Do a background check before getting into a deal or long-term partnership

March 19, 2025

by a searcher from University of Virginia-Darden - Darden School of Business in Charlottesville, VA, USA

Here is a really simple way to reduce risk in your dealmaking: do a background check on the other party.

Buyers and sellers should do one on each other.
As should investors and entrepreneurs.

Let me tell two stories I heard recently where a background check caught something big in a private deal:

- A VC I know was doing diligence on a seed-stage business. Everything looked promising. They had strong founder-market fit, traction, and a clear reason to win. Then they ran a check on the founder and he had a bankruptcy on their record. Maybe it still could have been a good deal, but if it flopped and their LPs found out... could have been a nightmare.
- A friend of mine was an analyst at a real estate PE fund. After a few months of diligence on a syndication deal, he was down to one of the last items on his checklist, a background check on the GPs. As he said, "9/10 nothing came up". But that one time? Turns out the GP on the deal had a murder on their record. What made it worse was the other partners in the deal didn't know this either. Red flags everywhere here.

Before you get into a deal involving millions of dollars and years of your life with someone, take the time to do a basic check.

Reply by a searcher
from University of Virginia in Los Angeles, CA, USA

I would want to know the circumstances if a potential partner discloses a bankruptcy or criminal history. Past bankruptcies are not uncommon among successful entrepreneurs. But to strengthen your point, they should be upfront with this information, otherwise once discovered, it is no go.

I want to add that a background check on new hires is a must, too. We had a candidate for a retail store manager role who refused to submit herself to a background check claiming that she was a victim of identity theft. We had to research her background on our own. Turned out, she had serial convictions for theft from former employers, which was difficult to find because she changed her name.

Reply by a searcher
from University of Virginia in Charlottesville, VA, USA

I run a business that's very similar. https://www.usetract.com/

Our report is a tad more than theirs, however we have no add-ons or upsells. Our customers like the straightforward nature of it.

Either way...do the the check!

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