With so many tech startups and innovative small businesses entering the market these days, this is an exciting time to be an entrepreneur. Savvy investors have made small fortunes by investing wisely in up-and-coming businesses with big ideas and talented teams of budding executives. But for every one of these success stories, you can find five more from people who have lost money by carelessly investing in doomed business endeavors.
In many cases, these unfortunate mishaps occur when investors fail to do their due diligence before committing their resources to a company. They might be so enamored with the company’s good ideas that they fail to notice signs of financial trouble or ethical concerns. Or, they might fail to realize that the company’s executives have been involved in failed or fraudulent business ventures in the past. By conducting a thorough due diligence investigation in advance, investors can avoid many of these pitfalls and increase their chances of seeing positive returns on their investments.
So what does this due diligence investigation include? The scope of the investigation may include, but is not limited to the following:
- Resume verification to confirm the credentials of the management team
- Review of past criminal and civil litigation against the company and its executives
- Identification of potential conflicts of interest
- Review of the company’s finances and business plan
- Investigation of the company’s corporate affiliations
- Survey of past judgements and liens, bankruptcies and legal allegations.