Doing due diligence on your investors

Checking your investors is part of a professional raise

An angel may remain a shareholder for years, participate in shareholder decisions and later rounds, and possibly join the board. The rights and involvement depend on the investment, share class and agreements. Consider how that relationship will work over time.

Your investor due diligence can be narrower than the company review the investor performs. Focus on the matters that affect your decision: who is investing, ability to fund the commitment, relevant experience and expectations for working together.

It can feel awkward to ask questions of someone offering money. Explain the purpose, ask relevant questions and allow the investor to explain gaps or conflicting information. A reference check supports your assessment; it does not prove future behaviour.

NorBAN’s funding page describes possible contributions beyond early capital: experience, introductions to customers and investors, and board-level working practices. Use this as a starting point for asking what this investor actually offers.

If you want capital with limited involvement, say so early. Some angels accept passive roles. The important point is to agree the role, not to assume that every angel must provide the same kind of help.

Find out what this angel will contribute. Agree on their involvement before choosing to work together.

What the public record shows

Start with public company, role and shareholding records. Beneficial-owner information may need to come from the investor or vehicle, because access to that register is restricted. Treat historical filings as evidence to check, not a complete picture of the investor’s present position.

These company and shareholder records do not show all current holdings, available cash or private investment terms. Separate tax lists disclose assessed net income, net wealth and tax under section 9-7, but are not proof of current liquidity. Ask for proportionate evidence of the matters relevant to the investment.

Make reference calls with the investor’s knowledge. Ask for the portfolio list, identify the founders you would like to speak to and agree introductions. Use public records where available; request restricted ownership information for a defined diligence purpose and handle it appropriately.

Reference calls with portfolio founders

Use the register to identify portfolio companies, then ask their founders how the investor behaved. Ask the investor for the list and for introductions to two or three founders, and choose at least one from a company that failed or had to be restructured. References from successful companies alone will not show you how the investor handles difficulty.

The questions below are experience, built by turning round the questions investors put to founders about the team: how well they understand the business, how realistic they are about weaknesses, how committed they are and how they hold up under pressure. Put them to a portfolio founder in a twenty-minute call.

• When the company missed its plan, what did this investor do in the first month?
• Did they follow on, bridge, or step back, and did they say in advance which it would be?
• How fast did they answer when you needed a consent, a signature or a decision?
• What introductions did they promise, and which ones happened?
• How much time did they take from you, and was it time you would have spent anyway?
• If they sat on the board, what did they contribute beyond attending?
• How did they behave when the price went down, or when a new investor’s terms diluted them?
• Would you take their money again, and on what terms?

Then ask the investor the same questions about themselves, before the calls. Agreement between the investor’s account and the founders’ accounts is itself useful evidence.

Testing value-add claims

Some angels contribute mainly money; others also offer time, expertise and contacts. NorBAN’s experience-based estimates identify technology and product as common strengths, followed by operating, commercial and financial experience. These are rough observations, not a promise about any particular investor.

Test each claim against a case. Ask for the specific portfolio company where the claim held, what they did, and what changed as a result.

• Network. Which three people would you introduce us to in the first quarter, and have you introduced a portfolio founder to any of them?
• Sector experience. What did you see in our market that a generalist would miss, and where did that view turn out wrong?
• Hands-on help. What did you do for a portfolio company in a week when things were bad?
• Next-round access. Which later-stage investors have you brought into a round, and did they invest?

Compare the promised help with the rights or price being requested. A board seat, veto or lower valuation has consequences even if the investor’s contribution proves smaller than expected. Discuss the trade-off explicitly.

How this investor behaves in later rounds

Discuss later rounds as well as the first investment. NorBAN roughly estimates follow-on capacity at about a third of the angels in its experience base. Treat this as a planning reminder to identify new investors, not as a prediction of whether this person will invest again.

Ask directly, record the answer next to the name, and put the same questions to the portfolio founders you call.

• Do you have capacity to follow on, and at what size?
• In a down round or a bridge, what have you done before?
• What would make you want out early, and what would make you reprice or walk during diligence?
• Have you been through a change of chief executive in a portfolio company, and what was your part in it?

The vehicle matters too. Establish who owns it, who can sign and who will vote its shares. Later financing may need a shareholder resolution or action under a registered board authorisation. Agree a reliable contact and response process for decisions that require the investor’s participation.

Keep checks on an investor’s vehicle proportionate to the proposed investment. Establish its identity, ownership, signing authority and ability to fund the commitment. Ask about other obligations or restrictions where they could affect payment, voting or a later transfer; a full review of every asset in the vehicle is not the default.

Agree what involvement you expect from the investor. Techstars’ Brett Brohl uses dead equity for holdings of people no longer helping build the business. An investor who provides the agreed capital and was never expected to work in the company has met a different commitment.

A passive investor who has paid the agreed capital should not be treated as a founder who failed to perform promised work. Evaluate whether the ownership structure and agreed rights will work in future rounds. Lack of follow-on money alone does not make an existing holding improper.

The conversations before signing

Before drafting the shareholders’ agreement (aksjonæravtale), discuss how you will work together and record the answers.

• Involvement: what help and time can each side realistically commit? Agree routine contact and urgent decisions.
• Reporting: which information, how often, and in what form? Unspoken expectations can create friction.
• Board: is a seat requested, and what would the person contribute? NorBAN estimates that around one in five angels in its experience base require a seat; ask this investor directly.
• Exit: compare expected holding periods and acceptable outcomes.
• Records and IP: which documents and rights should be in place before the next round?
• Investor due diligence: scope, timing and remaining decision-makers.
• Commitment: amount, conditions, authority to commit and decision date.

Record the amount, timing, conditions and decision authority. A date and an amount alone do not establish a binding investment commitment. Keep expressions of interest, conditional commitments and signed investment obligations separate in your fundraising overview.

Compare the answers with records and references. A clear conversation can reveal differences in expectations before signing, but a willing answer is not a guarantee of future conduct.

The standards the investor side sets for itself

EBAN publishes template network articles and a code of conduct and an EASY model for cross-border syndicates. They illustrate standards a network or syndicate can adopt. Their publication alone does not bind every member or investor.

Ask the network for its adopted rules on professional conduct, fees, written terms, complaints and confidentiality. The EASY model includes advance fee disclosure by intermediaries, confidentiality precautions and return of provided material on request. Check what the actual network has committed to.

The EASY model calls for written syndicate terms and fair, honest conduct by the defined parties, including investors and entrepreneurs. It also rejects inappropriate inducements for exiting an investment. This is broader than a ban only on hidden benefits and is a model standard, not a statutory rule.

Identify who has adopted or signed the rules and which conduct they cover. Network membership can involve individual obligations, but does not replace the investment agreement or guarantee how an investor will negotiate. Ask about enforcement and the complaints route.

NorBAN’s members accept a published code of conduct on joining. It requires professional conduct, and honest, responsible and transparent behaviour in any business context, with breaches routed to a whistleblowing policy. That membership standard helps set expectations. Use your own checks and reference calls to understand the individual investor.