* You could burn a bridge if you are not careful. It is a small world after all in certain domains.
* Open yourself back to criticism, person starts defending themselves, worse they go on twitter about it.
* You help them too much so now they compete better with someone you invested with. Telling someone they screwed up would be giving them an edge. Sometimes investors might not want that. It is better to provide dismissive or false feedback ("you guys are awesome, it is me not you, I just don't have time, keep working hard on this"). Basically give them false feedback so they don't realize how badly they are fucking up.
* It creates a negative social vibe. Some people are just averse to negative public display of emotions. It rattles their nerves too much, regardless of how it starts or who causes it.
* You get to feel better (this is the most important but people forget). You are a teacher giving feedback to an inexperienced person. It makes you feel good and smart. This is an egotistical reason to do it.
* You like the person so you want to help them. Maybe you hope they accept the feedback, fix the issues and you come back to you. Note this involves believing in them to start with. This is an altruistic reason.
In general the downsides are more risky than the upsides. So people will choose not to give negative feedback.
In Japanese, "We will consider it" or "kentou shimasu" (検討します) literally means to investigate and attack from its Chinese roots and is a way to signal distance.
If you are in early stage talks and if they are serious you will get a request to sign an NDA or some form of binding contract.