Going into business with someone or choosing to invest in a startup entity is a huge step and one that could have serious repercussions if the party (or parties) turn out to be less than scrupulous. Performing personal due diligence (not to be confused with corporate due diligence) does not necessarily mean ordering a credit or criminal background check in the manner that many employers do or doing a deep dive into their corporate or financial records. Rather, by using publicly available information (as outlined below), you can check out your potential partner to determine whether he or she is an upstanding match for you.
Case in Point…
A few years ago a client called me from a Las Vegas airport. He was prepared to write a check to invest in an exciting new business opportunity: a chain of executive health care centers. According to the business plan, the company was operational and seemingly profitable in their first location and were looking to expand nationally. He visited one location and was highly impressed.
Him: This is an amazing opportunity.. They told me I had to have the money deposited by the end of the week or I’ll miss out on this exclusive funding round.
Me: Cool your heels. Get me a copy the company’s Cap Table (short for Capitalization Table, a document that lists out shareholders names, contact details and their ownership percentages) so I can check them out. I’ll work quickly. Don’t write the check – I’ll get back to you in a few hours.
Him: All I have is the business plan.
Me: The law requires that they disclose their Cap Table when offering securities – if they express any resistance, tell them I’d like to speak with their attorney.
The Cap Table was forwarded and I quickly went to work.
I researched each individual on the list and what I learned was startling…not only had 3 of the directors been charged by the IRS with tax fraud but it seems that a few of them (and their wives) had previously set up a similar company and were being sued in 2 states for embezzlement. I then came across a website that named these same individuals as the “masterminds” of an alleged ponzi scheme involving executive medical facilities. To this end, my client narrowly escaped being one of their many victims.
This is a perfect example of how many people – even highly successful ones – can be too trusting and take what other’s say on face value; this is particularly true of young entrepreneurs who are wide-eyed and relatively inexperienced. Though, when you are racing to the first goal line – whether it is raising money or launching a service or product – you may take short-cuts in choosing who you work with because you are so desperately in need of another pair of hands or eyeballs. Though, wouldn’t it be beneficial to you and/or your company to limit liability and risk by conducting due diligence before entering into business relationships?
Here is some insight into my typical investigation process
1) Name and Email Address Searches: Use popular search engines to research individuals/company names and email addresses. (Best if you have both their business and personal email addresses” If the company has a list of partners or shareholders, search their names and emails too.
2) Reverse look up phone-numbers. Use www. whitepages.com or fonefinder.net and see if the registered name appears. Then enter the phone numbers e.g “111-555-1212” . Running this search gives me a good idea if the phone number has been used anywhere online.
Sidebar Note: Sometimes I find a different name other than what they provided as the registered user, or I may find a web site where the phone number or email was used as a contact number. From there, I may even find a personal ad placed where the subject was offering employment or seeking investment. I can also find out which forums the subject hangs out at and read their comments.
3) Patent/Trademark Searches: Go to the USPTO.GOV website and see if the person is associated with any trademark or patent filings. In one case we learned that an individual making detailed inquiries into a company was in fact representing a competitor and was posing as a potential customer, trying to find out confidential information from my client.
4) Domain Name Searches: Go to www.betterwhois.com and see if this person/company owns any by searching the whois directory to see if credentials check out.
5) Business registration searches: Go to the Secretary of State’s website in the company’s place of incorporation. Do a business entity search and see whether the company is in good standing (e.g., is the company paid up on taxes and registration fees) and who the shareholders are, if listed.
6) Consumer Complaint Websites: Go to sites such as”
There you may find whether any negative reports have been filed about individuals and companies
7) Civil/Criminal Records Search. Go to the website of the county/state to search online for civil and criminal records on the subject. You can find out which county to search based on the subject’s phone number or zip code revealed in the previously mentioned searches.
Sidebar Note: I have found numerous civil filings on subjects regarding business dealings, family law cases involving domestic violence and DWI convictions. Some of these can be explainable (hey, no one is perfect) but if someone has a record, I’d respect them more for being forthcoming (since you’d likely find out anyhow) rather than failing to disclose their history.
Based on some of the above scenarios, it doesn’t take a rocket scientist (or a lawyer) to understand the importance of conducting due diligence on a individual or company before signing agreements or entering into a business relationship. It may, however, make sense to contact a lawyer to assist in your due diligence process — which could cost anywhere from $250 to $1000 depending on the size and scope of the investigation.
Questions? Comments? Bloggers always like to hear from their audience!