How to perform due diligence on your investors

Why is due diligence important?

Strict due diligence was not always necessary.

In the past, if you wanted to find investment for your business, your options were closely tied to the reach of your personal network.

This had the following consequences:

On the one hand, any investor you were introduced would most likely have come from a referral you trusted. As a result, trusting the prospective investor and their credentials was relatively easy. Most of the due diligence was accomplished via the intimacy of the referral.

On the other hand, your reach would have been limited to your network. And as a result, many businesses would have failed to find funding because their entrepreneurs weren’t linked to any ‘Old Boys’ Club’ or similar.

due diligence old boys' club

Today, the rise of networking and connection sites like LinkedIn and more specifically, Angel Investment Network, means that you can now access investors from all over the world. Investors whose network would never have overlapped with yours.

This democratisation of access means that more and more people are receiving investment, irrespective of background. This is, of course, great news (though there is still much work to be done).

However, this brings its own dangers.

Entrepreneurs looking for funding are often in a vulnerable state. They have invested time, effort, passion and resources into a project, but they need financial support to take it further. As a result, they can be overeager to accept funding from wherever it is offered which can be a bad idea.

This is where simple due diligence work can help entrepreneurs to easily avoid the pitfalls of scammers and con-artists.

What is due diligence?

Due diligence is the general term used to describe any background check on a company or individual to see if they are legitimate and suitable to do business with.

Basically, in the case of angel investment, it’s checking that an investor is who they say they are and can help you in the ways they suggest they can.

This process starts, in a loose sense, from the moment you connect with a prospective investor as that’s when you start forming an impression of them. But you only need to formalise the process when you are sure they are interested.

In this sense, due diligence is a complementary part of investor relations.

You don’t then need to carry out full due diligence on every investor you speak to. But, when the relationship progresses to the point of meeting and discussing deal terms, then it’s a good idea to make sure you know exactly who you’re dealing with.

How do I perform due diligence on investors?

1. Talk to the investor

It is a good idea to be upfront and tell the investor that you want to research them.

This is such a simple course of action. But too many entrepreneurs are afraid of annoying their investor leads and scaring them away.

A good investor will not only understand why you want to check but will be reassured that you want to. It shows that you are diligent and professional.

Remember, they want to trust you too if they are going to invest in your company!

You can tell a lot from an investor’s reaction to this. If they help you in your research, then you’re onto a winner. They should provide you with links to their online profiles and emails addresses for people they have worked with.

If they are not happy with your desire to investigate them, it suggests they may have something to hide. A red flag for sure!

2. Conduct basic research online

A lot of investors will have websites, blogs, and profiles on sites like LinkedIn, Facebook and Twitter. They may be found in articles or have written articles themselves. These can all be found easily on Google.

due diligence power of google

Of course, a digital presence is more likely in different parts of the world and depends to some extent on the age demographic of the investor. So, you should factor this in.

3. Examine their business and financial status

You should ask the investor and anyone s/he puts you in touch with about their industry experience and about any previous investments. This will give you an idea of their authenticity as an investor and how useful they could be for you beyond simply financial help.

You will also want to find out where their funds are coming from – money from offshore accounts should be avoided unless they can give very good reasons (which you can verify with a lawyer).

You should also do a routine credit and criminal check.

4. Speak to any entrepreneurs the investor has worked with

A legitimate investor will let you which companies they have been/are involved with, and will give you a way to contact them. So, make sure you ask!

However, you may also want to do some research and approach people not referred by the investor.

You should dig into what the investor is like to work with and whether there were disagreements, and if so, whether/how they were resolved.

Try to do this in person as you’ll get a more detailed response. (Obviously, this won’t always be possible.)

5. Speak to other investors or brokers

If you can, speak to other investors (whether they have invested in your business or not). Ask them for a second opinion on your prospective investor.

Sometimes their reputation (good or bad) precedes them and other investors/brokers on the scene may be able to give you some useful insights.

due diligence good or bad (1)

6. Avoid upfront fees

Another major warning sign is if an investor asks for upfront fees before they invest. Fake investors will come up with all sorts of plausible reasons for the fee. These should be ignored without exception.

At Angel Investment Network, we constantly try to reiterate this to entrepreneurs on our platform:

No genuine investor will charge an upfront fee.


