Vet a Startup Investor Before Sharing Data or Paying an Introducer

Before giving a prospective startup investor sensitive data or paying an introducer, verify the person through contact details you obtained independently, confirm the firm and investing entity, and check any relevant regulatory history. Also establish in writing whether the contact will invest capital or be compensated for finding and helping close other investors.

These checks answer different questions. Identity and references test whether the opportunity is credible; broker records matter when the person is acting as a securities intermediary; and accredited-investor evidence must match the exemption used for the offering. An angel investing for their own account is not disqualified merely because they do not appear in a broker database.

Establish identity before opening the data room

Collect the person’s legal name, title, business address, telephone number, email domain and claimed firm. Ask which individual or entity would sign the investment documents and appear on the capitalization table: the person, a fund, a special-purpose vehicle or another entity.

Find the firm’s website and telephone number independently instead of relying on links, documents or contact details in the inbound message. Call through that channel and ask an established employee to confirm the person’s role and email address. Inspect the domain for substituted letters, added words and other differences from the firm’s established domain.

Search the proposed signing entity in the relevant secretary-of-state database and reconcile its exact legal name and state of formation with the documents. A filing establishes that an entity record exists; it does not prove that the contact controls the entity or has authority and capital to complete the investment.

Until the person, firm and signing entity align, limit access to a non-confidential deck. Release customer information, source code, detailed security materials and unannounced financial data only in stages appropriate to the diligence process.

Check the person and firm in the right databases

Regulatory searches are most relevant when someone claims to be a broker, registered representative or investment adviser, or performs work that may require registration. Search the individual and firm separately, including former names and spelling variants, then compare employment dates, office locations and registration numbers with the contact’s claims.

FINRA’s registration guidance recommends researching people and firms through BrokerCheck and the Investment Adviser Public Disclosure database, contacting state regulators and checking the SEC Action Lookup Tool. It also warns that impersonators may misuse the identity or doctored records of a real registered professional, so a matching database entry does not replace confirmation through an independently obtained firm channel.

Review the details of any disclosure event: the underlying allegation, date, disposition and identity of the person involved. A disclosure warrants further investigation rather than an automatic rejection, while a clean result is only one part of the verification record.

Separate the investor from the paid fundraiser

Ask the contact to describe their economic role and compensation in writing:

• Are they investing their own money or acting with authority for a named fund?
• Will they solicit other investors, negotiate terms, participate in execution or handle funds?
• Who will pay them, and is the fee fixed or dependent on the amount raised or the closing?
• If a broker-dealer is involved, what are the firm’s legal name and registration details?

The SEC’s broker-dealer guidance says that finding investors, participating in solicitation or negotiation, handling other people’s funds, and receiving compensation based on a transaction’s outcome or size can indicate broker activity. It also identifies rescission and future capital-raising difficulties among the possible repercussions of noncompliance with broker-registration requirements.

A percentage of capital raised, a success fee or payment due only at closing therefore merits review by securities counsel before the startup signs or pays. Changing the label to “consulting fee” does not change the underlying activities or compensation structure. Obtain the engagement agreement, identify the contracting and payment entities, and independently verify any claimed broker-dealer affiliation.

Test references and payment instructions

Ask for references from founders involved in completed investments or introductions, then locate their contact details independently. Confirm which entity funded the round, whether the promised capital arrived, who negotiated the transaction, whether compensation or side arrangements appeared late, and how confidential information was handled.

Compare claimed portfolio relationships with public company announcements or direct confirmation from the named company. Photographs, social connections and introductions may show access, but they do not establish investment authority. The contact should be able to explain the decision process, expected diligence, signing entity and source of funds without demanding an advance payment to an unrelated account.

Verify payment instructions verbally through an independently sourced firm number and reconcile the payee with the agreement. When sanctions screening is appropriate, the OFAC Sanctions List Search tool uses fuzzy name matching across the SDN and consolidated Non-SDN lists. A possible name match is not a final determination; compare available identifiers and refer uncertain results to counsel or a compliance professional.

Match accreditation evidence to the offering

Investor identity and accredited status are separate findings. Under Rule 506(b), an issuer must have a reasonable belief that the investor is accredited. Under Rule 506(c), the issuer must take reasonable steps to verify that status.

The SEC’s Regulation D guidance states that an unsupported checked self-certification box is insufficient for either standard. For Rule 506(c), it describes a principles-based approach and non-exclusive methods involving specified income or net-worth records, recent confirmation from certain qualified third parties, and a method for some previously verified investors.

Select the method with securities counsel and request only the evidence the offering requires. Restrict access to financial records and set an appropriate retention policy. The separate accredited-investor qualification tests determine eligibility, not whether the investor has a sound reputation or is offering acceptable terms.

Preserve the verified contact channel, entity records, database results, reference notes, compensation agreement and selected accreditation method. Pause when identities do not align, payment details change unexpectedly, the person cannot explain the investing entity, or a transaction-based fee lacks a credible registration explanation. Once those issues are resolved, assess the term sheet’s economic and control terms separately; verification establishes who is across the table, not whether the proposed deal is good for the company.

Also read:

• Accredited Investor Requirements: Income, Net Worth and Professional-Credential Tests
• How to Read a Startup Term Sheet Before You Sign It
• How to Vet a Neighborhood Before Moving