Will poor credit history before I started up worry investors?
A. Adrian Moss of Deal Group Media writes:
Having worked in corporate finance and having secured venture capital for my own business in the past, I believe it is worth remembering that due diligence is carried out by VCs to reassure themselves that they are making a sound investment decision. VCs are investing in people as well as businesses, so you should expect them to look closely at any director’s personal financial and corporate history.
This is usually done by taking references, investigating other current and past directorships and sometimes, but not always, carrying out a simple credit check. In this process they are likely to be more concerned by serious problems, such as bankruptcy, insolvency or director disqualification. They are also likely to be worried by any personal liabilities you may have, such as a loan drawn from the company, that may affect the business as an ongoing concern.
Whether your record will go against you will depend on how recent and how poor your credit history is. These two factors will influence their decision to investigate any further, as they indicate your ability to manage money.
If you think there are likely to be some concerns, it is worthwhile bringing it up with the VCs earlier rather than later, as investors do not like last-minute surprises. However, be careful not to be too alarmist, as this could put them off. The important thing is to be open and honest. In fact, even relatively substantial past problems can work in your favour if you can show that you learned something from them.
By undertaking due diligence, a VC is showing a level of commitment to you, as it is a time-consuming and expensive process. If the company’s finances are in good order and it is clear you are managing your business well, your credit history shouldn’t really make too much difference.