Accountants check the numbers. The people get checked far less. But investing in a company is first of all investing in the people who run it and own it.
Why check the people
A business plan can be excellent and the technology promising. Still, many investments fail because of something that could have been found in advance: a previous company that collapsed, an open legal proceeding, or a business tie nobody mentioned.
What to check
- Business history: previous companies, roles, and what happened to those companies.
- Legal proceedings: published lawsuits, judgments and insolvency proceedings.
- Negative information in the media and on social networks.
- Conflicts of interest: ties between the shareholders and suppliers, customers or competitors.
- Consistency: whether the story told to investors matches the open information.
Red flags
Not every finding is a reason to walk away from a deal. But some patterns justify stopping to ask: companies that closed and reopened under a different name, a gap between the CV and the open information, partners leaving suddenly, and repeated lawsuits of the same kind.
From my research
When to check
Before signing, not after. A background check done early lets you ask the right questions in the negotiation, and sometimes change the terms.
