Angel and Venture Capital (VC) Investors: Due Diligence Needs to Be a Two-Way Street
Bob Wiggins authored an article in the May edition of Oregon Business magazine titled “Angel and Venture Capital (VC) Investors: Due Diligence Needs to Be a Two-Way Street.” In the article, Wiggins discussed the importance of startups vetting potential investors, as well as the hazards one risks in foregoing these efforts. He also provided a few guidelines when given the opportunity for vetting a potential investor.
A potential angel that has never invested in a startup may not understand the risks or lack of liquidity inherent in such deals. If the angel does not have a good understanding of what they are getting into, they may quickly become a difficult shareholder when things don’t go according to plan.
Many firms with VC investors find themselves saddled with nonmarket deal terms, undisclosed goals of the VC that are inconsistent with the startup’s goals, and difficult or unhelpful board members from the VC firm.
In the case of any potential investor, the CEO should at least do an Internet search to make sure there are no red flags.