"The single most important piece of information that investors need to understand is who owns the company. If there are any questions, that should raise a huge red flag."
Q: What should an investor in venture capital deals think about before moving forward?
Joshua E. French: It’s a common scenario: a venture capital investor has identified an exciting new technology or innovation with the potential to become an industry game-changer and is ready to invest in the company at an early stage. Even after the investor has gone through the code and worked through the company’s financial statements, there could still be certain legal aspects of the situation that should stop the investor’s enthusiasm in its tracks. Investors need to scrutinize: 1) who owns the intellectual property, 2) who owns the company’s stock, and 3) if there are any employment concerns. If there are issues in any of these three areas, the effect of these deficiencies may not be felt for years down the road – right when the investor is expecting a significant return when the company is sold.