While the danger is real, awareness of the information in this article and others like it, should provide every entrepreneur with a framework for spotting an investor who is not genuine.

They will, therefore, be able to process the situation rationally and to not act hastily in desperation to close their funding round.

There is a world of possibility out there for entrepreneurs. If it is treated with respect and due caution, it will yield its rewards.

Acknowledgement for this blog:

We’ve been selected by Feedspot in the Top 5 Angel Investment blogs

Angel Investor Blogs

7 Positives for the UK Startup Scene from the Autumn Budget

Yesterday the Chancellor unveiled his budget plan for the UK.

The main headline was that we can expect slow growth (around 2%) for the next few years. And that Brexit seemed to be the principal cause of this. A gloomy budget indeed.

But, as ever, even in the murkiest river a nugget of gold can be found. With a little sifting, I’ve found some positive news for us spirited folk on the startup scene.

The sifting was very boring. I’ve tried to set out my findings as clearly as possible. So, you can enjoy the gold without getting your feet wet! You’re welcome.

The Treasury conducted a survey called ‘Patient Capital Review’ which set out to consider how to support innovative firms in getting funding and achieving scale. The conclusions drawn are positive and will be a boon for early-stage companies over the next 10 years.

These conclusions resulted in an ‘Action Plan’ in the budget which aims to unlock £20bn over the next 10 years to support growth in innovative firms.

The main points are as follows:

1. Tax Breaks (EIS & VCT)

– EIS allowance for people investing in ‘knowledge-intensive companies’ will double from £1m to £2m each year.
– ‘Knowledge-intensive companies’ can receive twice as much EIS & VCT investment each year. That’s a move from £5m to £10m.

(Check out a previous post for more info on the benefits of EIS.)
SEIS & EIS budget
Result: An estimated extra £7bn of investment.

2. Government-backed Co-investment Fund

– A £2.5bn Investment Fund incubated in the British Business Bank will be established to co-invest with the private sector.
Result: An estimated extra £7.5bn of investment.

3. Backing Fund of Funds

– The British Business Bank will invest in a series of private sector fund of funds.
Result: An estimated £4bn of investment will be unlocked.

4. Backing Fund Managers

– The British Business Bank will continue to back new and existing fund managers through its existing Enterprise Capital Fund.
Result: An estimated extra £1.5bn of investment.

5. Backing overseas investment into UK

– The Department of International Trade will support overseas venture capital into the UK.
Result: An estimated extra £1bn of investment.

6. Support for Regional Investment

– The British Business Bank will establish new investment programmes to support business angel groups outside of London. This will complement existing programmes like the Northern Powerhouse Investment Fund and the Midlands Engine Investment Fund.
– £21m is budgeted to expand Tech City UK’s reach across more regions.
Result: Unlocking of investment potential outside of the London hub.

tech city uk budget (1)

7. Other

– British Business Bank to investigate supporting Women Entrepreneurs getting access to equity investment
– £2.3bn increase in R&D spending
– £1m Games Fund to support video game development
– Helping Pension Funds invest in innovative firms
– Qualification for Entrepreneurs’ Relief will no longer de-incentivize accepting external investment

I hope all that makes sense.

It’s pleasing to see that, in difficult times, the government recognises the importance of supporting the innovation sector as a key driver of our economy.

If you want more detail on this Action Plan in the budget, I’ll be at the UKBAA National Investment Summit on 28th November. Keith Morgan CEO of British Business Bank will be leading the discussion on the Chancellor’s proposals.

You can get tickets here

Hope to see you there!

Latest Success Story: Repairly get their investment fix

Repairly is one of the latest company’s to come off Angel Investment Network’s funding line. The company is now gunning to fix the technology repair industry having closed a £265,000 seed round.

Repairly is disrupting the billion-dollar technology repair services industry by offering collection and delivery on broken tech. Their mission is to make it ridiculously simple to get your phone, tablet or laptop repaired.

Repairly 3

The introduction of Repairly means that people no longer have to go to the expensive Apple Store or inconvenient corner shops – customers don’t even have to leave their desk. Repairly collect, repair and return within an average of 2 hours and 6 minutes.

Fraser Williams, co-founder and CEO at Repairly, says: “Over 32,000 phones get broken everyday in the UK alone. People don’t know where to turn when this happens. Repairly turns people’s negative experience into a positive one, and if you can find delight in a phone repair, you can find it anywhere.”

