Recent history has given us stark examples of what happens when founders prioritize image over honesty — from Elizabeth Holmes and Theranos to Sam Bankman-Fried and FTX. These cautionary tales underscore a crucial lesson: A lack of transparency can lead to catastrophic outcomes, not just for the founders, but for employees, investors, and customers too. I've been building and leading tech companies for more than 30 years, and I’ll be the first to admit that being transparent and honest isn't always easy. It can mean admitting mistakes, delivering bad news or revealing vulnerabilities — yet cultivating this value in yourself as a founder is essential. In this article, I'll share my insights on why transparency matters and how to make it a cornerstone of your leadership style. The benefits of transparency as a startup founderBeing transparent as a founder isn't just about doing the right thing — it's a strategic advantage.  When you're open and honest about your company's challenges and successes, you build trust with your investors and board members. This trust is critical when you need their support during tough times or when making important decisions. Transparency also creates a culture of honesty and accountability within your organization. When employees see leadership being truthful about challenges, they're more likely to do the same. This creates an environment where problems are addressed quickly rather than hidden away, where they often fester and grow. Being honest also allows for more agile decision-making. By keeping everyone informed, you can pivot more quickly when needed. I've found that investors are far more receptive to changes in strategy when they've been kept in the loop about the challenges that necessitated the shift. Remember, your ability to adapt can be the difference between success and failure for your startup. The right approach: Be honest about problems Transparency with investors is crucial, even when it's uncomfortable. There's often a temptation to conceal issues and cross your fingers you can solve them before anyone notices. I've been there myself.  At Arrowpoint, we once took down a third of the internet, a moment that tested my resolve to transparency. I was embarrassed and concerned over the potential consequences to our business, but remained steadfast to addressing challenges directly and with complete transparency. It wasn’t easy, and resulted in significant efforts with customers, partners, stakeholders and board members to regain their confidence and trust. As cliché as it may sound, in my experience honesty has and always will be the best policy.   Investors are partners in your journey, and they deserve to know when there are bumps in the road. More often than not, they can provide valuable guidance or resources to help navigate challenges.  Remember, they've likely seen similar issues in other companies and can offer a perspective you might not have considered. Being upfront about problems also builds trust and credibility, which are invaluable in the long run. The dangers of hiding issues Concealing problems from your investors and board can lead to what I call "strategic lockdown." This happens when a company becomes so committed to its initial plan — the one they've sold to investors — that they're reluctant to make necessary changes, even when market conditions or other factors demand it. I've seen this play out in numerous startups. They raise a significant amount of money based on a particular vision or strategy, and then they feel trapped by those promises. They're afraid to go back to investors and say, "Hey, remember that thing we said was great? Well, it's not working out." This fear can paralyze a company, preventing it from making crucial pivots or addressing fundamental issues. The irony is that hiding issues often leads to much bigger problems down the line. What might have been a manageable challenge can snowball into an existential threat if left unaddressed. I've learned that it's always better to face problems head-on, even if it means having some uncomfortable conversations. Your company's ability to adapt and evolve is far more valuable than maintaining the illusion that everything is going according to plan. How one founder chose honesty over obfuscationI invested in an AI company where the CEO exemplified the kind of transparency I'm advocating for. He consistently came to the board with honest assessments, even when the news wasn't good. He didn't sugarcoat challenges or try to spin setbacks as victories. Instead, he laid out the facts, good and bad, and presented his plans for addressing issues. Unfortunately, his honesty wasn't always well-received. The board, particularly some new investors from hedge funds who weren't accustomed to the ups and downs of startup life, grew increasingly frustrated with the steady stream of "bad news." Despite the CEO's positive track record and the fact that he was doing exactly what a good leader should do, he was eventually fired. Here's the kicker, though: While losing his position was undoubtedly a setback, his reputation for integrity remained intact. In the years since, that honesty has served him well. He's gone on to lead other successful ventures, backed by investors who value his transparency and trust his judgment. The lesson here is clear: Telling the truth can sometimes have negative consequences in the short term, but it's always the right thing to do.