It’s surprising how many founders overlook the importance of conducting thorough due diligence on potential angel investors. For founders, securing the right investment can make or break the future of their business. Yet, many dive into these relationships without doing the necessary research.
As someone who frequently gets approached by founders asking for advice on checking out investors they’re speaking to, I can’t emphasise enough how crucial this step is. Here’s a breakdown of some practical methods for vetting an angel investor:
1) LinkedIn: Look Beyond the Profile
LinkedIn is often the first place people go to learn more about a potential investor. However, it’s important not to take everything on their page at face value. The world of start-ups and investment is surprisingly small, and it’s likely that someone you know has crossed paths with the investor. Reach out to your network and ask if anyone has worked with them or knows their reputation.
The key here is to dig deeper than their public-facing profile. Investors often highlight their successes, but it’s crucial to get a sense of how they work with founders post-investment. Do they deliver the value they promise? Are they responsive? Checking mutual connections on LinkedIn could be your first step in understanding who you’re really dealing with.
Visit LinkedIn to start your research.
2) PitchBook: Verify Investment Claims
PitchBook is a database that tracks investments, investors, and start-up activity. If an angel investor claims to have made numerous investments, they should show up somewhere on PitchBook. This platform can give you an overview of their investment history, the companies they’ve been involved with, and how those companies have performed.
Investors who are actively engaged in the start-up scene, particularly those with a high volume of investments, are likely to have their deals listed on PitchBook. This is a valuable tool for cross-referencing their claims and validating their track record.
Explore PitchBook to check their investment history.
3) Companies House: Don’t Overlook Free Resources
Surprisingly, many founders forget to make use of free public resources like Companies House in the UK. Every company in the UK is required to file confirmation statements and annual accounts, which can provide you with a wealth of information about the investor’s businesses.
Through Companies House, you can check for any businesses they are involved with, look into their financial stability, and see if there are any red flags, such as frequent director changes or dormant companies. Understanding the financial standing and legitimacy of the businesses they’re associated with can provide invaluable insight into whether they are the right investor for you.
Access Companies House to dig deeper into an investor’s financial activities.
4) SEC EDGAR Database: Uncover Legal and Financial Issues
For investors with a presence in the US, the SEC EDGAR database is an excellent tool for identifying any legal or financial issues. This database houses filings for public companies, including any legal actions, which could provide useful insight into potential red flags with your angel investor.
Even if your investor primarily operates in private equity, some of their investments might require filings with the SEC, especially if they’ve been involved with public companies. Regular use of this resource can help you uncover hidden issues that might otherwise go unnoticed.
Check the SEC EDGAR Database to investigate potential legal concerns.
5) Google: Don’t Underestimate the Basics
Though it seems obvious, many founders fail to use a basic Google search to check out an investor. This simple step can sometimes uncover important information that more formal databases may miss. Whether it’s articles about the investor, interviews, or even forum discussions, Google can reveal unexpected insights.
Founders should especially look out for any negative press, lawsuits, or questionable dealings. Sometimes, just one Google search could save you from future headaches.
Start your search on Google.
Final Thoughts
Due diligence isn’t just about verifying an angel investor’s credibility—it’s about ensuring that their values, expertise, and approach align with your company’s needs. Investors often share traits and preferences that reflect their previous investments, so when you engage in conversation with an angel investor, pay attention to their past deals and the traits of the start-ups they’ve worked with.
By making use of these tools—LinkedIn, PitchBook, Companies House, SEC EDGAR, and Google—you can avoid unnecessary risks and find an investor who truly supports your vision. Don’t rush this process; an informed decision could be the difference between a fruitful partnership and one filled with challenges.