Richard Edwards, the other co-founder, says: “We ensure busy people with broken technology are back up and running as soon as possible…We saw how much technology had advanced but the support for that technology was lagging behind. People were waiting for up to 2 weeks without their phone. That seems crazy in today’s technology-reliant society.”

The business was started in 2015 after Fraser Williams dropped out of University. Richard Edwards was an early team member of the online cleaning marketplace,, which was acquired by Rocket Internet in July 2015.

Repairly is a graduate of the UK accelerator programme Virgin Media Techstars. The seed investment came from well-reputed investors including someone whose previous company, AddLive, was acquired by Snapchat, Richard Fearn, Daniel Murray (CEO, Grabble), Richard Pleeth (Ex-Google).

Richard Fearn comments: “Repairly’s business is growing quickly into a large market, with strong unit economics and great customer reviews.”

Exciting news for Repairly; and everyone prone to breaking their smartphone!

FinTech Connect Event in London

FinTech Connect Live
FinTech Connect Live

We recently partnered with FinTech Connect, a company that was launched with the vision of building a platform and community for the global FinTech industry.

As part of this partnership, there are discounted tickets available to their next event in London (6th & 7th December 2016) for our readership. If you’re interested in the FinTech industry and think this might be of interest then check out the event brochure here.

If you want to attend use the code FTCL1627 to get a 25% discount on your ticket. Just head over to

Angel Investment vs Venture Capital – Which would you choose?

VC's vs Angels
This morning I read a great post by Venture Spring. Venture Spring is a hugely well respected ‘venture development’ company which “helps Fortune 500 companies innovate like startups” according to their company mantra. The article is about the differences between venture capital funding and funding from angel investors.

Startups are often all too eager to take one option over the other based on their own preconceptions. It’s important to realise that one may be more suited to one type of startup over another (and vice versa. So, understanding the points of difference could be crucial to the way in which you approach your fundraise; and how your company ends up being run down the line. So it’ll be worth your while familiarising yourself with the key points…

You can read the full article on their site here. (It’s a 5-10 min read).

Or, I’ve summarised the key differences for you here and (added in a few that they missed!):

Angel Investors:
– are private individuals investing their own money
– can make quick decisions regarding investment
– can be flexible in the amount they invest
– can provide expertise, contacts and support as well as capital
– can feel personally attached to your business
– can be as hands-off or hands-on as you require
– can qualify for tax breaks like SEIS and EIS
– do not have to be given board positions

Venture Capital Firms:
– are whole companies that invest in startups
– are run by professional investors investing money from corporations, individuals, funds and foundations
– take board positions and have a strong say in how the company is managed and grown going forward
– invest much larger amounts than angel investors
– do not usually invest at seed stage
– generally invest not less than £1million
– take a longer time to make investment decisions and broker deals

What’s your take on the issue? Do you have any experiences you’d like to share? Comment below or hit me up on Twitter

Calling all UK angels to help with a quick survey

Hi everyone,

We’re helping out with a research study on angel groups in the UK.

The study is being conducted by Tiago Botelho and Prof Colin Mason from the University of Glasgow’s Adam Smith Business School, and should allow us to see how our members see syndication in general and how we can improve our network.

We’d be really grateful if any UK angel investors could take the time to complete the survey (it is completely anonymous and should take around 10 minutes).

Here is the link for the survey, which will be open until the end of June:

Also, it would be great if you could share this link with any other UK angels that you know.

Barbara Corcoran’s Angel Investor Checklist

Shark Tank star and angel investor shares the hard-hitting questions she asks entrepreneurs before investing in their business.

Jeff Clavier on how to be an Angel Investor

Leena Rao interviews SoftTech VC Jeff Clavier about the way he became an angel investor and how to become one yourself at Disrupt SF 2011 day three.

We’d love to see you at our next Pitching Event

Top 5 US Angel Investors Over the Last Year

Angel investors have been playing a pivotal role in the American economy for almost half a century, particularly in shaping up the technology industry. Silicon Valley, for instance, has been built and developed by and on the foundations laid by many angel investors. All major tech giants today were start-ups at one point in time.

This infographic shows the Top 5 US Angel Investors of 2013.  Between them, they have invested in more than 700 start-ups so far, out of which more than 150 were in 2013 alone.