This article highlights ways you can perform due diligence as an investor. He explains how you can do it with a company with a long financial history or how you can do it with a start-up.
ContentsDoing Due DiligenceLegal MattersAssessment via Social MediaRisk AssessmentWhen it comes to individual investor due diligence, angel investors and venture capitalists should be aware that some factors matter more than others, depending on the extent of the company's history. .
Also, when a business is new and just starting to make a name for itself, the financial history will likely be insufficient to observe, with emphasis on investigating the people involved in the business. Are they good leaders?
This lack of company history means that any due diligence focus should shift to investigating the backgrounds of the people behind the company.
You will need to determine if these people are strong leaders who will take the startup to the next level. You should include other essential aspects in the survey, such as their social media presence, criminal record, education, etc.
Before we assess what you should be looking for as a start-up and start-up business investor, let's start by defining due diligence. Investopedia states that due diligence is a "common practice" consisting of investigations, audits, and reviews "performed to confirm the facts of a matter under investigation."
Investors generally investigate companies with long lives and histories by reviewing their financial records "before entering into a proposed transaction with another party", thus it may be more difficult to perform due diligence with start-up companies.
One of the most important conclusions you need to make during due diligence is whether or not the person you are investing in aligns with your goals and can help you achieve them.
Investopedia points out that an important step when conducting due diligence with a company is to assess potential risks, which is even more important when investing in a startup.
When evaluating a start-up company, you need to discern whether or not there might be future legal repercussions for their actions while also being mindful of "legal or regulatory issues".
Additionally, you should be able to conclude whether or not you believe in the startup and its product. You should be able to make a reasonable guess about the company's potential performance. You can do this with a criminal background check of the most important parties involved in the business.
If you wish, you can check their presence on social networks and deduce if their opinions correspond to yours, as well as the current societal climate.
Essentially, you can use your character judgment and "worst-case scenario" assessment skills.
Additionally, your due diligence should include confirming your background, such as the CEO or other key member of a new business. You will be able to get an idea if the CEO is the right leader that you will trust.
It's not always necessary to get a degree in a related field to build a successful business; However, if one claims to have a degree from an accredited institution, it may be a good idea to confirm if this is true. Old-fashioned honesty can go a long way when investing your money in a start-up business.
Risk assessment and background checks are important when you are an individual investor doing due diligence at an early and initial stage.
You can get perspective on risk assessment by analyzing how a company makes decisions, who is involved, who they are, and whether or not you believe in their product. You can perform background checks by confirming their training and looking for information that suggests a criminal or dishonest background.
