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How to Research Potential Investors for Your Business

    
investor research

You maximize your chances of securing funding for your business when you tailor your pitch to each investor. This strategy involves emphasizing the characteristics of your product or service that will provide the greatest appeal for your potential investor. In addition to researching investors to see who is a good fit for your company, it's equally important to identify which investors aren't a good fit or may pose a risk for your company. Methods of researching potential investors include the following:

 

-Public Records
-Government agencies
-Credit checks
-Character references
-Due-diligence businesses

 

Public Records

Public records provide a wealth of information about a potential investor. For example, the records from state and federal courts can show if anyone has filed legal action against that person. Each county has a Clerk of Courts office that maintains public records for that county, many of which are available online.

 

Government Agencies

Government agencies such as the Securities and Exchange Commission track the regulatory actions that have been filed against investment firms. While most investors and investment firms are honest and looking to make a quality investment, it never hurts to double-check.

 

Credit Checks

A credit check typically refers to obtaining a potential investor's credit score. The three major credit bureaus in the United States maintain this information, including Experian, Equifax, and TransUnion. The Fair Credit Reporting Act places restrictions on the permissible use of a credit check, which includes legitimate business needs such as credit transactions and account reviews.

 

Character References

A character reference describes a potential investor's personality, rather than professional skills or education. The primary purpose of these references should be to understand the investor's past relationships in working with companies and evaluating if that's a good fit for your business.

 

Due-Diligence Businesses

A due-diligence business specializes in investigating a potential investor's background from a financial perspective. The purpose of this process is to identify whether prospective investors may be fraudulent. The most common fraud of this type occurs when someone poses as a legitimate investor for the purpose of obtaining inside company information. A fraudulent investor can then exploit this information for personal gain.

 

As a due diligence best practice, ensure you are only sharing your company information with potential investors in a secure fashion. Virtual data rooms are the standard and provide many features, such as audit logs and watermarking, that can help protect your business should a problem occur.

 

 

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