial participation element.¹⁶

Key Takeaways

1. Ensure appropriate alignment between external communications and internal deliberations: Fundraising, the lifeblood of venture-backed companies, raises heightened liability considerations for directors and officers, particularly concerning alignment between internal deliberations and board materials and external communications. Strong internal controls and disclosure processes are essential to ensuring that alignment. In litigation, board minutes, internal slide decks, and other board documents will be scrutinized for evidence that insiders knew (or should have known) of misstatements or omissions in external communications. If a start-up board or management team questions the accuracy of company financial statements, the board should proceed with caution to ensure proper internal recordation and appropriate external messaging, including to prospective investors. The board should also maintain an appropriate feedback loop to ensure prospective investors have all material information about the company before closing. Any discrepancies between internal deliberations and external communications can give rise to fraud claims and may also implicate federal and state securities laws. 
2. Manage information flow between appointing investors and board designees: Funds or institutional investors that designate individuals to a portfolio company’s board should bear in mind that their designee’s knowledge and actions may be imputed to the appointing investor. Institutional investors with board designees should review their processes and procedures for information flow between their board designees and the appointing investors. Not all information learned by a board designee can or should be shared with the appointing investor given fiduciary duties under Delaware law. This also applies to company fundraising activities. Investors should be mindful of whether and how they and their board designees participate in the portfolio companies’ fundraising efforts and investor communications. Any actual or perceived lack of an information “wall” between the board designee and appointing investor may expose the investor to liability. In Maisonette, the Fund’s status as the largest stockholder, its financial motive, and its board designee’s direct negotiations with a potential investor were sufficient to support claims for civil conspiracy and aiding and abetting at the pleading stage. 
3. Include anti-reliance provisions to foreclose fraud claims: Under Delaware law, oral or written statements made (or deemed to be made) by a company to investors outside the “four corners” of an investment agreement can give rise to fraud and other claims. M&A practitioners are typically aware of that risk and draft definitive agreements to foreclose fraud and similar claims by including appropriate “anti-reliance” language.¹⁷ While inclusion of anti-reliance language in Maisonette’s Series C SPA and Series D SPA would not have eliminated all claims in that case, it would have foreclosed several of them.   
4. Disclose all material information when soliciting stockholder approval: As seen in Maisonette, private company directors and officers can face breach of fiduciary duty claims premised on insufficient disclosures in stockholder solicitation materials. When soliciting stockholder consents for corporate action, particularly alongside an investment round, companies should treat the process as a separate disclosure exercise, not merely as an extension or repetition of a representation or warranty in the stock purchase agreement. Stockholders must be provided with all information material to the matter. Omission of information that a reasonable stockholder would consider important to their decision exposes the company, directors, and officers to the risk of litigation that, even if ultimately defeated, may survive a costly motion to dismiss.

¹ Based on the opinion of Vice Chancellor David in Diem-II, LLC v. Maisonette Inc., C.A. No. 2025-0338-BWD (Del. Ch. Apr. 6, 2026). Claire Joyce, an O’Melveny law clerk, contributed to the content of this alert.
² Id. at *4.
³ Id. at *5 (quoting the November 2021 Board Deck, “Assessment of Finance Capabilities” slide).
⁴ The financial statements “fairly present in all material respects the financial condition and operating results of the company as of the dates, and for the periods, indicated therein. . . .”
⁵ “No representation or warranty of the Company contained in [the] Agreement . . . contains any untrue statement of a material fact or, to the Company’s knowledge, omits to state a material fact necessary in order to make the statements contained herein . . . not misleading in light of the circumstances under which they were made.”
⁶ Id. at *10-11.
⁷ Id. at *7, 9.
⁸ Id. at *1.
⁹ Id. at *19 (quoting Abry Partners V, L.P. v. F & W Acq. LLC, 891 A.2d 1032, 1042 (Del. Ch. 2006)).
¹⁰ Id. at *29.
¹¹ Id. at *25-26.
¹² Id. at *23 (citing Prairie Capital III LP v. Double E Holding Corp., 132 A.3d 35, 62 (Del. Ch. 2015)).
¹³ Id. at *36 (quoting Dohmen v. Goodman, 234 A.3d 1161, 1168 (Del. 2020)).
¹⁴ Id. at *43.
¹⁵ See Calumet Cap. Partners, LLC v. Victory Park Cap. Advisors, LLC, 2026 WL 374887, at *18 (Del. Ch. Jan. 29, 2026).
¹⁶ The remaining claims under the complaint received mixed treatment in the Court’s opinion and are outside the scope of this alert. 
¹⁷ An example of such “anti-reliance” language is as follows: “Buyer acknowledges and agrees that, in entering into this Agreement and consummating the transactions contemplated hereby, Buyer has relied solely on: (a) the express representations and warranties of Seller set forth in Article III of this Agreement, as qualified by the Disclosure Schedules; and (b) Buyer’s own independent investigation. Buyer further acknowledges and agrees that Buyer has not relied on any representation, warranty, statement, information, document, projection, forecast, estimate, management presentation, data-room material, or other communication, whether written or oral, except for the express representations and warranties set forth in Article III of this Agreement.” For the Chancery Court’s discussion of anti-reliance provisions, see ABRY Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006).

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Nate P. Gallon, an O’Melveny partner licensed to practice law in California and Amy S. Park, an O’Melveny partner licensed to practice law in California, New York, and New Jersey, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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