Best  Disclosure Practices when your Uglies already exist

Diligence is a topic that tends to be overlooked, probably because it is boring.  Mostly people think of it from the perspective of whether your documents are in order etc. and mostly that is right.

But, there is one thing that deserves special mention:  background checks. 

Not every investor hires an investigator, but they all know how to use Google and in this day and age, almost everything about you is easy to find online.  If you have something in your past, let’s call them “Uglies” that an investor might be sensitive to (say an SEC consent decree, a law suit for sexual harassment, or something else ugly) and you try to hide it and your investor finds out from the net or elsewhere (and they will find out), you will be doubly damned. It is bad to have the ugly but its much worse to have the ugly and hide it. 

So, how can you protect yourself?   Here are some best practices:

Rule number 1:  Google yourself so you know what others will find. 

Rule number 2:  If there is anything in your past that you would like to hide, assume that your investor will find out about it

Rule number 3:  Be up front and honest.  How your deal with uglies can magnify or mitigate their effect.

Here is a video (produced by me using xtranormal.com – so please forgive the clumsy production values) showing how the conversation is likely to go in the hallowed halls of your potential VC investor.

If you have something in your past that an investor might be sensitive to and you disclose it properly and candidly you get damned once (for having the ugly) but you are likely to get mitigation points for being up front, honest and candid.  . 

Here is my second video showing how an upfront and candid conversation might go down with your investor