Dec 4, 2024
The importance of conducting thorough background checks cannot be overstated when conducting due diligence for private investments.
Businesses, big or small, must shield themselves from risks, adhere to industry rules, and hire wisely. TRACT delivers a cutting-edge solution by blending advanced human due diligence with comprehensive legal insights..
The Evolution of Background Checks: From Basic Screening to Comprehensive Due Diligence
Traditional background checks, a staple of hiring, focus on criminal records, job history, and education. However, they often miss crucial details about an individual's legal background.
This information gap can lead to unforeseen risks for investors. The financial losses can be real, the legal liabilities can be high, and the reputational damage can be lasting.
TRACT transforms the background check landscape by offering a more comprehensive approach. We go beyond basic screenings and take a look at litigation history, bankruptcy filings, regulatory actions, and other legal matters that are often overlooked by traditional background check services.
When doing diligence on an investment, you do not want to cut corners.
Why Legal Information is Crucial in Background Checks
Incorporating detailed legal information into background checks provides several key benefits that are essential for businesses:
Risk Mitigation: A thorough understanding of an individual’s legal history allows investors to identify potential risks. It could be a criminal record on a founder that a VC spots before funding a seed round, or a history of financial litigation with a seller that causes a PE fund to think twice before making an offer on a lower middle-market business. Running a business is hard enough, so we want to cut the risk out early for our customers if we can.
Compliance Assurance: Ensuring that all employees and business partners comply with these regulations is crucial to avoid costly penalties and maintain the integrity of the business. TRACT’s background checks, enriched with legal information, help organizations comply with industry standards and avoid regulatory pitfalls. We think this can also be helpful when reporting back to LPs for fund managers looking to show how they mitigate risk for their investors.
Enhanced Decision-Making: Access to a fuller picture of a candidate’s or partner’s legal background empowers companies to make more informed decisions. This level of insight is especially valuable in high-stakes situations, such as executive hiring, mergers and acquisitions, and partnerships, where the potential risks are significant and the legal ties between individuals can be lasting. The Investigation Reports that we provide do not just uncover red flags- they can provide a comprehensive overview of a person to understand more about who they are, what they value, and how they live.
Reputation Protection: A company’s reputation is one of its most valuable assets. By thoroughly vetting potential hires and business partners, including their legal backgrounds, companies can protect themselves from individuals with a history of unethical behavior or legal issues that could harm their reputation.
Case Study: How A Background Check Found a GP Had A Murder On Their Record
Yes, you read that right.
A partner of ours was a real estate private equity fund. They spent over a month analyzing a deal and were in the final stages before they were going to write a check to the GPs on the deal. An analyst at the firm did the task that usually came near the bottom of the firm's checklist: they performed a background check.
That is when the analyst discovered that one of the GPs had a murder on their record.
This person had served their time, but as a policy, the fund did not invest in deals where the GP had a felony criminal record. This position was strengthened when they realized that the GP had not disclosed this to their other partners. So now the GP also started to look like they were hiding this.
So when the investors had to ask themselves: what else would this person hide?
Ultimately everyone lost out on this deal.
The PE fund lost a month of time and resources doing diligence. They also paid for a report that TRACT could have performed at a fraction of the price, in a fraction of the time.
The other partners in the deal lost through wasted effort and likely now had to look at their partner and question if they could stay in business with this person.
When we speak with clients, we think it makes the most sense to use TRACT early and often. Our Risk Investigations cost a fraction of the price of weeks or months of wasted diligence and can help you rule out potential investments MUCH earlier. TRACT can identify obvious red flags like criminal records, a history of litigation, or bankruptcy that can help you an investor address major concerns early.
How TRACT Stands Out in the Background Check Industry
TRACT focuses on where our customers are: the private market.
We work with venture capitalists, private equity funds, investment banks, M&A advisors, search funds, and angel investors to provide fast, comprehensive, and discrete risk profiles on individuals in a private business deal. This information helps our customers to reduce risk in their investments.
The platform utilizes cutting-edge technology, including artificial intelligence and machine learning, to analyze vast amounts of legal data efficiently. A TRACT report includes analyzing a person's education history, work background, legal history, social media personality, and connections to create a risk score on that person.
One of TRACT’s key differentiators is its commitment to privacy and data security. In an era where data breaches and privacy concerns are top of mind for businesses and consumers alike, TRACT ensures that all background check information is handled with the highest level of care, fully compliant with global data protection regulations, such as the GDPR and CCPA.
Conclusion: Empowering Businesses with Legal Insights
We know that making good investments is hard.
It takes time and a lot of work.
But that is not work where you can cut corners.
TRACT offers investors a comprehensive risk profile of an individual before the decision to fund an investment or enter into a business partnership. Our product is fast, comprehensive, and discrete to allow you to get back to what you do best:
Making deals happen.