When we hear the term background check in recruitment, employee verification is what comes to our mind. But, are background checks in India limited to the recruitment process? The answer is no. The motive of background screening is to expose any flaws in a person’s resume or a company that could potentially threaten another related person or a company’s assets and reputation. Such flaws are prevalent across ranks of employees and organisations. Hence, background checks in India can be done on employees and for companies as well.
The decision to invest requires extensive research and planning. Just like you check the quality and reliability of a particular brand’s product before buying it, investors conduct a thorough research on the startup and its founders before investing. After all, the investor’s money and reputation are at stake! An article published in ET Tech says that many investors are hiring screening firms to do background checks on startups. You may argue that since there already is a due diligence process in place, why would investors adopt background screening? Several reasons justify conducting background checks on startups. Let us shed some light on why investors should conduct background checks before shelling out money.
Why are investors conducting background checks on startups?
Whether you are a venture capitalist or an angel investor, your decision to fund a startup depends on their ability to monetize the venture and the management’s ability to execute the concept. Investing in a startup is risky and as an investor, you would prefer to know as much as you can before making the decision. The founder’s history speaks volumes about their ability to run the business and the future of the startup. Apart from analysing the product information and market stats, the founder’s history is an important parameter to consider.
Analysing the founder’s history includes assessing factors like their experience, credibility, financial status, behavioral aspects, criminal records, etc. While comprehensive due diligence investigation helps, there are chances it may fail to uncover crucial hidden facts, especially in criminal and behavioral aspects. Just like employees fudge their resumes, chances are that the management may hide facts like a dispute between the co-founders or an offence committed at workplace in the past. Say, for example, the founder was involved in a fraud. The firm where he worked, being a reputed one, hides the fact to maintain its credibility and standing. In such cases, a simple reference check will not uncover this fact. A comprehensive background screening process, conducted by SecUR Credentials can help expose such facts and save you from investing in such ventures.
According to a Firstpost article, although India is a compelling market, foreign investors are reluctant to invest because of the rising number of frauds and crimes in the nation. As mentioned in the article, the 2016-17 Kroll Global Fraud & Risk report revealed that 82% of executives were victim to at least one instance of fraud in the last year, higher than 75% which was reported in 2015. Considering this, background screening before investing has become imperative for investors today. Indian Express reported how Uber faced a backlash from its early investors over the sexual harassment scandal that occurred earlier this year. Today, if you invest and something goes wrong, you and your investment company will go through a huge financial loss and reputation crisis. All these reasons have triggered investors to adopt background screening to make sure their money goes in the right hands.
How do background checks help investors?
As per the ET Tech article, a global investor fund decided against investing in a company because it found the promoter led a lavish lifestyle that was disproportionate to the business’ state. Another India-based early stage fund withdrew from investing in a firm where the sales team was forced to be unduly aggressive. In some firms, the difference of opinions between co-founders signaled a red flag for investors. Such behavioral, lifestyle and financial aspects show negative signs to the management and future of the venture. Background screening helps in discovering these aspects of a startup.
The comprehensive screening process, like the one at SecUR, scans educational, residential, employment, and criminal data of a candidate. This helps you dig deeper into the founder’s personal and professional life and other crucial aspects which have the potential to have an adverse effect on your investment. Furthermore, experienced screening firms like SecUR, have skilled personnel and access to the repository of information from government and legal authorities. This combined with technology helps them deliver quick and reliable results. Also, investment happens at different stages. You may wish to fund an organisation at a later stage once it is successfully incorporated. During such a stage, you would want to analyse their credit history and financial status. The inclusion of credit scores in background screening will make it a one stop solution for verification. Moreover, the linking of Aadhaar to bank documents is bound to make the screening process more accurate. At SecUR, we have always embraced positive changes. Our digitized processes enable us to serve our clients with timely and reliable results.
Investing is a decision that must be thought over several times. Although you have processes in place, in times when frauds are on a rise, comprehensive background checks on startups ensure you put your money in the right place. SecUR has been conducting background checks in India for reputed firms for more than a decade now. If you are an investor keen on screening a startup, contact us now.