Due Diligence Expert Greg George Protects Angels From the “Dark Side”

In the world of investing, there are opportunities and then there are pitfalls. Some pitfalls are the result of lack of market opportunity or poor planning, and other pitfalls are the result of failing to complete due diligence on a potential deal, the company and its founder. For angels who are seeking the thrill of investing in the next best startup, that thrill must be sidelined long enough to be sure the opportunity really exists.

Greg George is managing partner of GTI Advisors: Threat Management Practice Group, a firm dedicated to protecting decision makers from the “dark side” since 1962. George works with clients to develop practices and strategies to best protect their organization including threat analysis, multi-disciplined due diligence review, and training. As angels can suffer significant loss when due diligence is lacking in a deal, Venture Hype talked with George to get a feel for his background, trends in angel investing and how angels can avoid bad deals.

* Edited interview

VH: What’s your background?

GG: I began my industry work in the intelligence community, first with the military. I worked as a case officer, analyst, security management, internal investigations, counter-terrorism tactical commander (NSA, State, White House operations and other agencies). I also served on assignments outside of the United States with blended Task Force responsibilities spanning 17 years of public service.

I’ve been in private practice for 18 years, primarily corporate and legal support investigations, although I find myself occasionally teaching as an adjunct professor on such topics as intelligence services, research, analysis and reporting regarding domestic and international due diligence matters. I also act as a threat management advisor to decision makers.

VH: In going with a theme on due diligence, what does GTI Advisors offer?

GG: Transparency, intelligence and other support resources to provide a strong foundation for making “informed” decisions. Also, as some refer to it: Enhanced and Total Operational Due Diligence, which is ongoing compliance, governance and other oversight of portfolio companies, suppliers/vendors and other business relationships where our investor client is participating. This is especially true in operations that have offshore activities.

VH: Have you seen particular trends emerge in the global industry?

GG: A trend we work with each day is a growing need for education and awareness. There are many opportunities out there for VCs, later stage equity, angels, family offices and so on, even in this present dismal economy. As a result, our role has increasingly been to facilitate awareness – illuminating cross-cultural gaps, a better understanding of all elements involved, and in general, making sure all the bases are covered. Unfortunately, the threat of fraud and other misrepresentations are looming out there more than ever, causing us to look deep at what appears to be a most attractive deal.

VH: In working with angels, what due diligence oversight is the most common?

GG: Some angles aren’t necessarily armed with the knowledge of how to research certain areas or why (this is also true for many lawyers). Another overlying issue is some angels let the human emotion factor of the “deal” take hold too quickly. This weakness can extend to not establishing the appropriate criteria and/or guidelines to include in the due diligence research process, which can be very different per industry/sector and geographical area of operations. Look first, and look hard.

VH: Have you identified common red flags in angel investing?

GG: You have to know the right places to look for the flags, on both sides of the fence. Are the principals of the startup or other opportunity you’re considering really who they claim to be? Have they disclosed ANYTHING that may be detrimental to or otherwise have the potential to adversely affect the company and its future? We’ve unveiled cases where past fraud charges, SEC and other regulatory problems that weren’t disclosed up front.

VH: What’s the biggest threat to angels today?

GG: There are two: 1) Non-Disclosure of information the investor should know; and 2) trusting and not verifying.

VH: How can they overcome this threat?

GG: Consult with a qualified, objective third party professional (that’s not their brother-in-law, CPA or attorney) and engage in a bit of fact-finding.

VH: What’s one piece of advice you always offer angels?

GG: Throw the pro forma aside and ask the right questions. Most important mindset: expect the unexpected.

The world of angel investing is just as exciting today as it was when the market was booming. For those angels who are nervous in the current economy, or have been burned before, the likelihood of fraud and misinformation is just as strong as it’s always been and nothing replaces thorough due diligence when solidifying a promising deal. Whether you turn to a company like GTI Advisors: Threat Management Practice Group or another qualified advisor, just be sure to look for a company or specialist that can provide you with valid and unbiased information to help you make informed decisions.

Link:

• Greg’s Blog