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In case you missed the webinar, see below for a recording, following are key takeaways from the discussion between Brendan Foo, an investigative due diligence expert with Forward Risk in Washington, D.C., and Louis Lehot, a partner in the transactions group at Foley & Lardner LLP in Silicon Valley, on the importance of investigative due diligence for buyers and investors in business.

What is Investigative Due Diligence?

Investigative due diligence goes beyond a simple google search or a basic consumer background check available online by engaging with an expert firm to dig deeper to understand the founders, executives, and other key players involved in a deal. It considers factors like:

  • Track record: How have they performed in previous ventures?
  • Legal history: Are there any red flags in their past?
  • Reputational risk: What is their online presence and industry reputation?
  • Motivations: What are their goals for the company?
  • Potential conflicts of interest: Are there any hidden agendas?

Benefits of Investigative Due Diligence

  • Maximize Upside: Uncover hidden opportunities.
  • Minimize Downside: Identify potential risks early on, such as a history of lawsuits or problematic business practices.
  • Negotiate Better Deal Terms: With a clear understanding of the people involved, you can negotiate more favorable terms.
  • Increase Confidence in Investment: Having a comprehensive picture of the people behind the company reduces uncertainty.

Who Should Use Investigative Due Diligence?

  • Investors of all sizes, especially those investing significant sums.
  • Founders seeking investment: Transparency about potential issues can strengthen your case.

How to Engage Investigative Due Diligence Services

  • Consider cost vs. deal size: Smaller deals may require a lighter touch investigation.
  • Work with a reputable firm with access to specialized databases and resources.
  • Engage the investigators through your lawyer to benefit from attorney-client privilege and attorney work-product doctrines.

Additional Points

  • Experience Breeds Insight: Investigators have seen a wide range of situations, from the seemingly ordinary to the truly bizarre. This experience allows them to anticipate potential issues and help you react calmly and decisively.
  • Context is Key: An investigative report might raise red flags, but an experienced lawyer can help interpret those flags in context. For instance, a criminal record in a specific industry might not be an automatic disqualifier, depending on the context. Brendan gave an example of an investor in the cannabis industry where a founder’s criminal record for marijuana offenses was viewed favorably, because it showed he had experience with the product!
  • Beware of Unrealistic Promises: Not all information is obtainable legally or ethically. A skilled investigator will understand the legal boundaries and will work within them. They should also be transparent about what information they can and cannot uncover.
  • Collaboration is Key: The best investigative due diligence involves collaboration between you, your lawyer, and the investigative team. Having a lawyer who works frequently with a trusted investigator can ensure a smooth process and well-contextualized findings.

Author Louis Lehot

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