At the seed stage, financials are not the priority. Instead, use the reputation and previous practices of the company principals to inform your investment choices. This process may seem invasive but is essential to protect your investment.
If a degree or diploma is claimed by a founder or other key personnel, it should be verified. This is especially true for regulated business sectors where current registration with a governing body is required to conduct business.
Reputation and Social Media Assessments
Because the company is in the early seed stage, founder reputation plays a large role in the due diligence process. Media and social media should be screened for the founders’ names, businesses and groups they have been associated with, and so on. Any content authored by the founder(s) should be included in this assessment.
The negative reputation of a founder or other key personnel can hobble an otherwise strong business plan. These associations can also reveal a pattern of misconduct in some cases.
Criminal Record Check
Investors should conduct extensive background checks on the company’s founders, management, and any other key personnel. Any information revealed during this process should be carefully considered before proceeding with the investment.
Legal and Financial Review
Any paperwork filed in association with the company should be included in the legal and financial review. This includes state sales tax license(s), partnership agreements, articles of incorporation, and so on. This review should also include any patents, registrations, or licenses associated with your business. Any lawsuits past or current should be revealed during this process.
Financially, the investor should examine the full financial history of the company. This should include any profit and loss, budgets, projections, and other investments under consideration. The company should also have a business plan and should provide any contracts with suppliers and customers.
Any contracts or employment agreements should be examined to protect intellectual property rights. Some business sectors should include protections for trade secrets or non-compete clauses.